Stayzilla case explained in simple terms

Why Stayzilla case is a gross abuse of law?

Indian Start-ups and other legal experts are shocked at a very disturbing trend relating to gross misuse of law. Recently, Chennai Police did a mid-night arrest of founder of a famous start up - Stayzilla - which prima facie appears to be grossly illegal. The start-up founders have alleged that they were arrested on a case that is essentially of a civil nature, pertaining to non-payment of dues. Non-payment of dues was attributed to alleged siphoning of funds. It must be appreciated that police has got no business in investigation pertaining a civil case. The objective of this article is to make readers understand in simple terms the nature of the case and how to conduct themselves if the readers are themselves subjected to similar situation.

About Cognizable and Non-Cognizable offence:

To understand the implication of this you need to have a basic understanding of Criminal Procedure 1973 (CrPC). CrPC classifies offences under two categories - viz Cognizable Offence and Non-Cognizable offence. The difference between the two is that in case of the former, the police officer may arrest without any warrant. However, in case of latter, the arrest take place only after a warrant is authorized by Magistrate. The logic behind this rule is that Cognizable offences are of serious nature like Murder, Rape, Robbery etc and hence the police need not wait till the warrant is given by a magistrate. Non-cognizable offences are of less serious nature and has some quasi civil nature. (However, certain quasi civil crime like forgery under section 420 is also categorized as Cognizable since arrest would prevent further tampering of evidence).

What happened in Stayzilla case?

News reports report that one of the founder, was booked under sections 420 (forgery), 406 (Criminal breach of trust) and 506 (Criminal intimidation) of the Indian Penal Code. However the communication from the complainant to news reports state that, the case pertains to non payment of dues of Rs 1.72 crores outstanding for more than a year.  This prima facie seem to be contradictory to the sections under which FIR was filed.

The founders claim that the said due is not paid due to deficiency of services. This certainly raises eyebrows as to how "non payment" of dues have been treated as offences under section 420, 406 and 506. Although the full details of case is not made public, it is needless to say that non payment of dues certainly does not amount to a Cognizable offence. What could have probably happened is that the complainant would have included a "Cognizable offence" in his complaint alleging physical threats.  In such cases, the police are tasked with the case which contains components of both cognizable offences and non-cognizable offences as well. CRPC requires the Police to view an entire case as cognizable one even if one part of the case contains a cognizable offence. In such a situation, the Police is empowered to arrest without a warrant.

What we can learn from this case?

CrPC does treat an entire offence as "Cognizable" even if one part contains "Cognizable offence" notwithstanding the fact that many other parts are non-cognizable. Consequently, it is easier for a complainant to add a "Cognizable" part to non-cognizable offence to ensure that injury is done for the accused by way of arrests etc. Although police is expected to do a due diligence before registering a FIR for a cognizable offence, such things seldom happen. FIRs are often registered under political pressures even without analyzing the validity of claims of complainant.

In our country police refuse to intervene even when a tenant doesn’t vacate property. In such cases, the police direct them to settle the dispute in a civil court citing the civil nature. However, it is really surprising as to how the police has registered an FIR for non-payment of dues. Looks like the police has proceeded to book under cognizable offence due to addition of one or more cognizable offence against the accused. So we can now conclude that, to get a person arrested for a civil case (say non-payment of rent), add to an allegation, a cognizable offence (criminal intimidation, threats etc). This will ensure that the accused is arrested without a warrant and can seriously affect his reputation.

Why this is a dangerous trend?

Till date, at least for an Aam Admi complaint, police never interfered in a civil case even though there were cognizable offence listed to it. This gave some comfort for business men that they will not be stuck with police in case of disputes. However, when police give undue importance to civil disputes, we can only expect businessmen and traders vacating such states. When your tenant doesn’t vacate your premises, you are stuck with civil case while you could get arrested if you don't pay your dues to a company. This certainly doesn’t make any sense.

What can you do if you are caught in such a situation?

In case you are caught in such a situation wherein arrest takes place for an offence which is civil in nature, you should ask for a warrant from a magistrate. If there is no warrant, it means that you have been booked under cognizable offence. It is duty of police to produce before magistrate within 24 hours of arrest failing which the arrest will become invalid. Once you are produced before magistrate, you have to tell clearly to the magistrate that the offence booked is purely a "Non-Cognizable One" and that there is no evidence of commission of cognizable offence.

Further, if the case is connected with activities done through a company registered under the Companies Act, you can clearly state to the magistrate that Companies Act deems any offence under Companies Act (relating to diversion of funds, window dressing etc) as Non cognizable and hence the arrest is not valid under law. As shown in the Tamil Movie - Visaranai, using right statements before magistrate in case of illegal detention can go a long way to enable release of accused.

The solution provided above is only a temporary fix. You need to contact a criminal lawyer to get a permanent solution.

Courtesy: CA Karthikeyan Brahamanapalle