The Karnataka High Court (Bengaluru Bench) has ruled that a shareholder or director of a company does not possess ownership over the entirety of the company’s data or assets, as a company incorporated under the Companies Act acquires a distinct juristic personality, and its property, including digital assets such as data, code, and intellectual property, vests exclusively in the company alone.
Further, the Court clarified that where a complaint discloses serious allegations of cyber-crime involving the downloading, copying, and deletion of proprietary data and confidential digital assets, the investigation cannot be stifled at the threshold under Section 482 of the CrPC / 528 of the BNSS on the premise that the dispute is purely civil in nature or that there is an alleged overlap in the offences invoked.
A Single Judge Bench of Justice M. Nagaprasanna observed that the principal defence advanced on behalf of the petitioner does not withstand legal scrutiny and is liable to be rejected at the threshold. Once a Company is incorporated under the Companies Act, it acquires a distinct juristic personality, separate and independent of its shareholders and directors. The property of the Company, whether tangible or intangible, vests in the Company alone, and the parity in shareholding does not translate into proprietary entitlement over the company’s assets.
The Bench noted that a shareholder acquires merely a right to participate in the profits of the Company and does not, by any shareholding, obtain proprietary interests in the assets of the Company. In the contemporary digital age, the assets of a Company are not confined to physical or movable property but extend, in significant measure, to data, code, and intellectual property, which are owned exclusively by the Company.
Regarding the contention that offences under Sections 316 and 318(4) of the BNS cannot co-exist, the Bench observed that the matter is at the stage of investigation, and it would be premature and indeed inappropriate for the Court to interdict investigation on the ground of alleged overlap in offences.
The Bench further observed that the issue is not purely civil in nature; it has all the hues and forms of cyber-crime, involving allegations of downloading, copying, deletion of source code, proprietary data, and confidential digital assets, which require highly technical and complex investigations involving forensic reconstitution of data.
Briefly, M/s Plutus Research Private Limited is a company engaged in the domain of quantitative trading, wherein it leverages advanced mathematical models, statistical techniques, and data-driven strategies to develop proprietary trading algorithms. The petitioner is one of the founding members, Directors, Promoters, and equal shareholders in the Company, along with two other Directors, one of whom is the 2nd respondent/complainant.
In and around the month of June 2024, disputes arose between the founder directors of the Company owing to various conflicts and disagreements among them. A complaint was registered by the 2nd respondent alleging instances of data theft, unauthorized deletion of the Company’s proprietary software codes, and critical data, causing operational and financial harm to the Company by the petitioner.
The complaint articulated that the petitioner, who was responsible for the codes of the Company for Medium-Frequency Trading (MFT), surreptitiously extended his reach into the domains of High-Frequency Trading (HFT) and Infrastructure verticals, which were areas beyond his authorized limit. It is alleged that the petitioner intentionally and unauthorizedly altered the parameters of trading models, causing significant financial loss to the Company, and systematically deleted system logs across multiple servers to conceal his actions.
The petitioner contended that as an equal shareholder and founder Director of the Company, the data belongs to him, and an allegation of theft is flawed, as it is akin to a father being accused of kidnapping his own child.
Appearances:
Advocate Suraj Sampath, for the Petitioner
Advocates B.N. Jagadeesha and Angad Kamath, for the Respondents
