No Ownership Over Digital Assets by Shareholders, Says Karnataka HC; FIR to Stand

The Karnataka High Court has held that a founder-director or shareholder cannot claim ownership over a company’s source code, data, or digital assets, reiterating that such assets vest exclusively in the company as a separate legal entity.

Refusing to quash criminal proceedings at the FIR stage, the Court underscored that allegations of unauthorized access, copying, and deletion of proprietary code constitute serious cyber offences warranting full-fledged investigation, and cannot be dismissed as a mere civil dispute between company founders.

The judgment was delivered by Justice M. Nagaprasanna, who dismissed a petition seeking quashing of an FIR registered under provisions of the Information Technology Act and the Bharatiya Nyaya Sanhita.

The Court held that once the complaint discloses cognizable offences involving alleged misappropriation of proprietary digital assets, the High Court ought not to conduct a “mini-trial” or assess disputed factual material at the threshold stage.

The case arose out of a dispute between founder-directors of a quantitative trading company, where the petitioner an equal shareholder and director challenged the registration of an FIR alleging unauthorized access to company repositories, copying of code, deletion of logs, and destruction of critical intellectual property.

The petitioner argued that as a co-founder and equal shareholder, the company’s data and code belonged to him as much as to the other directors, likening the allegation of theft to a “father being accused of kidnapping his own child.”

Rejecting this contention, the Court applied the settled principle of corporate personality, holding that upon incorporation, a company becomes a distinct juristic person separate from its shareholders and directors.

It clarified that shareholders merely have a right to participate in profits and do not acquire any proprietary interest in the company’s assets, whether tangible or digital.

Extending this principle to modern technological contexts, the Court held that source code, repositories, logs, and other digital assets are the exclusive property of the company and cannot be claimed by individual shareholders on account of their shareholding.

In doing so, the Court relied on the Constitution Bench ruling in Bacha F. Guzdar v. Commissioner of Income Tax, reiterating that shareholders do not own the company’s property.

It emphasized that this principle applies with equal force to contemporary forms of assets such as data and intellectual property, which now form the backbone of corporate value.

On the nature of the dispute, the Court declined to accept the argument that the matter was purely civil.

It noted that the complaint contained specific and detailed allegations of unauthorized access to restricted repositories, downloading of proprietary code, deletion of audit logs, and destruction of critical trading algorithms, acts which prima facie fall within the domain of cybercrime.

The Court observed that such allegations require technical and forensic investigation and cannot be trivialized as internal disputes between business partners.

The Court further held that merely because the dispute arises in a corporate setting or involves parties with contractual relationships, it does not lose its criminal character if the ingredients of penal offences are disclosed.

It warned against the tendency to “dress down” serious allegations of digital misappropriation as civil disagreements, particularly in cases involving complex technological systems and confidential data.

On the scope of quashing jurisdiction, the Court reiterated that at the FIR stage, the High Court must confine itself to examining whether the complaint discloses a prima facie case.

It cannot undertake a detailed evaluation of evidence, examine voluminous documents, or resolve disputed questions of fact. Such an exercise would amount to converting proceedings under Section 482 CrPC/Section 528 BNSS into a trial, which is impermissible.

The Court also addressed the petitioner’s argument regarding alleged overlap of offences, observing that questions relating to applicability or coexistence of charges are matters for investigation and trial, and cannot justify quashing at the threshold.

It held that even if certain offences may ultimately not sustain, that determination must follow investigation and not precede it.

Concluding that the complaint disclosed serious allegations requiring investigation, particularly in the realm of cybercrime, the Court dismissed the petition and allowed the investigation to proceed.

Appearances: For the Petitioner - Sri Suraj Sampath, Advocate; For Respondent No. 1/State - Sri B.N. Jagadeesha, Additional SPP, For Respondent No. 2 - Sri Angad Kamath, Advocate

Case Title: Aashay Harlalka v. State of Karnataka & Anr.

Bench: Justice M. Nagaprasanna

Date of Judgment: 25.03.2026