REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1868 OF 2011
(Arising out of SLP (Crl.) No. 590 of 2008
M/s Thermax Ltd. & Ors. .... Appellant(s)
Versus
K.M. Johny & Ors. .... Respondent(s)
J U D G M E N T
P. Sathasivam, J.
1) Leave granted.
2) This appeal is directed against the final judgment and
order dated 11.01.2008 passed by the High Court of
Judicature at Bombay in Criminal Writ Petition No. 1622 of
2007 wherein the Division Bench of the High Court dismissed
the writ petition filed by the appellants herein as
misconceived.
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3) Brief Facts:
(a) M/s Thermax Ltd.-the appellant-Company, is a Public
Limited Company having its registered office at Chinchwad,
Pune and is engaged in the field of energy and environment
management. Mr. K.M. Johny-the original complainant,
Respondent No. 1 herein, is the proprietor of M/s Rini
Engineers and M/s Sherly Engineers, which are small-scale
industries undertaking fabrication job work for the appellant
Company for the past several years.
(b) On 26.05.1995, the appellant-Company placed three
Purchase Orders on Respondent No.1 being Order No. 260062
for designing and manufacturing two numbers of stationary
L.P.G. Storage Tanks and Order Nos. 260063 and 260064
were for the supply of consumables and other accessories to
the said Tanks. On 01.06.1995, M/s Unique Engineering
Services, the Consultants of the appellant Company addressed
a letter specifying that they had assessed the companies of the
Respondent No. 1 and in their opinion even though they have
not made any static bullets and have made quite a few mobile
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L.P.G. Tanks, however, they were capable of manufacturing
the same, but needed design help.
(c) On 20.06.1995, Respondent No. 1 informed the
appellant-Company their inability to procure the material
(steel) and requested to supply the same and to deduct the
material cost from the final bill. On 04.08.1995, the
Respondent No. 1 was provided with the necessary steel of the
technical specification. On 06.08.1995, an Engineer of the
appellant-Company visited the company of the Respondent No.
1 and submitted a report stating that Respondent No. 1 had
carried out certain work using the material purchased from
the appellant-Company. It was also pointed out in the report
that Respondent No. 1 agreed that they would send the
material to M/s Bureau Veritas for checking. The report also
stated that Respondent No. 1 had not ordered for consumables
and no rectification and drawings had been carried out.
(d) By letter dated 10.08.1995, the Consultants informed the
appellant-Company that there was no progress in the work
status for the last 45 days and it was observed that
Respondent No. 1 was not interested in executing the
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assignment. In pursuance of the same, a meeting was held
between the officials of both the Companies and the
Respondent No. 1 agreed to complete the job by all means by
22.09.1995. Since Respondent No. 1 failed to carry out the
work as per the Schedule, the appellant-Company, vide letter
dated 13.09.1995 cancelled the order placed and it was made
effective from 26.05.1995 i.e., from the date when the order
was placed.
(e) On 06.05.2000, Respondent No. 1 filed a complaint with
the Crime Branch, Pune alleging that they had carried out
several fabrication job works for the appellant-Company and
huge amount of Rs. 91,95,054/- was outstanding till date
despite several requests. In the said complaint, it was further
alleged that the appellant-Company also placed Purchase
Order being No. 240307 dated 22.03.1993 for Rs. 8,00,000/-
for fabrication and erection of Tower Support Structural etc.,
for the Mehasana District Taluka Sanstha (Gujarat) Project
and also represented that they will hire the machinery of the
Respondent No. 1 for the said job at the rate of Rs. 2,400/- per
day and believing the same the Respondent No. 1 allegedly
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purchased brand new machinery worth Rs. 5,80,000/-
specially for the said project and dispatched the same to the
Mehasana site. Respondent No. 1 completed the said job
according to schedule and to the satisfaction of the appellant-
Company and also carried out additional work at the site as
per their request. It was alleged that balance outstanding for
the said work of Rs.2,47,570/- was still receivable from the
appellant-Company. An amount of Rs.58,32,000/- towards
hiring charges for the machinery is yet to be paid by the
appellant-Company. Therefore, a total sum of Rs.68,79,750/-
became due from the appellant-Company to respondent No.1
and the same was not paid till date. Since the Crime Branch
did not take any cognizance, the said complaint was filed in
the Court of Judicial Magistrate, First Class, Pimpri being RCC
No. 12 of 2002 and by order dated 30.05.2002, the Judicial
Magistrate issued a direction under Section 156(3) of the Code
of Criminal Procedure, 1973 (in short `the Code') and referred
the same to Crime Branch, Pune, Respondent No. 2 herein, for
investigation. Pursuant to the same, Respondent No. 2
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registered an offence being C.R. No. 91/2002 and initiated
proceedings thereunder against the appellant-Company.
(f) Aggrieved by the said order, the appellant-Company filed
two separate Criminal Writ Petitions being Nos. 209 and 443
of 2003 before the Bombay High Court for quashing and
setting aside the order dated 30.05.2002 passed by the
Judicial Magistrate, First Class, Pimpri. Vide order dated
10.06.2003, the High Court set aside the order dated
30.05.2002 and remitted the matter back to the Judicial
Magistrate for reconsideration of the entire prayer and to
decide the case afresh, after giving adequate opportunity of
hearing to both the sides. Pursuant to the same, the appellant
Company preferred an application dated 16.07.2003 under
Section 91 of the Code before the Judicial Magistrate praying
that the Assistant Commissioner of Police, Crime Branch,
Pune City be directed to produce all the records and
proceedings of the complaint dated 06.05.2000. After hearing
the respective parties, the Judicial Magistrate, vide order
dated 11.08.2003 rejected the said application.
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(g) Aggrieved by the same, the appellant-Company preferred
Criminal Application No. 3666 of 2003 before the High Court.
The High Court, vide order dated 18.10.2006, issued rule and
interim relief by directing the Assistant Commissioner of
Police, Crime Branch-II, Pune city to produce the documents
within six weeks in the Court of Judicial Magistrate, Pimpri.
Pursuant to the said direction, Shri S.B Oahal, Inspector of
Police, submitted a reply dated 12.03.2007 stating that the
records and proceedings in respect of Crime Register No. 11 of
2000 were destroyed. Pursuant to the same, the Judicial
Magistrate, vide order dated 20.08.2007, called for a report
under Section 156(3) of the Code from the Respondent No. 2.
(h) Being aggrieved, the appellant-Company preferred
Criminal Writ Petition being No. 1622 of 2007 before the High
Court. The High Court, vide order dated 11.01.2008,
dismissed the writ petition as misconceived on the ground that
the Magistrate has adhered to the directions and has given
reasons for coming to his conclusion. Aggrieved by the said
decision, the appellant-Company has preferred this appeal
before this Court by way of special leave petition.
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4) Heard Dr. A.M. Singhvi and Mr. C.S. Vaidyanathan,
learned senior counsel for the appellant-Company and Mr.
K.T.S. Tulsi, learned senior counsel for the respondent No.1.
Contentions:
5) Dr. A.M. Singhvi, learned senior counsel for the
appellant/accused, after taking us through all the earlier
complaints including the last complaint and earlier orders
closing those complaints, the order of the Judicial Magistrate,
First Class, Pimpri dated 20.08.2007 in Criminal Case No. 12
of 2002 and the impugned order of the High Court dated
11.01.2008, at the outset, submitted that the courts below
ought to have considered that the dispute arose out of a
contract and a constituted remedy is only before a civil court.
He further contended that similar claim on earlier occasions
were indeed investigated and finally categorized as civil in
nature, while such is the position, the direction of the
Magistrate calling for a report under Section 156(3) of the
Code from the Crime Branch, Pune is not sustainable. He
further submitted that the High Court ought to have
intervened and quashed the same. According to him, the
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complaint and the allegations made therein do not disclose
any offence and, therefore, the direction under Section 156(3)
of the Code is untenable. He further pointed out that the
essential ingredients for an offence under Sections 405 and
420 of the Indian Penal Code, 1860 (in short `IPC') have not
been made out, no such dishonest intention can be seen or
even inferred inasmuch as the entire dispute pertains to
contractual obligations between the parties. In any event,
according to him, in view of long delay, namely, filing of the
complaint in the year 2002 with reference to the alleged
disputes which pertain to the period from 1993-1995, that is,
after nine years, cannot be maintained as it amounts to abuse
of process of law. He finally submitted that roping in of
appellant Nos. 2-8 in the alleged offence on the hidden
principle of vicarious liability is untenable. Mr. C.S.
Vaidyanathan, learned senior counsel for the appellant also
reiterated the same contentions.
6) On the other hand, Mr. K.T.S. Tulsi, learned senior
counsel for the Respondent No. 1/complainant submitted that
interference by the court at the stage of passing orders under
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Section 156 (3) of the Code is not warranted. He further
pointed out that the accused has no right to address at this
stage and the High Court is right in refusing to entertain the
petition filed under Section 482 of the Code.
Discussion:
7) In order to understand the rival contentions, it is useful
to refer the complaint of the Respondent No. 1 dated
30.05.2002 which was made before the Judicial Magistrate,
First Class, Pimpri in Regular Criminal Case No. 12 of 2002.
Respondent No. 1 herein is the complainant and all the
appellants herein have been shown as accused. The said
criminal complaint was made for the offences under Sections
420, 406 read with 34 IPC. The complaint proceeds that
complainant is the Proprietor of M/s Rini Engineers and M/s
Sherly Engineers which are small-scale industries doing
fabrication job work for various industries, namely, TELCO,
Ion Exchange Ltd., etc. The following averments in the
complaint are relevant for our consideration:
"a) The complainant has been doing the said business in
Maharashtra since last more than 27 years. The accused No.
1 is a company and accused No. 2 is the Chairperson of the
Accused No. 1. Accused No. 3 was the Managing Director
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and the Accused Nos. 4 to 15 was doing service as Manager
of Accused No. 1 at the relevant time. The Accused No. 1 has
its office at the above address. The Accused Nos. 2 to 15
were looking after the management and business of Accused
No. 1.
b) The complainant was doing fabrication job work for the
Accused for several years. The accused placed purchase
order No. 260062 dated 24.04.1995 of Rs. 3,20,000/- for
designing and manufacturing two numbers stationary LPG
Storage Tanks. The complainant has been granted the
necessary licenses by the Explosives Department for
manufacturing LPG Storage Tanks and LPG Storage
Tankers. The said job is a specialized job and requires Best
quality material as it involves high risks. At the relevant
time, the required material was not available in the market.
Therefore, the complainant requested the Accused for the
supply of material for the said order and to debit the
material cost from the final bill. The accused initially agreed
for the same. However, subsequently insisted for payment
before delivery of material. Therefore, complainant paid Rs.
1,14,098/- by pay order dated 31.07.1995 drawn on the
Sadguru Jangli Maharaj Bank, Chinchwad. The Company
issued material after receipt of pay order, vide excise gate
Pass No. 1328 and 175713 dated 04.08.1995. The
complainant received the material and was surprised to see
that the accused had supplied scrap material for the
manufacturing of LPG Storage Tanks and same was useless
for the job. The complainant immediately contacted the
accused and informed about the same. The complainant
requested the accused to take the scrap material back and
issue genuine material. However, accused refused to do so,
the complaint has spent the amount of Rs. 60,000/- for
drawing and approval etc. and Rs. 1,14,098/- by pay order
for the material to the accused. Thus, the accused have
cheated the complainant and there by caused wrongful loss
to the complainant.
c) The accused placed Purchase Order No. 240307 dated
22.03.1993 for Rs. 8,00,000/- for the fabrication and
erection of Tower Support Structural etc. for the Mehasana
(Gujarat) Project. The accused also represented that they will
hire the machinery of the complainant for the said job at the
rate of Rs. 2,400/- per day. Believing the same, the
complainant purchased brand new machinery of Rs.
5,80,000/- specially for the said project and dispatched the
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same to Mehasana site. The complainant has completed the
said job according to schedule and to the satisfaction of the
accused. The complainant also carried out additional work
at the site as per the request of the accused. The balance
outstanding for the said work is Rs. 2,47,570/- and is still
receivable from the accused. The amount towards the hiring
charges for the machinery is Rs. 58,32,000/- is yet to be
paid by the accused. The accused have not returned the
machinery of the complainant till the date and have been
using the same for their other jobs also. Thus the accused
owe the complainant Rs. 68,79,750/- and the same is not
paid till the date.
d) The complainant states that he has carried out several
fabrication job for the accused and huge amount of Rs.
91,95,054 is outstanding from the accused till the date. In
spite of several requests of the complainant, since the
accused are very influential, no body has taken cognizance
of the complaints of the complainant. The complainant has
also filed complaint dated 15.09.1998 with Pimpri Police
Station against the accused but all in vain.
e) Thereafter the complainant filed complaint dated
06.05.2000 with Crime Branch, Pune against the accused,
however, till the date police have not taken any cognizance of
the same in spite of the positive opinion of the police
prosecutor attached to the Officer Commissioner of Police,
Pune. The accused are very influential and the complainant
has no other option but to file the present complaint in
Hon'ble Court.
f) The complainant is filing herewith all the relevant
documents in support of this complaint and submits that
the present case warrants detailed investigation under
Section 156(3) of Cr.P.C. There is a separate cell of economic
offences at Crime Branch, Pune and it is necessary to send
the present complaint to Crime Branch, Pune for
investigation under Section 156(3) of Cr.P.C The
complainant therefore prays that:-
i)The complaint be sent to Crime Branch, Pune for
investigation u/s 156(3) of Cr.P.C. and;
ii) After receipt of the report of investigation, the accused be
dealt with severally according to law and punished as per
provision of law."
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8) For our purpose, we are concerned with Sections 405,
406, 420 and 34 IPC which read thus:
"405. Criminal breach of trust.- Whoever, being in any
manner entrusted with property, or with any dominion over
property, dishonestly misappropriates or converts to his own
use that property, or dishonestly uses or disposes of that
property in violation of any direction of law prescribing the
mode in which such trust is to be discharged, or of any legal
contract, express or implied, which he has made touching
the discharge of such trust, or willfully suffers any other
person so to do, commits "criminal breach of trust".
406. Punishment for criminal breach of trust.- Whoever
commits criminal breach of trust shall be punished with
imprisonment of either description for a term which may
extend to three years, or with fine, or with both.
420. Cheating and dishonestly inducing delivery of
property.- Whoever cheats and thereby dishonestly induces
the person deceived to deliver any property to any person, or
to make, alter or destroy the whole or any part of a valuable
security, or anything which is signed or sealed, and which is
capable of being converted into a valuable security, shall be
punished with imprisonment of either description for a term
which may extend to seven years, and shall also be liable to
fine."
34. Acts done by several persons in furtherance of
common intention.- When a criminal act is done by several
persons in furtherance of the common intention of all, each
of such persons is liable for that act in the same manner as
if it were done by him alone.
9) Now, we have to find out whether the ingredients of
Sections 405, 420 read with Section 34 have been made out
from the complaint and whether the Magistrate is justified in
calling for a report under Section 156(3) of the Code from the
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Crime Branch, Pune. Simultaneously, we have to see whether
the High Court is justified in confirming the action of the
Magistrate and failed to exercise its power and jurisdiction
under Section 482 of the Code.
10) Before considering the validity or acceptability of the
complaint and the consequential action taken by the Judicial
Magistrate under Section 156(3) of the Code, let us advert to
various decisions on this aspect. In Suresh vs.
Mahadevappa Shivappa Danannava & Anr., (2005) 3 SCC
670, this Court, on the ground of delay/laches in filing the
complaint and the dispute relates to civil nature finding
absence of ingredients of alleged offence of cheating under
Section 420 IPC, set aside the order of the Magistrate and that
of the High Court. In that case, the alleged agreement to sell
was executed on 25.12.1988. A legal notice was issued to the
appellant therein on 11.07.1996 calling upon him to execute
the sale deed in respect of the premises in question. Thus, the
complaint was submitted after a gap of 7= years of splendid
silence from the date of the alleged agreement to sell i.e.
25.12.1988. The appellant therein responded to the legal
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notice dated 11.07.1996 by his reply dated 18.07.1996
through his lawyer specifically denying the alleged agreement
and the payment of Rs 1,25,000/- as advance. Nothing was
heard thereafter and the complainant after keeping quiet for
nearly 3 years filed private complaint under Section 200 of the
Code before the IVth Additional CMM, Bangalore on
17.05.1999. The Magistrate, on the same date, directed his
office to register the case as PCR and referred the same to the
local police for investigation and to submit a report as per
Section 156(3) of the Code. A charge-sheet was filed on
04.08.2000 by the police against the appellant-Accused No. 1
only for offence under Section 420 IPC. The Magistrate took
cognizance of the alleged offence under Section 190(1)(b) of the
Code and issued summons to the accused-appellant therein.
Aggrieved by the aforesaid process order dated 04.08.2000
passed by the Magistrate, the appellant-accused preferred the
criminal revision which was dismissed by the High Court. The
order of the High Court was under challenge in that appeal. It
was contended that as per the averments in the complaint,
even as per the police report, no offence is made out against
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Accused Nos. 2-4 therein. Despite this, the Magistrate issued
process against Accused Nos. 2-4 as well which clearly shows
the non-application of mind by the Magistrate. It was further
pointed out that a perusal of the complaint would only reveal
that the allegations as contained in the complaint are of civil
nature and do not prima facie disclose commission of alleged
criminal offence under Section 420 IPC. After finding that
inasmuch as the police has given a clean chit to Accused Nos.
2-4, this Court concluded that the Magistrate ought not to
have taken cognizance of the alleged offence against Accused
No.1 and that the complaint has been made to harass him to
come to terms by resorting to criminal process. Regarding the
delay, this Court pointed out that the complaint was filed on
17.05.1999, after a lapse of 10= years and, therefore, the
private complaint filed by respondent No.1 therein is not at all
maintainable at this distance of time. It was further observed
that it is also not clearly proved that to hold a person guilty of
cheating, it is necessary to show that he had a fraudulent or
dishonest intention at the time of making the promise and
finding that the order of the Magistrate and of the High Court
1
requiring Accused No.1/appellant therein to face trial would
not be in the interest of justice, set aside the order of the High
Court and of the Magistrate. It is clear that in view of
inordinate delay and laches on the part of the complainant
and of the fact that the complaint does not disclose any
ingredients of Section 420 IPC and also of the fact that at the
most it is the dispute of civil nature, this Court quashed the
orders of the Magistrate and the High Court.
11) In Madhavrao Jiwajirao Scindia & Ors. vs.
Sambhajirao Chandrojirao Angre & Ors. (1988) 1 SCC 692,
this Court, after pointing out the grounds on which the
criminal proceedings be quashed under Section 482 of the
Code at preliminary stage by the High Court highlighted that a
case of breach of trust is both a civil wrong and a criminal
offence. While elaborating the same, this Court further held
that there would be certain situations where it would
predominantly be a civil wrong and may or may not amount to
criminal offence. Based on the materials in that case, the
Court concluded that the case is one of that type where, if at
1
all, the facts may constitute a civil wrong and the ingredients
of the criminal offences are wanting.
12) In Alpic Finance Ltd. vs. P. Sadasivan & Anr. (2001)
3 SCC 513, this Court highlighted the grounds on which
criminal proceedings are to be quashed under Section 482 of
the Code and noted the ingredients of Section 420 IPC. In that
case, the appellant was a registered company having its head
office at Mumbai. It was a non-banking financial institution
functioning under the regulations of Reserve Bank of India. It
was carrying on business, inter alia, of leasing and hire
purchase. The first respondent therein was the Chairman and
founder-trustee of a trust by name "Visveswaraya Education
Trust". The second respondent was wife of the first
respondent, and was also a Trustee. The Trust runs a dental
college by name Rajiv Gandhi Dental College. The
respondents therein entered into an agreement with the
appellant-Company therein whereby the appellant agreed to
finance the purchase of 100 hydraulically-operated dental
chairs. The total cost of the chairs was around
Rs.92,50,000/-. The appellant-Company agreed to finance the
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respondents for the purchase of these chairs through a lease
agreement and as per the agreement, the respondents were
liable to pay rentals quarterly. The respondents agreed to pay
quarterly a sum of Rs 7,50,000/- for the first year; Rs
12,50,000/- for the second year; Rs 8,00,000/- for the third
year and Rs 6,25,000/- for the fourth year. As per the
agreement, the appellant-Company, the lessors would have
sole and exclusive right, title and interest in the dental chairs
supplied till the entire hire-purchase amount was paid. In
accordance with the agreement, the appellant made payments
to M/s United Medico Dental Equipments and they delivered
the dental chairs to the respondents. The appellant-Company
alleged that the respondents were not regular in making the
payments and committed default in payment of the
instalments and that the bank had dishonoured certain
cheques issued by the respondents. The appellant-Company
also alleged that on physical verification, certain chairs were
found missing from the premises of the respondents and thus
they have committed cheating and caused misappropriation of
the property belonging to the appellant. The appellant-
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Company filed a private complaint under Section 200 of the
Code before the Chief Metropolitan Magistrate, Bangalore
alleging that the respondents had committed offences under
Sections 420, 406 and 423 read with Section 120-B IPC. In
that proceeding, the appellant-Company moved an application
under Section 93 of the Code to issue a search warrant to
seize the property in dispute and also to hand over these items
to the complainant. The Magistrate took cognizance of the
alleged complaint and issued summons to the respondents
and passed an order on the application filed under Section 93
of the Code to have a search at the premises of the
respondents and to take possession of the properties involved
in the case. These proceedings were challenged by the
respondents under Section 482 of the Code before the learned
Single Judge of the Karnataka High Court at Bangalore. The
learned Single Judge was pleased to quash the entire
proceedings and directed the appellant-Company to return all
the properties seized by the police pursuant to the warrant
issued by the Magistrate. Thus, the order of the Magistrate
taking cognizance and issuing process to the respondents as
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well as the order of search and the direction for restoration of
the property to the appellant Company were set aside.
Aggrieved by the same, the appellant-Company preferred
appeal before this Court. It was contended on behalf of the
appellant that the learned Single Judge has seriously erred in
quashing the proceedings under Section 482 of the Code. It
was further contended that the allegations in the complaint
clearly made out offences punishable under Sections 420, 406,
423, 424 read with Section 120-B IPC. On behalf of the
respondents, it was contended that the complaint was filed
only to harass the respondents and it was motivated by mala
fide intention. It was further argued that the entire
transaction was of civil nature and that the respondents have
made a substantial payment as per the hire-purchase
agreement and the default, if any, was not wilful and there
was no element of misappropriation or cheating. The
respondents also denied having removed any of the items of
the disputed property clandestinely to defeat the interest of the
appellant. After considering the power under Section 482 of
the Code and adverting to series of decisions including
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Nagawwa vs. Veeranna Shivalingappa Konjalgi , (1976) 3
SCC 736 and State of Haryana vs. Bhajan Lal, 1992 Supp
(1) SCC 335, this Court concluded thus:
"7. In a few cases, the question arose whether a criminal
prosecution could be permitted when the dispute between
the parties is of predominantly civil nature and the
appropriate remedy would be a civil suit. In one case
reported in Madhavrao Jiwajirao Scindia v. Sambhajirao
Chandrojirao Angre this Court held that if the allegations in
the complaint are both of a civil wrong and a criminal
offence, there would be certain situations where it would
predominantly be a civil wrong and may or may not amount
to a criminal offence. That was a case relating to a trust.
There were three trustees including the settlor. A large house
constituted part of the trust property. The respondent and
the complainant were acting as Secretary and Manager of
the Trust and the house owned by the Trust was in the
possession of a tenant. The tenant vacated the building and
the allegation in the complaint was that two officers of the
Trust, in conspiracy with one of the trustees and his wife,
created documents showing tenancy in respect of that house
in favour of the wife of the trustee. Another trustee filed a
criminal complaint alleging that there was commission of the
offence under Sections 406, 467 read with Sections 34 and
120-B of the Indian Penal Code. The accused persons
challenged the proceedings before the High Court under
Section 482 of the Code of Criminal Procedure and the High
Court quashed the proceedings in respect of two of the
accused persons. It was under those circumstances that this
Court observed: (SCC Headnote)
"Though a case of breach of trust may be both a
civil wrong and a criminal offence but there
would be certain situations where it would
predominantly be a civil wrong and may or may
not amount to a criminal offence. The present
case is one of that type where, if at all, the facts
may constitute a civil wrong and the ingredients
of the criminal offences are wanting. Having
regard to the relevant documents including the
trust deed as also the correspondence following
the creation of the tenancy, the submissions
advanced on behalf of the parties, the natural
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relationship between the settlor and the trustee
as mother and son and the fall out in their
relationship and the fact that the wife of the co-
trustee was no more interested in the tenancy, it
must be held that the criminal case should not
be continued."
10........ The injury alleged may form the basis of civil claim
and may also constitute the ingredients of some crime
punishable under criminal law. When there is dispute
between the parties arising out of a transaction involving
passing of valuable properties between them, the aggrieved
person may have a right to sue for damages or compensation
and at the same time, law permits the victim to proceed
against the wrongdoer for having committed an offence of
criminal breach of trust or cheating. Here the main offence
alleged by the appellant is that the respondents committed
the offence under Section 420 IPC and the case of the
appellant is that the respondents have cheated him and
thereby dishonestly induced him to deliver property. To
deceive is to induce a man to believe that a thing is true
which is false and which the person practising the deceit
knows or believes to be false. It must also be shown that
there existed a fraudulent and dishonest intention at the
time of commission of the offence. There is no allegation that
the respondents made any wilful misrepresentation. Even
according to the appellant, the parties entered into a valid
lease agreement and the grievance of the appellant is that
the respondents failed to discharge their contractual
obligations. In the complaint, there is no allegation that
there was fraud or dishonest inducement on the part of the
respondents and thereby the respondents parted with the
property. It is trite law and common sense that an honest
man entering into a contract is deemed to represent that he
has the present intention of carrying it out but if, having
accepted the pecuniary advantage involved in the
transaction, he fails to pay his debt, he does not necessarily
evade the debt by deception."
After finding so, this Court concluded that the learned Judge
of the High Court was perfectly justified in quashing the
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proceedings and disinclined to interfere in such matters
dismissed the appeal.
13) In Anil Mahajan vs. Bhor Industries Ltd. & Anr. ,
(2005) 10 SCC 228, again, a three-Judge Bench of this Court
considered the issuance of process by a Magistrate for an
offence under Sections 415, 418 and 420 IPC. This Court also
analysed the difference between breach of contract and
cheating. The appellant therein was the accused in a
complaint filed against him by the respondent-Company for
offence under Sections 415, 418 and 420 IPC. Based on the
averments in the complaint, the Magistrate, by order dated
25.06.2001, issued the process against the accused. The
order of the Magistrate notices that the complainant has filed
the documents on record in which the accused promised to
pay the amount but has not paid with the intent to deceive the
complainant and, therefore, the complainant has made out a
case to issue process against the accused under Sections 415,
418 and 420 IPC. The said order of the Magistrate was
challenged before the Court of Sessions. The learned
Additional Sessions Judge, Pune by order dated 19.10.2001,
2
set aside the order of the Magistrate issuing process. The
order of the learned Additional Sessions Judge was set aside
by the High Court. This Court, in paragraphs 8 & 9 of the
judgment, observed as under:
"8. The substance of the complaint is to be seen. Mere use of
the expression "cheating" in the complaint is of no
consequence. Except mention of the words "deceive" and
"cheat" in the complaint filed before the Magistrate and
"cheating" in the complaint filed before the police, there is no
averment about the deceit, cheating or fraudulent intention
of the accused at the time of entering into MOU wherefrom it
can be inferred that the accused had the intention to deceive
the complainant to pay......................"
"9. In Alpic Finance Ltd. v. P. Sadasivan, (2001) 3 SCC 513,
this Court was considering a case where the complainant
had alleged that the accused was not regular in making
payment and committed default in payment of instalments
and the bank had dishonoured certain cheques issued by
him. Further allegation of the complainant was that on
physical verification certain chairs were found missing from
the premises of the accused and thus it was alleged that the
accused committed cheating and caused misappropriation of
the property belonging to the complainant. Noticing the
decision in the case of Nagawwa v. Veeranna Shivalingappa
Konjalgi, (1976) 3 SCC 736, wherein it was held that the
Magistrate while issuing process should satisfy himself as to
whether the allegations in the complaint, if proved, would
ultimately end in the conviction of the accused, and the
circumstances under which the process issued by the
Magistrate could be quashed, the contours of the powers of
the High Court under Section 482 CrPC were laid down and
it was held: (SCC p. 520, paras 10-11)
"10. The facts in the present case have to be
appreciated in the light of the various decisions of
this Court. When somebody suffers injury to his
person, property or reputation, he may have
remedies both under civil and criminal law. The
injury alleged may form the basis of civil claim
2
and may also constitute the ingredients of some
crime punishable under criminal law. When there
is dispute between the parties arising out of a
transaction involving passing of valuable
properties between them, the aggrieved person
may have a right to sue for damages or
compensation and at the same time, law permits
the victim to proceed against the wrongdoer for
having committed an offence of criminal breach of
trust or cheating. Here the main offence alleged by
the appellant is that the respondents committed
the offence under Section 420 IPC and the case of
the appellant is that the respondents have cheated
him and thereby dishonestly induced him to deliver
property. To deceive is to induce a man to believe
that a thing is true which is false and which the
person practising the deceit knows or believes to
be false. It must also be shown that there existed a
fraudulent and dishonest intention at the time of
commission of the offence. There is no allegation
that the respondents made any wilful
misrepresentation. Even according to the
appellant, the parties entered into a valid lease
agreement and the grievance of the appellant is
that the respondents failed to discharge their
contractual obligations. In the complaint, there is
no allegation that there was fraud or dishonest
inducement on the part of the respondents and
thereby the respondents parted with the property.
It is trite law and common sense that an honest
man entering into a contract is deemed to
represent that he has the present intention of
carrying it out but if, having accepted the
pecuniary advantage involved in the transaction,
he fails to pay his debt, he does not necessarily
evade the debt by deception.
11. Moreover, the appellant has no case that the
respondents obtained the article by any fraudulent
inducement or by wilful misrepresentation. We are
told that the respondents, though committed
default in paying some instalments, have paid
substantial amount towards the consideration."
(Emphasis supplied)
2
By applying the above principles, this Court examined the
complaint and concluded that it is clear from its substance
that present is a simple case of civil disputes between the
parties. This Court further held that the requisite averments
so as to make out a case of cheating are absolutely absent. It
further held that the principles laid down in Alpic Finance
Ltd.'s case (supra) were rightly applied by the learned
Additional Sessions Judge and it cannot be said that the ratio
of the said decision was wrongly applied and on due
consideration, the learned Additional Sessions Judge had
rightly set aside the order of the Magistrate issuing process to
the appellant. After holding so, this Court set aside the
impugned judgment of the High Court and restored that of the
Additional Sessions Judge.
14) In S.K. Alagh vs. State of Uttar Pradesh & Ors.,
(2008) 5 SCC 662, this Court considered the ingredients of
Sections 405 and 406 IPC - Criminal breach of trust and
vicarious liability. In the said decision, after finding that the
complaint petition did not disclose necessary ingredients of
criminal breach of trust as mentioned in Section 405 IPC and
2
also pointing out the ingredients of offence under Section 406
IPC, interfered with the order passed by the High Court.
15) In Maharashtra State Electricity Distribution
Company Limited & Anr. vs. Datar Switchgear Limited &
Ors., (2010) 10 SCC 479, after perusal of the complaint,
allegations therein, role of the directors mentioned therein and
applicability of Section 34 IPC, this Court in paragraph 35
concluded as under:
"35. It is manifest that common intention refers to a prior
concert or meeting of minds, and though it is not necessary
that the existence of a distinct previous plan must be proved,
as such common intention may develop on the spur of the
moment, yet the meeting of minds must be prior to the
commission of offence suggesting the existence of a
prearranged plan. Therefore, in order to attract Section 34
IPC, the complaint must, prima facie, reflect a common prior
concert or planning amongst all the accused."
After saying so, verifying the complaint, this Court concluded
that the complaint does not indicate the existence of any
prearranged plan whereby Appellant No. 2 had, in collusion
with the other accused decided to fabricate the document in
question and adduce it in evidence before the Arbitral
Tribunal. This Court further concluded that there is not even
a whisper in the complaint indicating any participation of
2
Appellant No.2 in the acts constituting the offence, and that
being the case, concluded that Section 34 IPC is not attracted.
After saying so, allowed the appeal in relation to Appellant
No.2 and quashed the order of the Magistrate taking
cognizance against appellant No.2 in Complaint No. 476 of
2004.
16) The principles enunciated from the above-quoted
decisions clearly show that for proceedings under Section
156(3) of the Code, the complaint must disclose relevant
material ingredients of Sections 405, 406, 420 read with
Section 34 IPC. If there is a flavour of civil nature, the same
cannot be agitated in the form of criminal proceeding. If there
is huge delay and in order to avoid the period of limitation, it
cannot be resorted to a criminal proceeding.
17) Dr. A.M. Singhvi, learned senior counsel for the
appellant/accused contended that not only material facts were
suppressed from the Magistrate but the previous three
complaints to various police authorities and their closure
reports were kept away from the Magistrate so as to mislead
the Court. It is seen from the materials placed that three
2
complaints containing similar allegations have been
investigated previously and all were closed as the alleged claim
was found to be of civil nature. In those circumstances, it did
not lie for Respondent No.1-the complainant to approach the
Magistrate with the same subject Complaint. Inasmuch as the
dispute arose out of a contract and a constituted remedy is
only before a Civil Court, the Magistrate ought to have
appreciated that Respondent No.1 was attempting to use the
machinery of the criminal courts for private gains and for
exerting unjust, undue and unwarranted pressure on the
appellants in order to fulfill his illegal demands and extract
undeserving monetary gains from them.
18) The Courts below failed to appreciate that Ex. 61 is a
reply filed by the Crime Branch-II and Ex. 63 is the statement
of Shri V.B. Kadam, which categorically stated that the
complaint preferred by Respondent No.1 registered at Crime
Register No. 11/2000 was filed as being civil in nature. Even
if we accept that the records were destroyed and
notwithstanding such destruction, it was a matter of record
that the complaint preferred by Respondent No.1 was indeed
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investigated and categorized as civil in nature. This aspect
has not been considered either by the Magistrate or by the
High Court.
19) It is settled law that the essential ingredients for an
offence under Section 420, which we have already extracted, is
that there has to be dishonest intention to deceive another
person. We have already quoted the relevant allegations in the
complaint and perusal of the same clearly shows that no such
dishonest intention can be seen or even inferred inasmuch as
the entire dispute pertains to contractual obligations between
the parties. Since the very ingredients of Section 420 are not
attracted, the prosecution initiated is wholly untenable. Even
if we admit that allegations in the complaint do make out a
dispute, still it ought to be considered that the same is merely
a breach of contract and the same cannot give rise to criminal
prosecution for cheating unless fraudulent or dishonest
intention is shown right from the beginning of the transaction.
Inasmuch as there are number of documents to show that
appellant-Company had acted in terms of the agreement and
3
in a bona fide manner, it cannot be said that the act of the
appellant-Company amounts to a breach of contract.
20) Though Respondent No.1 has roped all the appellants in
a criminal case without their specific role or participation in
the alleged offence with the sole purpose of settling his dispute
with appellant-Company by initiating the criminal
prosecution, it is pointed out that appellant Nos. 2 to 8 are the
Ex-Chairperson, Ex-Directors and Senior Managerial
Personnel of appellant No.1-Company, who do not have any
personal role in the allegations and claims of Respondent
No.1. There is also no specific allegation with regard to their
role.
21) Apart from the fact that the complaint lacks necessary
ingredients of Sections 405, 406, 420 read with Section 34
IPC, it is to be noted that the concept of `vicarious liability' is
unknown to criminal law. As observed earlier, there is no
specific allegation made against any person but the members
of the Board and senior executives are joined as the persons
looking after the management and business of the appellant-
Company.
3
22) It is useful to demonstrate certain examples, namely,
Section 141 of the Negotiable Instruments Act, 1881 which
specifically provides that if the person committing an offence
under Section 138 is a company, every person who, at the
time the offence was committed, was in charge of, and was
responsible to, the company for the conduct of the business of
the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against
and punished accordingly. Likewise, Section 32 of the
Industrial Disputes Act, 1947 provides that where a person
committing an offence under this Act is a company, or other
body corporate, or an association of persons, every director,
manager, secretary, agent or other officer or person concerned
with the management thereof shall, unless he proves that the
offence was committed without his knowledge or consent, be
deemed to be guilty of such offence. We have already noted
that the offence alleged in the criminal complaint filed by
respondent No.1 is under Sections 405 and 420 IPC
whereunder no specific liability is imposed on the officers of
the company, if the alleged offence is by the Company. In the
3
absence of specific details about the same, no person other
than appellant No.1-Company can be prosecuted under the
alleged complaint.
23) The Courts below failed to appreciate an important
aspect that the complaint came to be filed in the year 2002
when the alleged disputes pertain to the period from 1993-
1995. As rightly pointed out, the Courts below ought to have
appreciated that respondent No.1 was trying to circumvent the
jurisdiction of the Civil Courts which estopped him from
proceeding on account of the law of limitation.
24) We have already pointed out that respondent No.1 had
previously filed three complaints which were concluded after
exhaustive enquiry with the respective police authorities. The
first complaint was on 06.05.2000 being Javak No. 974/2000
with the Crime Branch-II, Pune which registered the same in
its Criminal Register No. 11/2000. Pursuant thereto, the
appellants were summoned and exhaustive enquiry was
conducted by the Crime Branch-II and after recording the
statements and perusal of documents and after undertaking
an extensive interrogation, the Crime Branch-II closed the
3
case. The said closure of the case was informed to respondent
No.1 by the police authorities by their letter dated 28.07.2000.
25) The materials placed further show that notwithstanding
the complaint dated 06.05.2000 which was closed by the
Crime Branch-II, another complaint on the same facts, was
filed by respondent No.1 at the Bhosari Police Station being
Javak No. 3142/2001. It is pointed out that the appellant and
its officers attended the Bhosari Police Station, thereafter the
said complaint was also closed after the facts were placed
before the officers of the Bhosari Police Station.
26) Apart from these complaints, respondent No.1 once again
filed a third complaint at the Commissioner's Office, Crime
Branch, Pune being Javak No. 100/2001. The officers of
appellant-Company appeared before the Crime Branch, who
after perusing the documents and the written statements of
appellant No.1, informed the appellants that the matter was
closed.
3
27) It is the grievance of the appellants that without
disclosing these material facts and suppressing the fact that
the complainant had previously filed three different complaints
to various police authorities and that the said complaints were
closed on being classified as civil disputes, the complainant
had filed the aforesaid criminal complaint before the
Magistrate being RCC No. 12 of 2002.
28) Mr. K.T.S. Tulsi, learned senior counsel for respondent
No.1 has pointed out that at this stage, namely, issuance of
direction to the police for submission of report under Section
156(3) of the Code, the accused has no role and need not be
heard. The said contention is undoubtedly in consonance
with the procedure prescribed. However, in view of specific
direction of the Division Bench of the High Court by a common
order dated 10.06.2003, disposing off the cases by remitting
the matter back to the Magistrate for reconsideration of the
entire prayer as made by the complainant and to pass fresh
orders, after giving adequate opportunity of hearing to both
the sides, and decide afresh the application seeking direction
under Section 156(3) by giving cogent reasons for coming to
3
such conclusion, the procedure adopted by the Magistrate
cannot be faulted with. Though the appellant
Company/accused has no right to be heard at this stage in
view of the direction of the High Court, no exception be taken
to the order of the Magistrate hearing the Complainant and
the appellant Company/accused even at the stage of calling
for a report under Section 156(3) of the Code.
29) The entire analysis of the complaints with reference to
the principles enunciated above and the ingredients of
Sections 405, 406, 420 read with Section 34 IPC clearly show
that there was inordinate delay and laches, the complaint
itself is inherently improbable contains the flavour of civil
nature and taking note of the closure of earlier three
complaints that too after thorough investigation by the police,
we are of the view that the Magistrate committed a grave error
in calling for a report under Section 156(3) of the Code from
the Crime Branch, Pune. In view of those infirmities and in
the light of Section 482 of the Code, the High Court ought to
have quashed those proceedings to safeguard the rights of the
appellants. For these reasons, the order passed by the
3
Judicial Magistrate First Class, Pimpri in CC No. 12 of 2002
on 20.08.2007 and the judgment of the High Court dated
11.01.2008 in Criminal Writ Petition No. 1622 of 2007 are set
aside. The complaint filed by Respondent No.1 herein is
quashed.
30) For the reasons stated above, the appeal is allowed.
...................
..............................J.
(P. SATHASIVAM)
..................................................J.
(DR. B.S. CHAUHAN)
NEW DELHI;
SEPTEMBER 27, 2011.
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