Karnataka High Court
India Brewery And Distillery Limited, ... vs Shaw Wallace And Company Limited, ... on 8 January, 1998
Equivalent citations: 1999(1)ALT(CRI)123, 1998CRILJ3759, ILR1999KAR1506, 1998(4)KARLJ752
Author: Mohamed Anwar
Bench: Mohamed Anwar
ORDER
1. The three petitioners herein are accused 1 to 3 in C.C. No. 8080 of 1955, before the learned Magistrate who have sought for quashing of entire criminal proceedings therein against them initiated on the private complaint of respondent presented before the learned Magistrate under Section 200, Cr. P.C. alleging commission of offences punishable under Sections 405, 415 and 420 of IPC. They have also challenged the order dated 5-4-1995 of the learned Magistrate taking cognizance of the offence under Sections 406 and 420 of the IPC against them on the said complaint and directing issue of process to them.
2. The petitioners are hereinafter referred to as 'al', 'A2' and 'A3' and the respondent is henceforth called the 'complainant'.
3. A few facts emerging from the material on record giving rise to this petition are as under:
4. The complainant and accused are involved in the trade of liquor. Under Ex. P-2 contract dated 17-6-1992 entered into between them it was agreed by A1 that he shall manufacture and sell for the complainant Indian Made Foreign Liquor ('IMFL' for short) under the brand and trademark of the complainant concern. The further terms of the contract are that the expenses incurred for manufacturing of the said liquor by A1 shall be borne by the complainant and that A1 shall be paid by the latter Rs. 81/- per case of the IMFL and also that A1 is liable to pay the sales tax to the taxation authority in respect of the sales of IMFL so manufactured by the concern of A1 and sold to Mysore Sales International Limited ('MSIL' for short). Another term of the agreement was that the amount of sales tax that becomes payable by A1 to the taxing authority on the quantity of manufactured IMFL sold to MSIL at a given time shall be paid in advance to the complainant by A1 enabling the latter to make payment thereof, in turn, to the taxing authority. This amount so paid in advance to A1 was subject to its deduction amount by the complainant on realisation of the respective invoice amount from the MSIL. While the business transactions under the contract between the parties were being carried on broadly on the basis of the said terms A1 gave Ex. P-3 authorisation letter dated 28-11-1992 to the purchaser MSIL authorising it to make payments to the complainant directly in respect of supplies of the IMFL made by al. It was further stated therein that the said authorisation was valid until expressly withdrawn by A1 at any time in future.
5. Under the said letter of authority (Ex. P-3) complainant had been receiving payments from the MSIL for the supplies of IMFL made by A1 under the said contract. In order to enable A1 to promptly make pay-
ment of the sales tax to the concerned authority on the monthly turnover of al's said business to a dealer in IMFL relating to the period from November 1993 to April 1994 complainant paid a total amount of Rs. 4,37,17,000/- to al. This apart, further amount of Rs. 23,00,000/- was paid by the complainant to A1 covering the period from May to June 1994 towards al's said tax liability. As against the said amount given by the complainant to A1 the actual sales tax amount for the said period that was payable by A1 to the concerned authority was 4,41,52,608/-. The complainant was all along under the impression that the said amount was promptly paid to the tax authority without any default more so when Ex. P-3 letter was written to the complainant by A1 stating that the sales tax of February 1994 was paid by him. But, surprisingly the concerned Deputy Commissioner of Commercial Taxes issued Ex. P-5 garnishee order dated 2-6-1994 under Section 14 of the Karnataka Sales Tax Act, the purchaser MSIL calling upon it to make payment of Rs. 3,75,00,000/- towards tax arrears for the period from November 1993 to April 1994 which was payable in respect of the said IMFL supplies made by al. Ex. P-5 was followed by a reminder letter dated 23-6-1994 of the said D.C. to the MSIL. Then the complainant came to know that A1 having received the said total amount of Rs. 4,60,17,000/- from him had failed to pay off the same to the commercial tax authority towards the sales tax amount that was payable by him in respect of the said supplies. Hence, the said complaint by the complainant against A1 to A3 alleging criminal misappropriation of the said amount by them and commission of criminal breach of trust as also the charge of cheating.
6. Since the alleged offences were triable as a warrant case the learned Magistrate proceeded to record the evidence of complainant in support of complaint allegations. The concerned official of complainant company was examined as P.W. 1 and the documents at Ex. P-l to P-20 were produced in evidence on record before the learned Magistrate. On consideration thereof he proceeded to pass the impugned order dated 5-4-1995 taking cognizance of the offences under Sections 406 and 420 of the IPC and directing issue of process against al, A2 and A3. A2 and A3 are the officials of A1 company who are arrayed as accused as they were in charge of and responsible for running al's business.
7. Mr. C.V. Nagesh, learned Counsel for accused, inviting my attention to the aforementioned relevant material on record contended that having regard to the Clause 8 of Ex. P-2 contract between the parties in particular and due regard being had to the terms and conditions thereof, the allegations made in the complaint when taken at their face value do not make out the prima facie case for either of the offence under Section 406 or of Section 420 of the IPC, and, therefore, the criminal proceeding against the learned Magistrate without jurisdiction.
8. Mr. Viswanath, learned Counsel for complainant, on the other band, argued strenuously that the aforesaid material makes out a clear prima facie case of the commission of alleged offences by the accused.
9. Both sides have relied on a number of authorities in support of their respective contentions.
10. It is an undisputed legal position that when the allegations made in the complaint are accepted at their face value and if they do not make out the alleged offence, then the learned Magistrate would not get jurisdiction to proceed with the trial of the accused for the said offences and, therefore, the criminal proceeding against them would be liable to be quashed to prevent the abuse of process of the Court.
11. As indicated above, by the terms of Ex. P-2 contract between the parties, A1 Company, for all legal and practical purposes, was the dealer in IMFL manufactured by it and its liability to pay the sales tax on turnover of its said business to the commercial tax authority. The material clause in Ex. P-2 governing the payment of sales tax in respect of that business turnover is Clause 8, the material portion whereof is as extracted below:
"It is further agreed that in case there is any delay in such payments by any of the parties nominated by Shaw Wallace it will be the responsibility of Shaw Wallace to deposit on demand the sales tax component of such invoices with IBD for enabling IBD to pay the sales tax on due dates.
Such deposits by Shaw Wallace, if any, will be refunded by IBD to Shaw Wallace forthwith on realisation of the invoice value".
The letter 'S.W.' appearing in the said clause refers to the complainant and the letters 'IBD' is al. Admittedly, by the arrangement so made in this clause of Ex. P-2 the complainant was making payments of different amounts to A1 from time to time which facilitated the latter to pay over the same to sales tax authorities towards discharge of his liability to pay the same on the turnover of the business for the relevant periods and that the amount so paid by the complainant to A1 in this respect were refunded by the latter to the former after realisation of the respective invoice amounts from the purchaser MSIL. This arrangement between the parties in regard to payment of sales tax to the concerned authority continued till Ex. P-3 letter dated 28-11-1992 was given by A1 to MSIL authorising it to make payments of the respective invoice amounts directly to the complainant itself. Thereafter, complainant had been collecting payments from the MSIL directly under the respective invoices of A1 for the supplies of IMFL made thereunder. As such the complainant was liable to pay the tax component of invoice amount to A1 to enable him to pay over the same to concerned authority in discharge of his liability as a dealer in the said IMFL under the said contract. But, as submitted by Mr. Viswanath, learned Counsel for complainant, the complainant had been paying in advance the actual respective tax component of the invoice amount to A1 before the said invoice amounts were realised by the complainant from MSIL to see that A1 should be prompt in making the payment of tax amount to the tax authorities without default. Thus whatever amount had been so paid to A1 by the complainant was recovered by the latter out of the said invoice amount after the same was collected by him from the MSIL. It is under this process the said total amount of Rs. 4,60,17,000/- was paid in advance to A1 by him so that A1 can pay up the sales tax amount to the concerned authorities without default for the turnover of his said business for the period from November 1993 to June 1994.
12. Admittedly, on receiving the said amount from complainant, A1 had failed to make payment thereof in time to the concerned sales tax authority in discharge of his tax liability for turnover of the business during the said period with the result the concerned Deputy Commissioner of Commercial Taxes had to issue Ex. P-5 garnishee order dated 2-6-1994 to the purchaser MSIL directing it to make payment of the said tax arrears to the tune of Rs. 3,75,000,00/-. As a result the payment of the invoice amount to this limit by the MSIL to the complainant for the supplies made by A1 was stated to have been stopped.
13. Mr. Vishwanath, proposing to place reliance on the decision of Supreme Court in Som Nath Puri v State of Rajasthan contended that when the said amount was given to A1 by the complainant for the specific purpose of making payment to the concerned taxation authority towards discharge of his liability to pay the sales tax as a dealer under the contract, he having failed to do so his conduct in retaining the said amount for himself was in clear breach of entrustment of the said amount and, therefore, the facts and circumstances prime facie establish offences under Section 406 and 420 of the IPC against accused. Further, he relied on a decision in Peleville Peter v State of Nagaland, to support his submission that when the accused who had dominion or control over the said money failed to give account thereof in the manner as it was required to under the terms of the said contract they are guilty of the alleged offences. Reliance had been placed by him upon a decision of Rajasthan High Court reported in 1953 Cri. L.J. 835, in support of his submission that once entrustment of money is proved burden shifts on accused to show as to what he did with the money.
14. Mr. C.V. Nagesh, learned Counsel for accused, argued otherwise. His main plank of argument was that clause (8) of Ex. P-2 contract between the parties makes it clear that it was A1 who as a dealer was liable to pay sales tax to the concerned department and that the said amount which was paid by the complainant to A1 did not actually belong to him and the same was payable to al, and therefore it was paid by him to A1 enabling him to discharge his liability to pay the tax without being a defaulter. Elaborating this contention Mr. Nagesh submitted that whatever amount so paid by the complainant till the date 28-11-1992 to A1 was refundable by the latter to the former per Ex. P-2 contract dated 17-6-1992 and, in fact, the complainant had received and collected whole of the price of the IMFL supplied by A1 to the MSIL under al's respective vouchers which amount included the said tax component. Besides, he maintained that the requisite requirement of mens rea and dishonest intention to constitute the alleged offences is lacking in the instant case. He placed reliance in support of his contention on a decision of Supreme Court in Gurmit Singh v State of Punjab. The recent decision of this Court in Mis. Silk Import and Export Inc v M/s. Exim Aides Silk Exporters and Others, was also relied on by him.
15. On a careful consideration of the rival contentions putforward by both sides I find sufficient weight and force in the contention of Mr. Nagesh. In Silk Import and Export Inc, supra, the petition under Section 482 of the Cr. P.C. was made by the accused seeking quashing of the criminal proceedings against them which was initiated for offences under Sections 418 and 420 of the IPC on a private complaint. In that case also the parties had entered into a business contract. The grievance of the complainant therein was that in the course of their business transactions certain amounts received by the accused therein from the complainant were not duly accounted for by him and thus the said amounts were misappropriated by him with dishonest intention. allowing the petition of the accused, this Court relying on a decision of Supreme Court in State of Kerala v A.P. Pillai and Another, held:
"Therefore, in order to label an offence as cheating under Section 420 of the IPC against a person, the complainant should allege that at the time of entering into the transaction, the only intention of the opposite party was to cheat him".
The material dictum of Supreme Court in the case of Silk Import and Export Inc, supra, relied on by the learned Judge is quoted below:
"16. It would follow from the above that it was not in pursuance of any representation regarding the consignment of oil tins to the railway that the Bank gave credit to the firm of the accused for the amounts of the demand drafts. On the contrary, the amounts of demand drafts were credited in the account of the firm immediately on receipt of demand drafts even though they were not accompanied by the railway receipts. The railway receipts were no doubt to be sent by the accused to the Bank subsequently, but there is no cogent evidence to show that at the time when the accused sent the demand drafts they did not have the intention to send subsequently railway receipts in respect of oil tins which were actually delivered to the railways.
The material on record indicates that more than 5000 oil tins were despatched to various stations from alwaye railway station on behalf of the firm of the accused-respondents during the period from February 2, 1963 to April 24, 1963. Those oil tins were appropriated by the railway authorities towards the railway receipts of earlier dates and were sent to various stations. The fact that more than 5,000 oil tins were despatched on behalf of the firm of the accused to the various stations during the above period is hardly consistent with a dishonest intention on their part. It may be that the accused could not keep up the delivery of the oil tins to the railways and no tins could be despatched in respect of the said thirteen railway receipts but that fact can give rise only to a civil liability of the accused. It is not sufficient to fasten a criminal liability on them. To hold a person guilty of the offence of cheating, it has to be shown that his intention was dishonest at the time of making the promise. Such a dishonest intention cannot be inferred from the mere fact that he could not subsequently fulfill the promise".
In the case on hand also it is not the case of the complainant that on 17-6-1992 when the business contract at Ex. P-2 was entered into between the parties there was any dishonest intention on the part of the accused to cheat the complainant. Nor is it the specific case of the complainant that the said amounts totalling Rs. 4,37,17,000/- for the relevant period mentioned in the complaint from November 1993 to April 1994 were received by A1 with an express promise and undertaking that the same would be utilised by him towards the payment of the sales tax without committing any default. On the other hand, it is the definite case of A1 that, it was he who was liable to pay the said tax to the concerned authorities as a dealer in the IMFL under Ex. P-2 contract and in case if he committed any default in payment thereof the penal provisions under the Karnataka Sales Tax Act would be attracted against him and it was he who had to suffer this penal liability. In the facts and circumstances of this case it cannot be stated that at the time when Ex. P-2 was entered into between the parties the accused had any dishonest intention to cheat the complainant or to misappropriate the monies of the complainant muchless with criminal intention. Therefore, on this score alone it could be safely held that the requisite mens rea for the alleged offences under Sections 406 and 420 of the IPC is lacking in the case on hand.
16. This apart, most essential ingredient of the offence either under Section 406 or 420 of the IPC is entruatment of one's property to another in respect of which any misappropriation was alleged to have been done by another person. Indisputably, the money that was being paid by the complainant in advance to the accused to facilitate him to make payment of the sales tax towards discharge of his liability without default was required to be adjusted by the complainant from the payments made to him or payable to him by the MSIL under al's invoices given to MSIL from time to time for the supplies of the said IMFL made by al. As such the money that was so paid in advance by the complainant to the accused being recoverable by the complainant out of the said invoice amounts under al's authority letter at Ex. P-3, it cannot be stated that the said amounts paid to A1 belonged to the complainant in the sense that A1 was liable to repay or account for the same to him. Therefore, the essential ingredient 'entrustment' for the alleged offences is absent in the instant case. In that view of the matter, I find that the allegations made by the complainant when taken at their face value do not make out the alleged offences against accused and, therefore, the criminal prosecution launched against them on the basis of that complaint is liable to be quashed.
17. Mr. Viswanath, learned Counsel for complainant, sought to maintain that at the present stage of the proceedings before the learned-Magistrate the accused will have no right to challenge the same before this Court invoking its inherent jurisdiction under Section 482 of the Cr. P.C. Reliance was sought to be placed by him in support of this contention on the decisions of Supreme Court in State of Uttar Pradesh v Man Mohan and Others and . On the contrary Mr. C.V. Nagesh, learned Counsel for accused deriving support from the decision in Madhava Rao v Shamaji Rao, canvassed his point that it is a well-settled proposition of law that a prosecution could be quashed at the initial stage of the criminal proceeding itself if the complaint allegations when taken at their face value do not make out the alleged offences against the accused.
18. In State of Maharashtra v Ishwar Piraji Kalpatri, of its judgment the Supreme Court has observed that it is the consistent view taken by it that, 'the Court should not, except in extraordinary circumstances, exercise its jurisdiction under Section 482 of the Cr. P.C. so as to quash the prosecution proceedings after they have been launched'. In making this observation reference was made by Supreme Court to the dictum laid down in the case of Mrs. Rupan Deol Bajaj and Another u Kanwar Pal Singh Gill and Another.
"We also give a note of caution to the effect that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in the rarerst of rare cases; that the Court will not be justified in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in the first information report or the complaint and that the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the Court to act according to its whim or caprice".
The proposition laid down by Supreme Court in Madhavrao's case, supra, is as under:
"The legal position is well-settled that when a prosecution at the initial stage is asked to be quashed, the tost to be applied by the Court is as to whether the uncontroverted allegations as made prima facie establish the offence. It is also for the Court to take into consideration any special features which appear in a particular case to consider whether it is expedient and in the interest of justice to permit a prosecution to continue. This is so on the basis that the Court cannot be utilised for any oblique purpose and where in the opinion of the Court chances of an ultimate conviction are bleak and, therefore, no useful purpose is likely to be served by allowing a criminal prosecution to continue, the Court may while taking into consideration the special facts of a case also quash the proceeding even though it may be at a preliminary stage".
What could be gathered from the aforestated propositions of Supreme Court is that at the initial stage of the criminal proceedings the High Court exercising its inherent power under Section 482 of the Cr. P.C. shall refrain itself from embarking upon an enquiry as to the reliability or genuineness of the allegations made in the FIR or the complaint and to test the credibility or otherwise thereof in order to find if the criminal prosecution against the accused is warranted. But, on the other hand, the allegations made in the complaint/FIR when taken at their face value do not make out a prima facie case of the alleged offence, it then becomes a duty of this Court to quash the criminal proceedings against the accused to prevent abuse of process of any inferior Court. Therefore, I find no force in the contention of Mr. Viswanath.
19. Hence, for the reasons aforesaid the petition is allowed and the criminal prosecution of the petitioners accused in C.C. No. 8085 of 1995 in the Court of IV Additional Chief Metropolitan Magistrate is quashed.
At this stage, it was submitted by Mr. Viswanath that arbitration proceedings between the parties concerning the dispute between them are pending and that an observation may be made in this order that whatever stated hereinabove shall not be binding on the parties in the said arbitration proceeding. It is ordered accordingly.