Gujarat High Court
Golden Trees Plantation Ltd. & vs State Of Gujarat & on 10 March, 2017
Author: J.B.Pardiwala
Bench: J.B.Pardiwala
R/CR.MA/7963/2016 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 7963 of 2016
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE J.B.PARDIWALA
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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GOLDEN TREES PLANTATION LTD. & 1....Applicant(s)
Versus
STATE OF GUJARAT & 1....Respondent(s)
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Appearance:
MR MAULIK J SHELAT, ADVOCATE for the Applicant(s) No. 1 - 2
MS. THAKORE, ADDL. PUBLIC PROSECUTOR for the Respondent(s) No. 1
RULE SERVED for the Respondent(s) No. 2
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CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 10/03/2017
ORAL JUDGMENT
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1. By this application under section 482 of the Code of Criminal Procedure, 1973, the applicants seek to invoke the inherent powers of this Court praying for quashing of the proceedings of the Criminal Case No.839 of 2016 pending before the 9th Additional Chief Judicial Magistrate, Jamnagar arising from the Criminal Inquiry No.322 of 2014.
2. The facts of this case may be summarized as under;
2.1 The respondent No.2 herein-original complainant lodged a private complaint against the applicants herein in the court of the learned Chief Judicial Magistrate, Jamnagar for the offence punishable under sections 406, 420 read with section 114 of the Indian Penal Code. The learned Magistrate recorded the verification of the complainant on oath and took cognizance. After taking cognizance, the learned Magistrate thought fit to postpone the issue of process as he ordered police inquiry under section 202 of the Cr.P.C. The police carried out the inquiry under section 202 of the Cr.P.C. as directed and filed a report before the learned Magistrate stating that no offence was made out as alleged by the complainant. The learned Magistrate took into consideration the report of the police and the other materials on record, and vide order dated 27th January, 2016, thought fit to issue process against the applicants herein for the offence punishable under sections 406, 420 read with section 114 of the Indian Penal Code.
3. Being dissatisfied, the applicants have come up with this application.
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4. The case of the complainant, in brief, is that the applicant No.1 herein is a Private Limited Company, of which, the applicant No.2 is the Managing Director. The company floated a scheme, by which, it alloted Teak Saplings at the rate of Rs.550/- each. The scheme provided that after a period of about 15 to 20 years, according to the growth of the tree, the expected realizable value would be Rs.85,000/-. The allotment letter issued in favour of the complainant reads as under;
"GOLDEN TREES PLANTATION (P) LIMITED LG/12, SHEFALI SHOPPING CENTRE, PALDI CHAR RASTA, ASHRAM ROAD, AHMEDABAD-38006.
ALLOTMENT LETTER
To,
SHANKAR RAMJI CHAUHAN UNITS ALLOTED -1
NAGNATH GATE,
OLD KUMBHAR WADO, GTP - 6/93/12826
JAMNAGAR - 361 001.
We are pleased to inform you that against payment of Rs.550/- paid by you to us, we hereby allot you one Teak Sapling in our scheme at our Vrundavan Farm, (Taluka Dehgam, Dist. Ahmedabad). The allotment NO. mentioned herein above is a No,. affixed on the Teak Sapling allotted to you. The allotment is subject to terms and condition of the the scheme.
Date 12.06.1993 ____Sd-_________
Dinesh P. Patel
Managing Director
Golden Trees Plantation (P) Ltd.
THE SCHEME : TERMS AND CONDITION
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(1) The duration of the scheme is 15 (Fifteen) years from the date of the allotment of the sapling by the company (2) Rs.85000/- per unit is expected realisable value after 15 years.
(3) The trees will be insured on cost basis in accordance with Agriculture crop insurance scheme, if permissible (4) the company shall not be liable to pay any damagers or compensation to the receipt holder for any breach due to any unforseen circumstances.
(5) the receipt holder shall get his/her name and complete address, registered with the company at the time of booking and it shall be the responsibility of the receipt holder to inform the company b registered acknowledgment Due post of any change of address failing which all notice and letters posted to the Registered address shall be deemed to have been received by the receipt holder within the time that they should ordinarily reach the address.
(6) At the end of the scheme period the receipt holder shall present the receipt of the company and its realisable sale proceeds. Company will make payment of the amount for the realisable proceeds b cheques within 30 days of the receipt holder.
(7) The legal jurisdiction will be at Ahmedabad city of the Gujarat State.
(8) The realisation of the funds of the receipt holder are only indicative and based and on the present market conditions and Government policies.
(9) The receipts holder is deemed to have joined the scheme in the full knowledge of its being Agriculture Plantation in nature and vismajor may effect the ultimate gaining. (10) the free facility will be given after five years to five or more than five unit holder.
(11) Selling and Transfer facility will be given after five years.
5. It is the case of the complainant that the company paid him only Rs.1100/- after a period of almost 20 years. It is alleged that the company committed the offence of criminal breach of trust as well as cheating by not paying the amount which was promised at the time when the allotment letter was issued in the year 1993. Although the police, on conclusion of the inquiry under section 202 of the Cr.P.C., reached to the Page 4 of 29 HC-NIC Page 4 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT conclusion that no offence was made out, yet the Magistrate thought fit to ignore such report, and by a reasoned order, issued process.
6. It also appears that before filing the complaint, the complainant herein had, along with others had approached the Consumer Forum at Ahmedabad. The Consumer Forum, vide order dated 31st January, 2014, rejected all the complaints. The Consumer Forum took the view that there was no promise, as such, given by the company that it would pay Rs.85,000/- to each and every person, who had joined the scheme and issued the allotment letters. The amount was paid to the investors after obtaining the report of the Official Valuer of the trees.
7. Being dissatisfied with the order passed by the Consumer Forum, the complainant herein preferred an appeal, i.e., the Appeal No.774 of 2014 before the State Commission at Ahmedabad. The State Consumer Commission disposed of the appeal, observing as under;
"We requested Mr. Chauhan to turn to page 29 which is a xerox copy of the allotment letter and more particularly condition no.2 of the terms and conditions which reads "Rs.85000/- per unit is expected realizable value after 15 years". Mr. Chauhan has argued that promise has been made to pay Rs.85,000/- at the end of 15 years but the same has not been paid and therefore he has prayed for Rs.85,000/-. We therefore requested Mr. Chauhan to read Condition No.2 and more particular the meaning of the word expected. On a plain reading of the above condition it would appear that it is not a promise but it is expectation of the company. Not only that as per the say of Mr. Chauhan he would be entitled to double the amount and he ought to have been paid accordingly. Mr. Chauhan further argued that he has not been received Page 5 of 29 HC-NIC Page 5 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT Rs.1,100/- per unit from the company. We have drawn his attention towards page 36 which is the public notice issued by the respondent company wherein the company has demanded the receipt, allotment letter and sale certificate from the investors and also requested that same should be sent to the Registrar Office of the company by post between 1.6.2012 and 30.6.2012. The copy of the public notice has been produced by the appellant in this appeal. Mr. Chauhan has drawn our attention to pages 37, 38 and 39 which are xerox copies of receipts issued by the respondent company towards receipt of allotment letters Nos.12826, 12827, 12828 which show that the appellant has not submitted the receipt and sale certificate. Even if we believe Mr. Chauhan, then also the appellant has provided incomplete documents to the company,. Therefore, the company has not take any decision. According to us the company is not at fault at this stage. At the same time, the appellant is an investor and if he has committed any mistake, one opportunity is required to be given to him and if he so wishes, then he may send the required documents demanded by the company to its registered office. Upon receiving the same, the company shall verify the same and if found in order, then the company shall pay to him the amount as stated by the company in the advertisement. If the appellant is not satisfied with the same, he is at liberty to take appropriate proceedings, if law permits. With above, observation, this appeal is disposed of."
8. Mr. Shelat, the learned counsel appearing for the applicants submits that even if the entire case of the complainant is believed or accepted to be true, none of the ingredients to constitute the offence of criminal breach of trust or cheating are spelt out. He pointed out the terms and conditions as noted in the allotment letter referred to above. He laid much emphasis on the Conditions Nos.2,8 and 9. He submits that Rs.85,000/- per unit was the expected realizable value after 15 years. He submits that on account of severe drought conditions in the State of Gujarat for a pretty long time, the growth of the teak plantation got impaired and the Page 6 of 29 HC-NIC Page 6 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT price, which was expected, could not be fetched.
9. He prays that there being merit in this application, the same be allowed and the complaint be quashed.
10. On the other hand, the respondent No.2, appearing in person, vehemently opposed this application and submitted that no error, not to speak of any error of law, could be said to have been committed by the learned Magistrate in taking the cognizance upon the complaint and issuing process. According to the complainant, the case is one of outright cheating. He submits that the company had promised that after 15 years, the investors would be paid Rs.85,000/- for one sapling of teak. He submits that the reasons assigned by the company as regards the teak plantation not developing well are far from truth. The complainant, however, admitted that there exist a farm in the name of Vrundava, situated at the Taluka:
Dehgam, District: Ahmedabad. He also admits that, as on date, the teak trees are very much there, but without any good growth.
11. Having heard the learned counsel appearing for the applicants and the complainant appearing in person and having gone through the materials on record, the only question that falls for my consideration is whether any offence could be said to have been made out against the applicants.
12. The offences of criminal breach of trust (Section 406 IPC) and cheating (Section 420 IPC) have specific ingredients. In order to constitute a criminal breach of trust (Section 406 IPC).
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1) There must be entrustment with person for property or dominion over the property, and
2) The person entrusted :
a) dishonestly misappropriated or converted property to his own use, or
b) dishonestly used or disposed of the property or willfully suffers any other person so to do in violation
i) any direction of law prescribing the method in which the trust is discharged and
ii) of legal contract touching the discharge of trust (see: S.W.P. Palanitkar v. State of Bihar, (2002)1 SCC 241) : (AIR 2001 SC 2960).
Similarly, in respect of an offence under section 420 IPC, the essential ingredients are :
1) deception of any person, either by making a false or misleading representation or by other action or by omission;
2) fraudulently or dishonestly inducing any person to deliver any property, or
3) the consent that any persons shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit (see:
Harmanpeet Singh Ahluwalia v. State of Punjab, (2009)7 SCC 712 : (2009) Cr.L.J. 3462 (SC) )
13. Further, in both sections, mens rea i.e. intention to defraud or the dishonest intention must be present from the very beginning or inception without which either of these sections cannot be invoked.
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14. I may only say with a view to clear a serious
misconception of law in the mind of the police as well as the courts below that if it is a case of the complainant that offence of criminal breach of trust as defined under Section 405 of IPC, punishable under Section 406 of IPC, is committed by the accused, then in the same breath it could not be said that the accused has also committed the offence of cheating as defined and explained in Section 415 of the IPC, punishable under Section 420 of the IPC.
15. Every act of breach of trust may not be resulted in a penal offence of criminal breach of trust unless there is evidence of manipulating act of fraudulent misappropriation. An act of breach of trust involves a civil wrong in respect of which the person may seek his remedy for damages in civil courts but any breach of trust with a mens rea gives rise to a criminal prosecution as well. It has been held in Hart Prasad Chamaria v. B.K. Surekha and others, reported in 1973(2) SCC 823 as under :
We have heard Mr. Maheshwarit on behalf of the appellant and are of the opinion that no case has been made out against the respondents under Section 420 Indian Penal Code. For the purpose of the present appeal, we would assume that the various allegations of fact which have been made in the complaint by the appellant are correct. Even after making that allowance, we find that the complaint does riot disclose the commission of any offence on the part of the respondents under Section 420 Indian Penal Code. There is nothing in the complaint to show that the respondents had dishonest or fraudulent intention at the time the appellant parted with Rs. 35.000/- There is also nothing to indicate that the respondents induced the appellant to pay them Rs. 35.000/- by deceiving him. It is further not the case of the appellant that a representation was made, the Page 9 of 29 HC-NIC Page 9 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT respondents knew the same to be false. The fact that the respondents subsequently did not abide by their commitment that they would show the appellant to be the proprietor of Drang Transport Corporation and would also render accounts to him in the month of December might create civil liability on the respondents for the offence of cheating.
16. To put it in other words, in the case of cheating the dishonest intention starts with the very inception of the transaction. But in the case of criminal breach of trust, the person who comes into possession of the movable property receives it legally, but illegally retains it or converts it to his own use against the terms of the contract. Then the question is, in a case like this, whether the retention is with dishonest intention or not. Whether the retention involves criminal breach of trust or only a civil liability would depend upon the facts of each case.
17. The distinction between mere breach of contract and the offence of criminal breach of trust and cheating are fine one. In case of cheating, it depends upon the intention of the accused at the time of inducement, which may be judged by a subsequent conduct but for this the subsequent conduct is not the sole test but mere breach of contract which cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the transaction i.e. the time when the offence is said to have been committed. Therefore, it is his intention, which is the gist of the offence. Whereas, for the criminal breach of trust, the property must have been entrusted to the accused or he must have dominion over it. The property in respect of which the offence after breach of trust has been committed must be either the Page 10 of 29 HC-NIC Page 10 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT property of some person other than the accused or the beneficial interest in or ownership of it must be of some other person. The accused must hold that property on trust of such other person. But the offence, i.e. the offence of breach of trust and cheating involve dishonest intention but they are mutually exclusive and different in basic concept. There is a distinction between criminal breach of trust and cheating. For cheating, criminal intention is necessary at the time of entrustment. In criminal breach of trust, mere proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property and he dishonestly misappropriated the same. Whereas, in case of cheating, the offender practices fraudulent or dishonest to induce with another person to deliver the property. In such situation, both the offences cannot co-exist simultaneously.
18. I may quote with profit a decision of the Supreme Court in the case of Nageshwar Prasad Singh alias Sinha v. Narayan Singh, AIR 1999 SC 1480. In the said case, the allegation of the prosecution was that an agreement was signed between the complainant respondent and the appellant whereby some land was agreed to be sold by the appellant to the complainants on a consideration, and allegedly a part thereof was paid as earnest money, the balance being payable in the manner indicated in the deed. The most important term in the deed was that possession of the plot would stand transferred to the complainants and possession in fact was delivered to the complainants over which they made certain constructions. The complaint was laid on the basis that the appellant had cheated the complainants of the sum of money they had paid as earnest money as his subsequent conduct reflected that he Page 11 of 29 HC-NIC Page 11 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT was not willing to complete the bargain for which the complainants had to file a suit for specific performance which was pending in the civil court. Held, that latter part of illustration (g) to Section 415, I.P.C. illustrates that at the time when agreement for sell was executed, it could have, in no event, been termed dishonestly so as to hold that the complainants were cheated of the earnest money, which they passed to the appellant as part consideration and possession of the total amount involved in the bargain was passed over to the complainant/respondent and which remained in their possession. Now it is left to imagine who would be interested for dealing the matter for completing the bargain when admittedly the complainants have not performed their part in making full payment. The matter was, therefore, before the civil court in this respect. The liability, if any, arising out by breaching thereof was civil in nature and not criminal.
Accordingly, the appeal was allowed and complaint proceedings were quashed.
19. It was further held by the Supreme Court in the case of Hridaya Ranjan Prasad Verma v. State of Bihar, AIR 2000 SC 2341 at Pp. 2345-46 of para 16) as below :
"15. In determining the question it has to be kept in mind that the distinction between, mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore, it is the intention, which is the gist Page 12 of 29 HC-NIC Page 12 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed."
20. In All Cargo Movers (I) Pvt. Ltd. & others v. Dhanesh Badarmal Jain & another, JT 2007 (12) SC 345, the Apex Court quashed a criminal proceeding on the premise that the allegations contained in complaint were wholly inconsistent with the pleadings in a collateral civil proceeding. It held as follows :
"17. We are of the opinion that the allegations made in the complaint petition, even if given face value and taken to be correct in its entirety, do not disclose an offence. For the said purpose, This Court may not only take into consideration the admitted facts but it is also permissible to look into the pleadings of the plaintiff-respondent No.1 in the suit. No allegation whatsoever was made against the appellants herein in the notice. What was contended was negligence and/or breach of contract on the part of the carriers and their agent. Breach of contract simplicitor does not constitute an offence. For the said purpose, allegations in the complaint petition must disclose the necessary ingredients therefor. Where a civil suit is pending and the complaint petition has been filed one year after filing of the civil suit, we may for the purpose of finding out as to whether the said allegations are prima facie cannot notice the correspondences exchanged by the parties and other admitted documents. It is one thing to say that the Court at this juncture would not consider the defence of the accused but it is another thing to say that for exercising the inherent jurisdiction of this Court, it is impermissible also to look to the admitted documents. Criminal proceedings should not be encouraged, when it is found to be mala fide or otherwise an abuse of the process of the Court. Superior Courts while exercising this power should also strive to serve the ends of justice."Page 13 of 29
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21. In K.L.E. Society & others v. Siddalingesh, (2008) 4 SCC 541, on a similar issue, the Supreme Court quashed a criminal proceeding labeling it to be an abuse of process of Court as the allegations contained in the complaint ran contrary to the averments made in the petition filed under the Industrial Disputes Act. The Apex Court held as follows :
"7. One thing is clear on reading of High Court's reasoning that the High Court came to the conclusion that deductions were made without any rhyme and reason and without any basis. That was not the case of the complainant. On the other hand, it tried to make out a case that the deduction was made with an object. That obviously, was the foundation to substantiate claim of entrustment. On a close reading of the complaint it is clear that the ingredients of Sections 403, 405 and 415 do not exist. The statement made in the complaint runs contrary to the averments made in the petition in terms of Section 33-(C) (2)."
22. In State of Orissa v. Debendra Nath Padhi, (2005) SCC (Cri.) 415, the Supreme Court held that the High Court could take into account materials of "unimpeachable character of sterling quality" while exercising its inherent powers to quash a criminal proceeding and observed as follows :-
"29. Regarding the argument of accused having to face the trial despite being in a position to produce material of unimpeachable character of sterling quality, the width of the powers of the High Court under Section 482 of the Code and Article 226 of Constitution is unlimited whereunder in the interests of justice the High Court can make such orders as may be necessary to prevent abuse of the process of any Court or otherwise to secure the ends of justice within the parameters laid down in Bhajan Page 14 of 29 HC-NIC Page 14 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT Lals case.
23. In Vijaya Rao v. State of Rajasthan & another (2005) SCC (Cri.) 1600, the Supreme Court held that merely using expressions like "fraudulent representation" and "malafide intention" does not give rise to an inference that the complaint discloses the ingredients of the offence of cheating.
24. In Hridaya Ranjan Prasad Verma & others v. State of Bihar & another (2000) SCC (Cri.) 786, the Supreme Court succinctly laid down the distinction between breach of contract in one hand and the offence of cheating in the other.
"15. In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time to inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed."
25. In Anil Kumar Bose v. State of Bihar, (1974) SCC (Cri.) 652, the Supreme Court held that mere failure to perform a duty or observe rules of procedure may be an administrative lapse or any error of judgement but cannot be equated with Page 15 of 29 HC-NIC Page 15 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT dishonest intention or cheating.
26. Criticizing the institution of malicious and frivolous criminal proceeding against individuals, the Supreme Court in PEPSI Foods Ltd. & another v. Special Judicial Magistrate & Ors., (1998) SCC (Cri.) 1400, held as follows :
"28. Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course. it is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. The order of the magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing charge home to the accused. It is not that the Magistrate is a silent spectator at the time of recording of preliminary evidence before summoning of the accused. Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused."
27. In B.Suresh Yadav v. Sharifa Bee & another, JT (2007) 12 SC 341, the Supreme Court again highlighted the distinction between a mere breach of contract and the offence of cheating.
28. In Inder Mohan Goswami & another v. State of Uttaranchal & others, (2007)12 SCC 1, the Supreme Court analysed inherent powers of the High Court under Section 482 Page 16 of 29 HC-NIC Page 16 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT as follows :
"23. This court in a number of cases has laid down the scope and ambit of courts' powers under section 482 Cr.P.C. Every High Court has inherent power to act ex debito justitiae to do real and substantial justice, for the administration of which alone it exists, or to prevent abuse of the process of the court. Inherent power under section 482 Cr.P.C. can be exercised:
(i) to give effect to an order under the Code;
(ii) to prevent abuse of the process of court, and
(iii) to otherwise secure the ends of justice.
24. Inherent powers under section 482 Cr.P.C. though wide have to be exercised sparingly, carefully and with great caution and only when such exercise is justified by the tests specifically laid down in this section itself. Authority of the court exists for the advancement of justice. If any abuse of the process leading to injustice is brought to the notice of the court, then the Court would be justified in preventing injustice by invoking inherent powers in absence of specific provisions in the Statute."
29. In one of the recent pronouncement of the Supreme Court in the case of International Advanced Research Centre for Powder Metallurgy and New Materials (ARCT) & Ors. vs. Nimra Cerglass Technics Private Limited & Anr., (2016) 1 SCC 348, the court has explained what would constitute cheating within the meaning of section 425 of the Indian Penal Code. I may quote the relevant observations as under;
"15. The essential ingredients to attract Section 420 IPC are: (i) cheating; (ii) dishonest inducement to deliver property or to make, alter or destroy any valuable security or anything which is sealed or signed or is Page 17 of 29 HC-NIC Page 17 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT capable of being converted into a valuable security and
(iii) mens rea of the accused at the time of making the inducement. The making of a false representation is one of the essential ingredients to constitute the offence of cheating under Section 420 IPC. In order to bring a case for the offence of cheating, it is not merely sufficient to prove that a false representation had been made, but, it is further necessary to prove that the representation was false to the knowledge of the accused and was made in order to deceive the complainant.
16. Distinction between mere breach of contract and the cheating would depend upon the intention of the accused at the time of alleged inducement. If it is established that the intention of the accused was dishonest at the very time when he made a promise and entered into a transaction with the complainant to part with his property or money, then the liability is criminal and the accused is guilty of the offence of cheating. On the other hand, if all that is established that a representation made by the accused has subsequently not been kept, criminal liability cannot be foisted on the accused and the only right which the complainant acquires is the remedy for breach of contract in a civil court. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown at the beginning of the transaction. In S.W. Palanitkar & Ors. vs. State of Bihar & Anr. (2002) 1 SCC 241, this Court held as under:
"21 ......In order to constitute an offence of cheating, the intention to deceive should be in existence at the time when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise, to say that he committed an act of cheating. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating."
The above view in Palanitkar's case was referred to and followed in Rashmi Jain vs. State of Uttar Pradesh & Anr. (2014) 13 SCC 553.
22. By analysis of terms and conditions of the agreement between the parties, the dispute between the Page 18 of 29 HC-NIC Page 18 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT parties appears to be purely of civil nature. It is settled legal proposition that criminal liability should not be imposed in disputes of civil nature. In Anil Mahajan vs. Bhor Industries Ltd. & Anr. (2005) 10 SCC 228, this Court held as under;
"6. ........A distinction has to be kept in mind between mere breach of contract and the offence of cheating. It depends upon the intention of the accused at the time of inducement. The subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent, dishonest intention is shown at the beginning of the transaction.
7. .....
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.... We need not go into the question of the difference of the amounts mentioned in the complaint which is much more than what is mentioned in the notice and also the defence of the accused and the stand taken in reply to notice because the complainant's own case is that over rupees three crores was paid and for balance, the accused was giving reasons as above-noticed. The additional reason for not going into these aspects is that a civil suit is pending inter se the parties for the amounts in question."
25. The above decisions reiterate the well-settled principles that while exercising inherent jurisdiction under Section 482 Cr.P.C., it is not for the High Court to appreciate the evidence and its truthfulness or sufficiency inasmuch as it is the function of the trial court. High Court's inherent powers, be it, civil or criminal matters, is designed to achieve a salutary public purpose and that a court proceeding ought not to be permitted to degenerate into a weapon of harassment or persecution. If the averments in the complaint do not constitute an offence, the court would be justified in quashing the proceedings in the interest of justice."
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R/CR.MA/7963/2016 JUDGMENT
30. I take notice of one order passed by the Securities Appellate Tribunal, Ahmedabad against the company dated 14th March, 2003. The proceedings were initiated by the SEBI pursuant to several investor complaints regarding the non- payment of their invested money or the assured returns. After noting the facts, the Tribunal observed as under;
"8. For the relevance of the company being necessarily registered for running a collective investment scheme, reference has to be made to the press release issued by the Government of India on November 18, 1997 which inter alia directed all schemes through which instruments such as agro bonds, plantation bonds etc. are issued, to be treated as a collective investment scheme that would come under the regulatory purview of the SEBI. Thereafter, SEBI issued a press release dated style="font-family: Arial;"November 26, 1997 as well as a public notice dated style="font-family: Arial;"December 18, 1997 which was published in all the leading newspapers of style="font-family: Arial;"India, whereby it directed all the entities running collective investment schemes to file with it the necessary information about their schemes by January, 15.1998.
9. Thereafter, vide its circular issued by way of a press release on February 24, 1998, SEBI directed that the existing collective investment schemes could mobilise money from the public or from the investors under their existing schemes only if a rating from any one of the credit rating agencies mentioned therein has been obtained.
10. In the case of S.D. Bhattacharya and others vs. The Union of India and others, the Delhi High Court issued various directions from time to time which are applicable to all the plantation/agro based companies/entities situated all over India. Vide its order dated style="line-height: 150%;"October 7, 1998, the court, inter-alia passed the following directions:-Page 20 of 29
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(i) style="line-height: 150%;"Plantation companies, agro companies and companies running Collective Investment Schemes shall get themselves credit rated from credit rating companies approved by SEBI.
(ii) The companies shall furnish a list of their assets and liabilities.
(iii) The companies shall furnish the list of their present Directors alongwith details of their assets including date, cost and present value of acquisitions.
(iv) The companies are restrained from selling, disposing of and/or alienating their immovable properties or parting with the possession of the same. The Directors of these companies would also be interdicted from transferring their immovable properties in any manner whatsoever. They should also not part with the possession thereof.
(v) The companies shall not float new schemes to raise further funds without the permission of the court.
(vi) In so far as the existing schemes are concerned, the companies should strictly comply with the Circular of SEBI dated style="line-height:
150%;"February 24, 1998.
11. Subsequently vide its order dated October, 13, 1998, the High Court further clarified that the aforesaid directions would apply to all the plantation companies running collective investment schemes irrespective of the fact whether their names were mentioned in the court proceedings or not. Thereafter, vide its order passed on style="line-height: 150%;"October 29, 1998, the court clarified that in the event of the failure to comply with its earlier directions within the stipulated time, the question of initiation of proceedings for contempt of court and attachment of properties/appointment of receiver of the defaulting companies shall be considered.
12. Notice of the aforementioned directions was Page 21 of 29 HC-NIC Page 21 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT given by SEBI to all the plantation/agro based companies/entities by way of newspaper advertisement/notice which was published in all editions of the Indian Express on style="line-height:
150%;"October 21, 1998 and style="line-height: 150%;"November 9, 1998.
13. Subsequently, in exercise of its powers under Section 30 of the Act, SEBI notified the Regulations on style="line-height: 150%;"October 15, 1999 to regulate the activities of collective investment schemes.
14. In terms of Section 11 AA of the Act, 1992, any scheme or arrangement made or offered by a company that satisfies the following conditions shall be a collective investment scheme:
i. the contributions, or payments made by the investors, by whatever name called, are pooled and utilised solely for the purposes of the scheme or arrangement;
ii. the contributions or payments are made to such scheme or arrangement by the investors, with a view to receive profits, income, produce or property, whether moveable or immovable from such scheme or arrangement;
iii. the property, contribution or investment forming part of the scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;
iv. the investors do not have day to day control over the management and the operation of the scheme or arrangement.
15. Further in terms of section 12(1B) of the Act, and the provisions of the Regulations, no entity is permitted to carry on or sponsor or launch a collective investment Page 22 of 29 HC-NIC Page 22 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT scheme without obtaining a certificate of registration under the Regulations. Further under the provisions contained in Chapter IX of the Regulations, no existing collective investment scheme is permitted to launch any new scheme or raise money from the investors even under the existing schemes, unless a certificate of registration is granted to it by SEBI under the Regulations.
16. For the grant of certificate of registration, existing collective investment scheme entities were required to make an application within a period of 2 months from the date of notification of the Regulations. Accordingly, the last date for making an application by the existing collective investment schemes was style="font-family:
Arial;"December 14, 1999. However having regard to the interest of the investors and the requests received from various entities, SEBI extended the last date for submitting applications for grant of registration by existing entities upto style="font-family: Arial;"March 31, 2000.
17. Towards the same, several press releases and newspaper advertisements/notices were issued by SEBI from time to time in all the leading newspapers of style="line-height: 150%;"India for the information of all the investors and the persons concerned.
18. In terms of regulation 68(1) of the Regulations, every collective investment scheme which was in operation at the time of commencement of the Regulations, shall be deemed to be an existing collective investment scheme and would be required to comply with the provisions of Chapter IX of the Regulations including Regulations 73 and 74 of the Regulations.
According to the explanation to regulation 68 (1), the expression 'operating a Collective Investment Scheme includes carrying out the obligation undertaken in the various documents entered into with the investors who have subscribed to the scheme'.
19. In terms of Regulation 73 of the Regulations, the entity which is operating an existing collective investment scheme and fails to make an application for registration with SEBI, is required to wind up its schemes and repay its investors in the manner specified therein. Further under Regulation 74 of the Regulations, the Page 23 of 29 HC-NIC Page 23 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT entity operating an existing collective investment scheme which is not desirous of obtaining provisional registration from SEBI, is required to formulate a scheme of repayment and make repayment to the existing investors in the manner specified in Regulation 73.
20. In the case under consideration, I have noted that neither has the company applied for registration under the Regulations nor has it taken any steps for winding up of the scheme(s) and make repayment to the investors in the manner provided under the Regulations. On the contrary, from a perusal of the records, I have noted that while on the one hand, the company is contending that it does not require to get registered as a collective investment scheme since it is not running any kind of collective investment scheme, it has forwarded a letter dated March 29, 2000 to SEBI requesting that the said letter be treated as an application for registration.
21. In this context it would be necessary to note that in terms of regulation 5 of the Regulations, an application for the grant of a certificate of registration should be made in Form A and contain such particulars as are specified therein. Upon perusing the contents of the letter of the company dated style="font-family:
Arial;"March 29, 2000, it is clear that the same can not be treated as an application in terms of the Regulations. That apart, it would also be necessary to consider as to whether the activities of the company are in the nature of collective investment schemes as defined under Section 11AA of the Act.
22. A collective investment scheme as defined in Section 11AA of the Act has the following features:
(i) The contributions or payments made by the investors, by whatever name called, are pooled and utilised for the purposes of the scheme or arrangement;
(ii) The contributions or payments are made to such scheme or arrangement by the investors with a view to receive profits, income, produce or property, whether movable or immovable, from such scheme or arrangement;
(iii) The property, contribution or investment forming part of scheme or arrangement, whether identifiable or not, is managed on behalf of the investors;Page 24 of 29
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(iv) The investors do not have day-to-day control over the management and operation of the scheme or arrangement.
23. Upon perusing the documents submitted by the company including the details of the company and the scheme(s), the Articles of Association and Memorandum of Association as well as the names and addresses of the promoters of the company, it is noted that the company is presently running two kinds of schemes i.e. teak memberships scheme and mango membership scheme. Under the teak membership scheme, there are 61,549 investors and a total amount of Rs. 9.18 crores is stated to have been mobilised by the company under the said scheme. I have also noted the contents of the teak sapling sale certificate issued by the company and have also perused the prospectus of the scheme. In terms of the same, it is noted that the investor is required to pay an amount of Rs. 550 (which amount was subsequently raised to Rs. 850) and become an owner of a teak plant. Under the mango membership scheme, there are 237 investors and an amount of Rs. 0.08 crores is stated to have been mobilised by the company under the scheme which is of 15 years duration.
24. Upon the perusal of the Memorandum of Association of the company, it is noted that the promoters of the company are also shown under the head of 'directors of the company'. It is noted that Rs. 0.99 crores has been paid as commission by the company to the agents, while an amount of Rs. 0.82 crores has been shown as administrative expenses of the company. Further, instead of the company submitting its latest audited annual accounts, the provisional accounts as on style="line-height: 150%;"December 15, 2002, has been submitted.
25. It can be seen from the documents submitted by the company that the funds of the investors are pooled and utilised for the purpose of the scheme. The investors have entered into the agreement with a view to receive a consolidated amount from such a scheme. It is also seen that the property forming part of the scheme is managed Page 25 of 29 HC-NIC Page 25 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT on behalf of the investors and they do not have day-to- day control over the management of the aforesaid property as the company has exclusive control for managing and developing the property.
26. Thus it is apparent that the schemes of the company are in the nature of a collective investment scheme in as much as there is a pooling of resources, investments are made with a view to profit, property is managed on behalf of the investors and the investors do not have day to day control. However details of the ownership of the land on which the saplings are stated to have been planted, have not been provided. Having regard to the above, I am of the considered view that the schemes floated by the company fall squarely within the definition of the Collective Investment Scheme as defined under Section 11AA of SEBI Act.
27. I have further noted that several complaints have been made by the investors to the effect that the company was not redressing the grievances of the investors with regard to the return of the dues. Despite forwarding the same to the company, it has failed to take any steps to redress the same.
28. I have noted that although several press releases and newspaper advertisements/notices were issued by SEBI from time to time in all the leading newspapers of India bringing to the notice of the investors and the persons concerned, the various instructions issued by SEBI from time to time as well as the statutory requirements as contained under the Act and the Regulations, the company has failed to comply with the same. Therefore the company has violated the provisions of Section 12(1B) of the SEBI Act, 1992 and Regulation 5(1) read with regulations 68 (1), 68(2), 73 & 74 of the Regulations.
29. In view of the same, on the basis of the facts of the case, I, in exercise of powers conferred upon me under Section 11B of the SEBI Act read with Regulation 65 of the Regulations, hereby direct the company, as an existing collective investment scheme, to wind up its existing scheme(s) and refund the money collected under the scheme(s) with returns which are due to the investors as per the terms of offer within a period Page 26 of 29 HC-NIC Page 26 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT of one month from the date of the order, failing which the following actions would follow :
1. Initiation of prosecution proceedings, under Section 24 of the SEBI Act, 1992, against the company / its promoters / directors / managers / persons in charge of the business of its scheme(s),
2. Debarring the company / its promoters/ directors / managers / persons in charge of the business of its schemes (s) from operating in the capital market and accessing the capital market for a period of 5 years,
3. Writing to the State Government / local police to register civil /criminal cases against the company and its promoters / directors for apparent offences of fraud , cheating, criminal breach of trust and misappropriation of public funds, and
4. Writing to the department of company affairs, to initiate the process of winding up of the company."
31. Thus, the Tribunal directed initiation of the prosecution against the Company under section 24 of the SEBI Act, 1992 including its promoters, directors, managers and the persons in charge of the business of its scheme. It also directed the State Government/ Local Police to register the criminal case against the company and its promoters/directors for the apparent offences of fraud, cheating, criminal breach of trust and misappropriation of the public funds.
32. I am not impressed with any of the submissions canvassed on behalf of the applicants.
33. In the case of Smt. Nagawwa vs. Veeranna Page 27 of 29 HC-NIC Page 27 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT Shivalingappa Konjalgi & Ors., AIR 1976 SC 1947, the Supreme Court observed as under;
"Mr. Bhandare laid great stress on the words "the truth or falsehood of the complaint" and contended that in determining whether the complaint is false the Court can go into the question of the broad probabilities of the case or intrinsic infirmities appearing in the evidence. It is true that in coming to a decision as to whether a process should be issued the Magistrate can take into consideration inherent improbabilities appearing on the face of the complaint or in the evidence led by the complainant ill support of the allegations but there appears to be a very thin line of demarcation between a probability of conviction of the accused and establishment of a prima facie case against him. The Magistrate has been given an undoubted discretion in the matter and the discretion has to be judicially exercised by him. Once the Magistrate has exercise his discretion it is not for the High Court, or even this Court, to substitute its own discretion for. that of the Magistrate or to examine the case on merits with view to find out whether or not the allegations in the complaint, if proved, would ultimately end in conviction of the accused. These considerations, in our opinion, are totally foreign to the scope and ambit of an inquiry under s. 202 of the Code of Criminal Procedure which culminates into an order under s. 2042 of the Code. Thus it may be safely held that in the following cases an order of the Magistrate issuing process against the accused can be quashed or set aside: (1) Where the allegations made in the complaint or the statements of the witnesses recorded in support of the same taken at their face value make out absolutely no case against the accused or the complaint does net disclose the essential ingredients of an offence which is alleged against the accused;
(2) where the allegations made in the complaint are patently absurd and inherently improbable so that no prudent person can ever reach a conclusion that there is sufficient ground for proceeding against the accused;
(3) where the discretion exercised by the Magistrate in issuing process is capricious and arbitrary having Page 28 of 29 HC-NIC Page 28 of 29 Created On Sun Aug 13 17:28:57 IST 2017 R/CR.MA/7963/2016 JUDGMENT been based either on no evidence or on materials which are wholly irrelevant or inadmissible; and .
(4) where the complaint suffers from fundamental legal defects, such as, want of sanction, or absence of a complaint by legally competent authority and the like.
The cases mentioned by us are purely illustrative and provide sufficient guidelines to indicate contingencies where the High Court can quash proceedings. "
The High Court in quashing the order of the Magistrate completely failed. to consider the limited scope of an inquiry under s. 202. Having gone through the order of the Magistrate we do not find any error or law committed by him. The Magistrate has exercised' his discretion and has given cogent reasons for his conclusion. Whether the reasons were, good or bad, sufficient or insufficient, is not a matter which could have been examined by the High Court ill revision. We are constrained to observe that the High Court went out of its way write a laboured judgment highlighting certain aspect of the case of the accused as appearing from the documents filed 'of them which they were not entitled to file and which were not entitled in law to be considered. "
34. In view of the above, this applications fails and is hereby rejected. Rule is discharged. The ad-interim relief, earlier granted, stands vacated.
(J.B.PARDIWALA, J.) Vahid Page 29 of 29 HC-NIC Page 29 of 29 Created On Sun Aug 13 17:28:57 IST 2017