Bangalore District Court
M/S Virtue Import & vs No.1 Export Pvt Ltd on 16 January, 2017
IN THE COURT OF THE LXII ADDL.CITY CIVIL
& SESSIONS JUDGE, BENGALURU
Dated this the 16th day of January, 2017
PRESENT
************
SRI. PARAMESHWARA PRASANNA,
B.A,L.L.B.,
LXII ADDL.CITY CIVIL & SESSIONS JUDGE
BENGALURU
Crl. Appeal No.230 /2016
APPELLANTs:/ 1. M/s Virtue Import &
ACCUSED No.1 Export Pvt Ltd.,
No.902, 3rd cross, 5th main,
M.C.Layout, Vijaynagar,
Bengaluru. Represented by
its Managing Director,
Sridhar.D.
No.2 2. Sridhar.D.,
Aged about 44 years,
S/o Dorairaj,
Managing Director,
M/s Virtue Consumer
Products Pvt Ltd., No.919,
2nd Cross, 4th main,
M.C.Layout, Vijaynagar,
Bengaluru-560 040.
No.3
3. Mrs.S.Hemamalini,
Aged about 43 years,
W/o Sridhar.D,
Director, M/s.Virtue
Consumer Products Pvt Ltd.,
No.919, 2nd Cross, 5th main
M.C.Layout, Vijayangar,
Bengaluru-560 040.
(By Sri B.S.Manjunath, Adv)
-Vs-
2 Crl.Appeal.230 /2016
RESPONDENT:/ Deepak.S.Kakkad,
COMPLAINANT S/o Suresh Chand.G.Kakkad,
Aged about 46 years,
R/at No.134, S-2, Rajyog Apt,
1st cross, Central Excise Layout,
Vijaynagar,
Bengaluru-560 040.
(By Sri.Dharmapal, Advocate)
JUDGMENT
This criminal appeal is filed under Section 374 (3) of Cr.P.C by the appellants /accused Nos.1 to 3 against the Judgment dated 29.01.2016 passed by the learned XVI Addl.Chief Metropolitan Magistrate in C.C.No.9897/2011 wherein the said trial Court convicted the appellants Nos.2 and 3/accused Nos.2 and 3 for the offence punishable U/s.138 of Negotiable Instrument Act and sentenced them to pay fine of Rs.3,62,920/- collectively and in default of payment of fine to undergo S.I for 6 months each and out of fine amount Rs.3,57,920/- is ordered to be paid to the complainant and the balance of Rs.5,000/- has been ordered to be adjusted towards cost to the State Exchequer.
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2. For the sake of convenience, the parties are referred to as per their litigative status before the trial court. The appellants are accused Nos.1 to 3 and respondent is the complainant as per their original ranks before the trial Court.
3. The Respondent/complainant filed the private complaint against the appellants/accused Nos.1 to 3 before the trial Court for the offence punishable under Section 138 of N.I.Act. Based on the said complaint, cognizance was taken, sworn statement of the complainant was recorded and the case was registered against the accused in C.C.No.9897 /2011 for the offence punishable under Section 138 of N.I.Act. Upon service of summons, the accused Nos.1 to 3 appeared through their counsel and plea of the accused was recorded and the accused Nos.1 to 3 pleaded not guilty.
During the course of trial in order to prove the case of the complainant, the complainant got examined himself as Pw.1 and got marked documents as Exs.P.1 to Ex.P15. Accused Nos.1 to 3 when examined U/s.313 of Cr.P.C denied all incriminating circumstances appearing in evidence against 4 Crl.Appeal.230 /2016 them. Accused Nos.1 to 3 in order to prove their defence, got examined accused Nos.2 and 3 as Dws.1 and 2 and got marked documents as Exs.D.1 to Ex.D.3.
4. After hearing both the parties, the Court below convicted the accused for the offence punishable U/s.138 of N.I.Act and sentenced them as aforesaid. Being aggrieved by the said conviction and sentence of the trial court, the appellants/accused have filed this criminal appeal by challenging the Judgment on the following grounds:
1) The impugned Judgment is erroneous, arbitrary and contrary to the facts and circumstances of the case available on record.
2) Trial Court failed to appreciate the materials available on record, which shows that the transaction with first appellant which is a company incorporated under Companies Act, consequently a legal entity.
3) When there is no conviction order against the first appellant, there can be no conviction of the 2nd and 3rd appellants who are made parties representing the 1st appellant Company.
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4) The impugned Judgment has not lifted the corporate veil to convict the 2nd and 3rd appellants in their individual capacity, accordingly the impugned Judgment is opposed to well established principles of law.
5) The 2nd and 3rd appellants cannot be convicted independently of 1st appellant.
6) The application of principle laid down in case of Suresh Chandra Goyel /vs/ Amith Singhal reported in 2015 ACD 755 (Delhi) is not applicable to the facts and circumstances of the case.
7) The trial Court has lost track of the facts and circumstances of the case by wrongly holding that Judgment of O.S.No.8178/2010 itself constitutes proof of legally recoverable debt under the Negotiable Instruments Act.
8) The trial Court has not taken into consideration the admitted facts from Ex.P.12 that there is no payment to appellants. In this admitted circumstances the trial Court has erred in not examining non-payment of the amount with respect to the Cheque issued and its consequence.
Admittedly with respect to the Cheques there is no legally recoverable debt.
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9) The trial Court has misdirected itself in appreciating the facts and circumstances of the case. The trial Court ought to have opined that Cheques in issue pertains to first appellant company and the respondent ought to have proved the payment by respondent to the appellants in pursuance of which the Cheques in issue would be related to for the purpose of constituting a transaction resulting legally recoverable debt. The respondent not pleaded, proved or placed any material with respect to payment equivalent to Cheque amount and established the alleged transaction. Thus there is no material constituting the legally recoverable debt with respect to which the alleged Cheques are issued.
10) The levy of fine is disproportionate and excessive in nature. It is also contrary to the provisions of law and without jurisdiction of trial Court.
Inter alia on these grounds, the appellant sought for allowing of this criminal appeal and to set-aside the impugned Judgment and to acquit the appellants/accused Nos. 2 and 3.
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5. After admitting of this criminal appeal, the notice was issued to the respondent. The respondent appeared through his counsel. The lower Court records secured.
6. Heard the learned counsels for the appellant and respondent. Perused the written arguments filed on behalf of the appellants and respondent. I have carefully perused the entire lower Court records pertaining to this case and the impugned Judgment.
7. Under these facts and circumstances, the following points arise for the consideration of this Court:
1. Whether the Judgment of conviction and order of sentence passed by the learned XVI Addl.Chief Metropolitan Magistrate Court, Bengaluru in C.C.No.9897/2011 dated 29/01/2016 is erroneous and illegal?
2. Whether there is any necessity for interfering with the aforesaid impugned Judgment of the trial Court?
3. What Order?
8. My findings to the above points are as under:-
POINT No.1 :- In the Negative
POINT NO.2 :- In the Negative
POINT No.3 :- As per final order,
for the following:-
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REASONS
9. POINT Nos.1 and 2:-
As the points 1 and 2 are inter-related to each other, they are taken together for discussions for the sake of convenience and brevity.
The case of the complainant in brief is that, accused Nos.2 was residing in the same Apartment, where the complainant was residing and both became friends. Accused No.2 was running a business of supply of food products in the name and style "Shasta Food Products". When the said business was under loss and was in a stage of closure, at that juncture accused No.2 persuaded the complainant to take part with him in a proposed new Companies by assuring that both will get more profit in the said business. Accordingly, accused No.2 made the complainant to have trust on him. On good faith and belief, the complainant agreed to have a part with the accused No.2 in business and accordingly both have started three Companies in the name and style (1) Virtue Consumer Products Pvt Ltd., (b) Virtue Import and Export Pvt Ltd., and 9 Crl.Appeal.230 /2016 (3) Virtue Life Science Pvt Ltd.,. Both became the Directors of said Companies and accused No.2 was the Managing Director of the said Companies and he was only looking after all the business and transaction. The complainant on request of accused No.2 invested huge amount in the said companies and apart from that accused No.2 borrowed hand loans from the complainant. Thereafter the complainant found several irregularities by accused No.2 in managing the affairs and business of accused No.1 company and as such the complainant decided to come out from the companies and as such 2nd accused and complainant arrived at a settlement in which the complainant given resignation to accused No.1 company and accused No.2 agreed to pay back the investment and loan amount to the complainant. In pursuance of settlement of Memorandum of Understanding and Loan Agreement entered into between accused No.2 and the complainant and in accordance with M.O.U, accused No.2 issued 9 separate post Cheques dated 30.5.2010 to the complainant for total amount of Rs.8,52,920/-. As per the 10 Crl.Appeal.230 /2016 terms of said M.O.U the complainant shall continue as non whole time director of the accused No.1 Company till 31.5.2010 and accused shall make full and final payment of investment and unsecured loan to the complainant on or before 31.5.2010 and as per the condition in M.O.U the complainant shall not present the said Cheques for collection till 31.7.2010. In spite of request of complainant accused failed to repay the amount due to the complainant even after 31.7.2010, hence the complainant after lapse of said prohibitory period incompliance of the terms of M.O.U presented the four cheques for total amount of Rs.3,52,920/- described here below:-
Sl. Cheque Name of Date Amount
No No. the Bank
1 514260 State Bank 30.05.2010 Rs.1,00,000/-
of India
2 514261 State Bank 30.05.2010 Rs.1,20,000/-
of India
3 514262 State Bank 30.05.2010 Rs.75,000/-
of India
4 514263 State Bank 30.05.2010 Rs.57,920/-
of India
That the aforesaid four cheques when presented for
encashment by the complainant, returned dishonoured for the reason of 'insufficiency of fund' as per bank endorsement dated 11 Crl.Appeal.230 /2016 21.9.2010. Thereafter the complainant got issued the legal notice to the accused Nos.1 to 3 which though came to be duly served upon accused Nos.1 to 3, they have not paid amounts due under said cheques and as such according to the complainant, accused have committed the offence punishable under Section 138 of N.I.Act, hence he was constrained to file complaint against the accused Nos.1 to 3 for the offence punishable U/s.138 of N.I.Act.
10. In order to substantiate the case of the complainant, he got examined himself as Pw.1 and got marked documents as Exs.P.1 to Ex.P.15. That in the affidavit filed towards examination-in-chief, the complainant has reiterated the averments made in the complaint. Ex.P.1 to Ex.P.4 are Cheques, Ex.P.1(a) to Ex.P.4(a) are signatures of the accused No.2, Ex.P.5 to 9 are Bank Endorsements, Ex.P.10 is the office copy of the legal notice, Ex.P.11 is the reply notice, Ex.P.12 is the Original Memorandum of Understanding, Ex.P.13 is the certified copy of the Judgment in O.S.No.8179/2010 and Ex.P.14 is the original complaint. In his oral evidence, Pw.1 by 12 Crl.Appeal.230 /2016 relying the aforesaid documentary evidence, claims that accused No.2 being the Managing Director of the accused No.1 Company and accused No.3, being one of the Directors of the companies have issued the disputed Cheques, which came to be dishonored for "insufficiency of funds" and as such according to the complainant, the accused are guilt of the offence punishable u/s 138 of N.I.Act.
11. That in order to prove the defence, the accused got examined accused Nos.2 and 3 as Dws.1 and 2. Accused NO.2 in his evidence has deposed that complainant is also the Director of the accused No.1's Company and he is also a shareholder and he has made investment into the first account of the first accused company and therefore he cannot file complaint against the first accused company. It is further deposed by Dw.1 that, the complainant who intended to separate from the first accused company entered into an arrangements with accused No.3 and himself for coming out from the 1st accused company and in any event there is no payment made to accused No.3 or himself in their individual 13 Crl.Appeal.230 /2016 capacity and there is no liability either on himself or on accused No.3 to the complainant and the loan agreement is also entered into by Pw.1 with the 1st accused company and not in the personal capacity of himself and accused No.3. It is further deposed by Dw.1 that he, himself, accused No.3 along with Pw.1 are the Directors of first accused company, even now and therefore, until and unless Pw.1, works out of his remedy with the 1st accused company, only thereafter the corporate veil can be lifted against the accused No.3 and himself and even otherwise, the complainant continuous to be a Director of the 1st accused company and he or accused No.3 have not personally undertaken to pay any amount to Pw.1 and therefore, there is no legally recoverable debt due from him and accused No.3 to the Pw.1 and even if the complainant has any claim, then he has to exhaust his remedy against the 1st accused company, which may include filing petition for liquidation and Dw.1 further deposed that the complainant is even now a Director and as such he could not file complaint against the accused No.1. Inter-alia with these contentions 14 Crl.Appeal.230 /2016 accused No.2/ Dw.1 sought for dismissing of the complaint. In support of his oral evidence, Dw.1 has relied upon the certified copy of the deposition of Pw.1 in O.S.No.8177/2010 as per Ex.D.1, the certified copy of the deposition of Pw.1 in O.S.No.8178/2010 as per Ex.D.2 and the certified copy of the deposition of Pw.1 in O.S.No.8179/2010 as per Ex.D.3.
12. First of all let us consider undisputed facts in the case on hand. It is not in dispute between the parties that 2nd accused and the complainant started three Companies in the name and style of (1) Virtue Consumer Products Pvt Ltd., (b) Virtue Import and Export Pvt Ltd., and (3) Virtue Life Science Pvt Ltd.,. It is also admitted that both accused No.2 and complainant have become the Directors of said Company, accused No.2/appellant No.2 was the Managing Director of said Company and he was only looking after all the business transactions. The accused No.2/Dw.1 in his chief-examination itself admitted that the complainant in order to separate from accused No.1 company entered into Memorandum of Understanding and Loan Agreement with accused Nos.2 and 3 15 Crl.Appeal.230 /2016 and Dw.1 also admitted the issuance of cheques, but contended that they were issued only as a security. Even bouncing of the said cheques and issuance of legal notice are not disputed.
13. From the evidence of the parties and documents on record, it is clear that the total amount of aforesaid cheques were due from the accused to the complainant as on 31/7/2009 and the aforesaid Cheques were presented for collection on 20.09.2010 and the same were dishonoured. That as per terms of the Loan Agreement dated 5.12.2009, the aforesaid Cheques were given as security for the due repayment of loan amount and as per the said loan agreement, the accused undertook to repay the principle amount on or before 30.05.2010. As per terms of the Loan agreement, the complainant should not attempt to encash any Cheques referred above issued as security for the repayment of unsecured loan amount till 31.7.2010 and that the Cheques were agreed to be returned if the loan is cleared by the accused within said period. Admittedly the accused have not 16 Crl.Appeal.230 /2016 repaid the un-cleared loan referred in Memorandum of Understanding and Loan Agreement. As per the recitals in Memorandum of Understanding and Loan Agreement, the complainant shall not present the Cheque before 31.7.2010. In the Memorandum of Understanding, the Cheque number, amount and the date of the Cheques have been clearly stated and it is very pertinent to note that disputed Cheques in question were presented for collection only on 20.9.2010 i.e., after 31.7.2010. As per the recital in Memorandum of Understanding and Loan Agreement, if the accused does not repay the un-cleared loan, then the complainant is entitled to take legal action. All the Cheques issued by the accused came to be bounced and the complainant at the time of filing the complaint before the trial Court also filed suit for recovery of money of Rs.22,00,560/- against accused Nos.1 to 3 before 19th Addl.City Civil & Sessions Judge, Bengaluru in O.S.No.8178/2010 which was decreed on 4.3.2014 and the aforesaid Judgment in O.S.No.8178/2010 is marked as Ex.P.14. In Ex.P.14, it is clearly observed that accused Nos.2 and 3 did 17 Crl.Appeal.230 /2016 not deny their execution of Memorandum of Understanding and Loan Agreement specifically and in Para 12 of the Judgment, it is observed that accused No.2 admitted settlement between him and Pw.1 and accused No.2 represented accused No.1 Company at that point of time and it is also observed that accused Nos.2 and 3 have admitted their signatures on Memorandum of Understanding and Loan Agreement and they have also admitted the issuance of Cheque in question.
14. Dw.1 in his cross-examination at Para 2 has admitted that he induced his wife i.e., accused No.3/ Dw.2 and his brother as Directors and he has also admitted that, till said date he has not paid the decreetal amount to the complainant.
15. From the Catena of various decisions of Hon'ble Supreme Court and High Court, it is now crystal clear that simultaneous Civil Suit and complaint under Section 138 of N.I.Act for the same cause of action is maintainable. The signature in the Cheques and the contents of the Cheques have not been in dispute. It is the contention of the accused that there is no understanding between parties for enforcing 18 Crl.Appeal.230 /2016 security Cheque. The fact that the accused has given a security in the form of post dated Cheque with the agreement that it is a security for the fulfillment of an obligation to be discharged on a future date itself, is sufficient to hold that in case of failure of the debtor to make payment on the due date, the security Cheques may be presented for payment i.e., for recovery of the due debt. If that were not so, there would no purpose of obtaining a security Cheque from the debtor. A security cheque is issued by the debtor so that the same may be presented for payment. Otherwise, it would not be a security cheque. The MOU does not expressly or even impliedly states that the security Cheques should not be presented for encashment even after 31.7.2010.
16. The security Cheques are the Cheques only like other cheques and they creates same liability to discharge as if they are ordinary cheque and attract provision of Sec 138 of N.I.Act, when they are dishonored. What is important is to show under which circumstances, the cheque was issued and in order an offence U/s.138 of N.I.Act is to be proved, the said 19 Crl.Appeal.230 /2016 Cheque must be issued in discharge of legally enforceable debt. Merely calling a Cheque as a security will not help the accused. The accused has to show probable circumstances such that Cheque was not issued in discharge of legally enforceable debt or other liability. When the Cheque is bounced it raises rebuttal presumption as envisaged Section 139 of N.I.Act. The Hon'ble Apex Court in M.S.Narayan Manon @ Mani /Vs/ State of Kerala and another (2006) Volume 6 SCC 39 held that:
There is no magic in the word "Security Cheque", such that moment the accused claims that dishonored Cheque (in respect where of complaint under Section 138 of N.I.Act is preferred) was given as a "security Cheque", the Magistrate would acquit the accused. The expression "Security Cheque"
is not a statutorily defined expression in the N.I.Act. The N.I.Act does not perse carve out an exception in respect of 'Security Cheque"
to say that a complaint in respect of such a Cheque would not maintainable".
20 Crl.Appeal.230 /2016 The Trial Court while giving the findings, has relied on precedent of Hon'ble Apex Court in Suresh Chandra Goyal vs/ Amit Singhal reported in 2015 ACD 755 (Delhi), wherein, under similar set of fact situation it was held that:
'the defence that the cheques were issued as security for return of the amount invested by the complainant could not be accepted on the ground that the MOU does not expressly or even impliedly states that the security cheques are not to be used for recovering the installments even in case of failure to pay the same by the respondent/ debtor".
I have carefully gone through the aforesaid Precedents.
The facts and circumstances involved in the said case are aptly applicable to the case on hand.
17. The recital in the Memorandum of Agreement and Loan agreement that Cheques in question should not be presented by the complainant till 31.7.2010 coupled with the recital that on failure of the accused the complainant is entitled to take legal action itself indicates that in case of non-
21 Crl.Appeal.230 /2016 payment of unsecured debt by accused, the complainant is entitled for presenting the said cheqeus for encashment after 31.7.2010 and he also entitled for taking legal action in the event of dishonour of those cheques.
18. The document on record discloses that on the date of entering into loan agreement and the Memorandum of Understanding and on the date of disputed Cheque, the accused Nos.2 and 3 wherein charge of and responsible to the company for conduct of the business of the company. The accused Nos.2 and 3 being the Directors of accused No.1 Company and being the signatory to the Memorandum of Understanding and Loan Agreement aforesaid cannot now contend that, they are not liable in respect of disputed Cheque issued on behalf of the accused No.1 Company.
19. A bare reading of provision of Section 141 of N.I.Act makes it very clear that, " a legal fiction is created by the legislature pursuant to which every person who at the time of offence was committed, was in charge of and was responsible to the company for the conduct of 22 Crl.Appeal.230 /2016 business of the company as well as company is deemed to be guilty of the offence"
The recitals in the loan Agreement and Memorandum of Understanding proves that the complainant given resignation to the accused No.1 company and he ceased to be the Director of the accused No.1 company on 31.5.2010 and as on 31.7.2010 the total amounts mentioned in Cheques aforesaid were due and outstanding from the accused to the complainant.
20. Section 138 of N.I.Act does not distinguish between a Cheque issued by the Debtor in discharge of an existing debt or other liability or a Cheque issued as a security Cheque on the premise that on the due future date the debt which shall have crystallized by then shall be paid. The MOU and Loan Agreement establishes that, total amounts of the aforesaid Cheques were due from the accused as on the date of the Cheque. The documents on record establishes that the Cheque amounts were outstanding from the accused as on the date of the Cheques and the same were issued in discharge of legally recoverable debt /liability. Hence the defence that the Cheque
23 Crl.Appeal.230 /2016 in question were issued as a Security, Cheques cannot be accepted.
21. The material on record shows that, on the date of MOU, Loan Agreement and on the date of Cheques, the accused Nos.2 and 3 were the Directors of the accused No.1 Company and were responsible for the day today affairs of the Company. DW.1 in his cross-examination admitted that the conditions in MOU are binding on him and Dw.2 and he has also admitted that all Cheques issued to complainant pertains to MOU and Loan Agreement.
22. Since the old Companies Act has been repealed and new company Act enacted and came in to force with effect from 30.8.2013, the argument of learned counsel for appellant that the alleged amounts in question can be recovered only through Liquidation of Company cannot be accepted.
23. The counsel for the appellant has argued that, unless the complainant transfers all the shares by executing the Transfer Deeds and retires by getting his name removed from 24 Crl.Appeal.230 /2016 the Registrar of Companies with respect to the first accused company, the Cheques act as security and there does not exist any legally enforceable debt till the complainant executes transfer deed and retirement procedures. This argument canvassed by the appellant counsel is against the recitals in the Memorandum of Understanding and the Loan Agreement and there is no such condition in Memorandum of Understanding or loan Agreement and judicial findings regarding the same has been already given by the competent Civil Court in O.S.No.8178/2010. As per Memorandum of Understanding, the complainant ceased to be the Director of accused No.1's Company on 31.7.2010 and cheque were presented subsequently and as such the said argument of learned counsel for appellant cannot be accepted.
24. In Ex.P.14 Judgment in O.S.No.8178/2010, it is clearly held that the amount covered under 13 cheques which includes Cheques pertains to the present case have been issued for repayment of unsecured loan amount by accused Nos.2 and 3 to the complainant and that the debt is legally recoverable.
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25. There is a presumption U/s.118 and 139 of N.I.Act in favour of holder of the Cheque, that Cheque was drawn for discharge of debt or liability. In Rangappa /vs/ Mohan reported in 2010 Crl.L.J.2878, the Hon'ble Apex Court has held that:
"Once the execution of Negotiable Instrument is either proved or admitted, then the Court has to draw presumption available U/s.139 of N.I.Act to the effect that Negotiable Instrument Act has been drawn for valid consideration"
26. In this case the accused has failed to rebut presumption available to the complainant U/s.118 and 139 of N.I.Act. The evidence of Pw.1 coupled with presumption under law establishes that cheques were issued towards discharge of legally recoverable debt and liability and the appellants have not rebutted the said presumption. Considering the oral and documentary evidence, the Court below has rightly convicted accused Nos.2 and 3. The complainant has complied with all statutory requirements U/s.138 of N.I.Act in respect of Cheques in question and therefore, on reconsidering the oral and documentary evidence on record, the contention urged in the 26 Crl.Appeal.230 /2016 appeal memo cannot be accepted. Therefore the impugned Judgment of the trial Court does not calls for any interference. Accordingly, I answer point Nos.1 and 2 in the Negative.
27. POINT NO.3: - In view of the above discussions and my findings on point No.1, I proceed to pass the following:
ORDER The criminal appeal filed by the appellants/ accused Nos.1 to 3 under Sec.374 (3) of Cr.P.C. is hereby dismissed.
The Judgment of conviction and sentence passed by the learned XVI Addl.Chief Metropolitan Magistrate, Bengaluru dated 29.01.2016 in C.C.No.9897/2011 is hereby confirmed.
Send the copy of the Judgment along with records to the Lower Court forthwith.
(Dictated to the Judgment-writer, transcribed and typed by her, and then corrected and pronounced by me in the open court on this the 16th day of January, 2017) (Parameshwara Prasanna.B.) LXII Addl. C.C. & Sessions Judge, BANGALORE CITY.
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