Allahabad High Court
Niraj Tyagi And Another vs State Of U.P. And 3 Others on 20 December, 2024
Bench: Ashwani Kumar Mishra, Ashutosh Srivastava
HIGH COURT OF JUDICATURE AT ALLAHABAD
Neutral Citation No. - 2024:AHC:200061-DB
AFR
Reserved
Case :- CRIMINAL MISC. WRIT PETITION No. - 10893 of 2023
Petitioner :- Niraj Tyagi And Another
Respondent :- State Of U.P. And 3 Others
Counsel for Petitioner :- Ashutosh Mishra,Raghav Dwivedi,Sankalp Narain
Counsel for Respondent :- G.A.,Pawan Kumar Srivastava,Saumitra Dwivedi,Sikandar B. Kochar,Suresh Singh,Syed Imran Ibrahim
Connected With
Case :- CRIMINAL MISC. WRIT PETITION No. - 14101 of 2023
Petitioner :- Indiabulls Housing Finance Ltd
Respondent :- State Of U.P. And 2 Others
Counsel for Petitioner :- Kartikeya Saran
Counsel for Respondent :- G.A.,Saumitra Dwivedi,Sikandar B. Kochar,Syed Imran Ibrahim
AND
Case :- CRIMINAL MISC. WRIT PETITION No. - 14053 of 2023
Petitioner :- M3m India Pvt Ltd And Another
Respondent :- State Of U.P. And 3 Others
Counsel for Petitioner :- Ram M. Kaushik,Suresh Singh,T. Islam
Counsel for Respondent :- Akhilesh Kumar Sharma,G.A.,Saumitra Dwivedi,Sikandar B. Kochar,Syed Imran Ibrahim
Hon'ble Ashwani Kumar Mishra,J.
Hon'ble Ashutosh Srivastava,J.
(Delivered by: Hon'ble Ashwani Kumar Mishra,J.)
1. Heard Sri Mukul Rohatgi, Sri Rakesh Dwivedi as well as Sri Anoop Trivedi, learned Senior Advocates assisted by Sri Raghav Dwivedi, Sri Ankit Banati, Sri Eklavya Dwivedi, Mrs. Devanshi Singh, Sri Rishi Agarwala and Sri Kartikeya Saran, Advocates; Sri Vikram Chaudhari, learned Senior Advocate assisted by Sri Jatin Sehgal, Ms. Devna Soni, Sri Shivashish Dwivedi, Sri Ashish Garg, Sri T. Islam, Sri Adhirath Singh, Sri Raymon Singh and Ms. Yashi Bajpai, Advocates, for the petitioners; Sri Manish Goel, learned Additional Advocate General assisted by Sri Suresh Singh, Advocate, for the Yamuna Expressway Industrial Development Authority (YEIDA), Sri J. K. Upadhya, learned AGA for the State; Sri Sikandar B. Kochar as well as Sri Zoheb Hossain (through VC), learned Advocates for the Enforcement Directorate (ED); Sri Vinay Saran, learned Senior Advocate assisted by Sri Prashant Kumar, Sri Sarvesh Kumar Tiwari, Sri Saumitra Dwivedi and Sri Devesh Srivastava, Advocates for the complainant/intervener and Sri Syed Imran Ibrahim, learned Advocate for the private respondent.
2. These three writ petitions have been heard together and are being disposed of by this common judgment. Criminal Misc. Writ Petition No. 10893 of 2023 (Niraj Tyagi and another Vs. State of U.P. and 3 others) is taken as the lead case. These petitions alongwith Writ Petition Nos. 11837 of 2023 & 11838 of 2023 were placed before this Court pursuant to an order of nomination passed by the Hon'ble Chief Justice on 4.3.2024. The other two petitions i.e. Criminal Misc. Writ Petition Nos. 11837 of 2023 and 11838 of 2023 have been allowed by this Court on 15.4.2024 and the First Information Report, dated 22.7.2023, registered as Case Crime No. 611 of 2023, under Sections 420, 120-B IPC read with Section 82 of the Registration Act, 1908, Police Station - Kavi Nagar, District - Ghaziabad has been quashed. The remaining three writ petitions are now being disposed of by this composite judgment.
3. Two FIR's as well as consequential ECIR registered by Enforcement Directorate (in short 'ED') are under challenge in these three writ petitions. The 1st FIR under challenge is in Case Crime No. 427 of 2023, dated 9.4.2023, lodged pursuant to a direction issued by the Chief Judicial Magistrate, under Section 156(3) Cr.P.C., dated 7.4.2023 under Sections 420, 467, 468, 471, 120B, 323, 504, 506 IPC, Police Station Indirapuram, District Ghaziabad (hereinafter referred to as the ' 1st FIR'). The order of the Chief Judicial Magistrate, dated 7.4.2023, passed in Complaint Case No. 457 of 2023 filed by Amit Walia in his capacity as the authorized representative of M/s Shipra Estate Private Limited, is also under challenge.
4. The 2nd FIR under challenge in these proceedings is in Case Crime No. 197 of 2023, dated 15.4.2023, under Sections 420, 467, 468, 471 and 120-B IPC, Police Station Beta-2, District Greater NOIDA (hereinafter referred to as the '2nd FIR'), lodged at the instance of Yamuna Expressway Industrial Development Authority (hereinafter referred to as the YEIDA). The 2nd FIR specifically refers to and relies upon the 1st FIR.
5. The petitioners have also challenged the consequential proceedings initiated by ED pursuant to 2nd FIR as ECIR/HIU-I/06/2023. The ED has also subsumed the 1st FIR in its investigation undertaken vide aforesaid ECIR.
6. The order of Chief Judicial Magistrate dated 07.04.2023 as well as the FIR lodged pursuant thereto are the subject matter of challenge in Criminal Misc. Writ Petition No. 14101 of 2023, while the 2nd FIR as well as ECIR registered by ED, therein, are assailed in Criminal Misc. Writ Petition Nos. 10893 of 2023 & 14053 of 2023. The petitioners in these writs had initially sought a declaration that Section 420 IPC be declared as manifestly arbitrary and ultravires Article 14 and 21 of the Constitution of India but this prayer has been given up, by the petitioners, at the time of hearing of the matter. The prayers in the writs are thus confined to quashing of the above referred two FIRs and the consequential ECIR.
7. The challenge to the two FIRs as also the ECIR, impugned herein, is on the ground that no offences, as alleged therein are made out and the allegations made therein at best disclose existence of pure commercial and civil dispute between the parties, in respect of which initiation of criminal proceedings is nothing but an abuse of the process of law. The short question that arises for our consideration in the facts of the present case is as to whether lodging of the impugned FIRs and the consequential ECIR is an abuse of the criminal process?
8. In order to appreciate the controversy raised in these petitions narration of background facts would be necessary. Indiabulls Housing Finance Limited is a non-banking financial institution registered under the provisions of Indian Companies Act, 1956 (hereinafter referred to as 'Indiabulls'). It claims to be one of the largest premier housing finance company and is regulated by Reserve Bank of India. It is accorded 'AA' rating by CRISIL and ICRA. 'Indiabulls' is petitioner no. 2 in the leading writ petition no. 10893 of 2023, while petitioner no. 1 Niraj Tyagi is its President, Legal.
9. Indiabulls sanctioned loan facility of Rs.2478 crores to M/s Shipra Group of Companies; comprising various group companies including M/s Shipra Estate Limited; M/s Shipra Leasing Private Limited, M/s Shipra Hotels Limited etc. (hereinafter collectively referred to as 'borrowers') between the years 2017 to 2020. 16 loans were sanctioned pursuant to which loan agreements were executed between Indiabulls and the borrowers. The dispute, herein, pertains to 14 out of these 16 loan agreements through which a loan of Rs.1686.10 crores is alleged to have been disbursed to borrowers.
10. The loan sanction agreements vide which loan amount was released to borrowers envisaged creation of securities, twice the value of the sanctioned loan, in favour of Indiabulls. Such security cover was to continue during subsistence of loan by way of charge over properties mortgaged in favour of Indiabulls in a manner that value of mortgaged properties would at all times be sufficient to maintain two times the value of combined dues of the borrowers. In order to secure the loan availed from Indiabulls the borrowers have mortgaged following properties:-
"A. Mortgage of plot admeasuring 73 acres at Sector 128, NOIDA, UP owned by Kadam Developers Private Limited i.e. in short 'Kadam' (a group company of borrower) by executing a mortgaged deed dated 25.01.2018;
B. Mortgage of Plot No. 9 at Vaibhav Khand, Indrapuram (Shipra Mall) Ghaziabad by executing a mortgage deed dated 08.02.2018;
C. Plot No.10/3 at Vaibhav Khand, Indrapuram Ghaziabad;
D. Land at Dera Bassi;
E. Plot Nos. GH-1C & GH-1B at Sector 43, Noida vide mortgage deeds dated 28.02.2018."
11. The borrowers also executed 22 pledge agreements whereunder shares of various group companies were pledged in favour of Indiabulls. It included 100% shares of Kadam (98% owned by Shipra Estate Limited and 1% each by its promoters, namely Mohit Singh and Bindu Singh) vide pledge agreement dated 06.04.2018. Kadam also mortgaged its sole property i.e. 73 acres of land leased to it by Yamuna Expressway Industrial Development Authority, Gautam Budh Nagar, an authority created under the U.P. Industrial Area Development Act, 1976 (hereinafter referred to as 'YEIDA') in favour of Indiabulls.
12. The mortgage of plot nos. GH-1B & GH-1C, Sector 43, Noida in favour of Indiabulls was pursuant to permission/NOC granted by Noida Authority on 23.2.2018. It transpires that the borrowers failed to clear dues of Noida in respect of these two plots to the tune of Rs.38 crores each, which swelled to Rs.219 crores each, as of 31.7.2020. On account of this default the Noida Authority revoked its permission/NOC for creation of mortgage in favour of Indiabulls vide letters/orders dated 2nd & 4th September, 2020.
13. In terms of the loan agreement, Indiabulls issued a cure notice on 20.10.2020 calling upon the borrowers to cure the impaired security (mortgaged plot no. GH-1B & 1C, Sector 43, NOIDA) within 15 days of the notice. The borrowers apparently took no steps to regularize the impaired securities. Consequently, Indiabulls issued loan recall notices on 5.11.2020 and 15.12.2020, recalling the entire outstanding loan and demanded repayment of Rs.1763.61 crores within 7 days from the receipt of notice. Notice was also issued by Indiabulls under Section 95 of the Insolvency and Bankruptcy Code, 2016 to the personal guarantor of loan agreements Mr. Mohit Singh.
14. On failure of borrowers to respond and clear the dues in terms of the notices issued as per loan agreements Indiabulls proceeded to issue loan recall notice to the borrowers. On 14.1.2021 a notice was also issued invoking provisions of Section 176 of the Contract Act in respect of the pledged shares of Kadam.
15. The amount demanded under the loan recall notices from the borrowers to the tune of Rs. 1763 crores approximately has not been paid. It is alleged by the petitioners that after October, 2020, the borrowers have not paid a single rupee towards repayment of loan and have initiated 43 separate and distinct legal proceedings against Indiabulls and its transferees to avoid repayment of loan availed by it. It is the case of the petitioners that institution of criminal action vide impugned FIRs and ECIR is malicious and is with an intent to gain leverage in the ongoing civil/arbitration proceedings.
16. Various steps have been taken by Indiabulls towards enforcement of securities furnished by borrowers in lieu of the loan amount availed by them. Towards this end, Indiabulls has invoked the provisions of the SARFAESI Act and one of the pledged property i.e. M/s Shipra Mall established over plot no.9, Vaibhav Khand, Indirapuram, Ghaziabad, owned by Group Company M/s Shipra Hotel Private Limited was transferred to M/s Himri Estate Private Limited. A first information report in Case Crime No. 611 of 2023 was lodged pursuant to impugned 1st FIR, at the instance of M/s Shipra Hotel Private Limited, through its authorized representative. It came to be challenged before this Court in Writ Petition No. 11837 of 2023 and 11838 of 2023. These two writ petitions have been allowed by this Court on 15.4.2024 after holding that lodging of FIR in respect of loan transaction is an abuse of criminal process when issues raised therein are already engaging the attention of Debt Recovery Tribunal under the SARFAESI Act. Operative portion of the judgment, in this regard, is reproduced hereinafter:-
"22. We have carefully perused the allegations made in the impugned First Information Report which are in respect of transfer of secured asset in favour of auction purchaser by the secured creditor/finance company under the SARFAESI Act. Allegations that proceedings have not been lawfully undertaken or that the secured asset is undervalued are aspects which can only be examined in pending proceedings before the Debt Recovery Tribunal. The defaulter company has already approached the Supreme Court twice and such proceedings were withdrawn with liberty to approach the Debt Recovery Tribunal. The defaulter company has already approached the DRT, Lucknow where the matter is pending. Question as to whether the auction purchaser has exceeded its possession beyond the property transferred in auction purchase is also open for examination before the DRT, Lucknow. Such issues are otherwise civil in nature and cannot be allowed to be raised by lodging an First Information Report. Vague and unsubstantiated ancillary allegations made of encroachment, beyond the transferred secured asset, or alleged irregularity in conduct of auction etc. cannot be allowed to be raised by lodging an FIR and thereby vest jurisdiction in the police regarding civil issues which are required to be adjudicated exclusively by the DRT or the civil court. The tendency of the defaulter to invoke criminal proceedings for resisting coercive action under the SARFAESI Act has to be curbed. The Parliamentary vision of vesting exclusive jurisdiction in specialized tribunal viz DRT, in respect of banking transactions relating to loan, debt etc. has to be respected. Criminal proceedings cannot be pressed into action at the instance of defaulter to scuttle proceedings under the SARFAESI Act on issues exclusively triable by DRT.
23. For the reasons recorded above, these two petitions succeed and are allowed. The First Information Report, dated 22.07.2023, registered in Case Crime No.611 of 2023, under Sections 420, 120-B of IPC and Section 82 of Registration Act, 1908, Police Station - Kavi Nagar, District - Ghaziabad is quashed."
17. In addition to above, Indiabulls invoked the pledge of shares exercising its authority under the pledge agreement. The borrowers and Kadam filed four separate petitions under Section 9 of the Arbitration and Conciliation Act, 1996 seeking restraint against its transfer. An order of status-quo was initially passed with respect to transfer of pledged shares.
18. Meanwhile, the cheques earlier issued by borrowers for an aggregate value of Rs. 75,03,86,792/- to Indiabulls got dishonoured. Application was filed by Indiabulls in Section 9 proceedings for vacating the status-quo order. The matter in between was carried in appeal where the order of learned Single Judge directing status-quo in respect of transfer of shares was suspended. Indiabulls, however, stated before the Appellate Court that invocation of pledge of shares will be undertaken in a completely transparent manner, on a fair evaluation of the shares and that the same would also be placed before the learned Single Judge. The Division Bench of Delhi High Court noted this stand of the Indiabulls and observed that any invocation of pledge would be open to challenge before the Court.
19. During the pendency of application under Section 9 of the Act of 1996 before learned Single Judge of Delhi High Court a notice for sale of pledged shares of Kadam was issued by Indiabulls on 16.4.2021. An application was filed by Kadam in pending petition under Section 9 of the Act of 1996 for interim relief. Petitions were also filed under Section 11 of the Act of 1996 for appointment of Arbitrator. An arbitrator was also appointed on 22.4.2021.
20. The order dated 22.4.2021 was unsuccessfully challenged in appeal before the Division Bench of Delhi High Court. Matter was then taken to Supreme Court by Indiabulls. A statement was made on behalf of Indiabulls that till the matters are disposed of by the Court no action would be taken to precipitate the transfer of shares. The matters were revived before learned Single Judge in proceedings under section 9 of the Act of 1996 under orders of the Supreme Court dated 06.05.2021. Learned Single Judge of Delhi High Court disposed of the application under Section 9 of the Act of 1996 vide judgment dated 20.5.2021. The Court prima facie concluded that element of default had occurred as the security in respect of the mortgaged properties was impaired. Learned Single Judge relied upon the statement made on behalf of Indiabulls that shares would be transferred in a fair and transparent manner and noted that Indiabulls has disclosed the purchaser and also the amount at which the sale is being done. Offer given by Indiabulls to the borrower to redeem the pledged shares on a payment of Rs.900 crores and the inability to avail such offer by borrower was specifically noticed. The Court ultimately rejected section 9 petition after recording its prima facie findings in the matter.
21. Indiabulls and DLF in between had entered into an agreement on 20.4.2021 to sell pledged shares for a consideration of Rs.900 crores. Rs. 750 crores was to be paid by DLF while Indiabulls had to infuse approximately Rs.150 crores in Kadam so as to enable it to repay the loans of M/s Shipra Estate Limited. Mutually settled Share Sale Agreement was to be formalized between the parties within 21 days subject to fulfillment of conditions. Rs.100 crores was paid by DLF to Indiabulls. DLF, however, terminated the agreement and demanded refund of Rs.100 crores which was allowed.
22. Fresh agreement was discussed between the parties and a No Objection Certificate for the sale of property of Kadam to DLF was issued by Indiabulls on 26.5.2021 for consideration of Rs.900 crores. An agreement to sale was thereafter entered into between the parties on 30.5.2021. As per it, DLF agreed to purchase the sale property for Rs.1,250/- crores with shares of Kadam valued at Rs. 900 crores and remaining Rs. 350 crores was to be paid by way of allotment of plots/built up floors in the real estate project to be developed by DLF on the said property of Kadam.
23. Indiabulls, however, sent a legal notice terminating this agreement dated 30.5.2021 as also the No Objection Certificate vide its communication dated 26.6.2021 on the ground of alleged default in honouring the terms of agreement by borrower and DLF.
24. It is worth noticing that the aforesaid twin attempt of transfer of pledged shares of Kadam was with the consent of the borrower and its value was fixed at Rs. 900 crores. The agreement dated 30.5.2021 was signed by Mohit Singh also in his capacity as promoter of borrower company as well as shareholder of Kadam.
25. Indiabulls then entered into a Share Sale Purchase Agreement with Creative Souls Technology Limited and M3M India Pvt. Limited for sale of pledged shares for a consideration of Rs.900 crores. Out of the aforesaid sum approximately Rs.750 crores was to be paid to Indiabulls by M3M and remaining Rs.150 crores (approx) was to be utilized to repay loans availed by Kadam from the borrower. On 3.7.2021, Rs.749.77 crores was transferred to Indiabulls. It also transpires that Rs.750 crores was earlier transferred by Indiabulls to M3M and, therefore, funds for the transfer of shares was ultimately provided by Indiabulls.
26. DLF Home Developers Limited has invoked the arbitration clause under its agreement to sale dated 30.5.2021 and filed a petition under Section 9 of the Act of 1996 before the Delhi High Court. By a detailed judgment learned Single Judge of Delhi High Court has disposed of the matter vide following orders passed on 8.11.2021:-
"116. In the facts of the present case, this Court is of the view that the balance of convenience lies in favour of DLF. DLF is a developer and intends to develop the Sale Property. The entire transaction between the parties as recorded in the ATS is premised on the basis that DLF would use the Sale Property for development of its real estate project. Insofar as Indiabulls is concerned, concededly, it is a money lender and its interest is essentially to recover the loans along with interest as claimed by it. Thus, as far as Indiabulls is concerned, it can always be compensated in terms of money. There is no dispute that Kadam is a part of the Shipra Group of entities and admittedly, had mortgaged the Sale Property with Indiabulls to secure the repayment obligations of the Borrowers. The Borrowers claim that Indiabulls had agreed to accept the consideration payable by DLF under the ATS as full and final settlement of its claims. Plainly, if Kadam and the Borrowers prevail in their case that the dues owed to Indiabulls were fully settled, they would stand discharged of their liability on Indiabulls receiving the consideration as provided under the ATS. However, if they fail in this case, the Borrowers would continue to be liable to discharge their dues. Insofar as Kadam is concerned, Kadam is not one of the Borrowers and its liability is limited to the collateral provided by it for securing the debts owed to Indiabulls, that is, the Sale Property.
117. As noted above, in terms of Clause 10 of the ATS, the parties had agreed that the Sale Property is a 'special property' and damages would not be an adequate remedy. Thus, if DLF prevails in its case that it is entitled to specific performance of the ATS, the damages it would suffer in the event the Sale Property is alienated, cannot be compensated in monetary terms. This Court is of the view that in these facts, the balance of convenience is, plainly, in favour of grant of an interim injunction restraining the parties from creating any third party rights.
118. In view of the above, this Court considers it apposite to direct that status quo as to the title and possession be maintained in respect of the Sale Property till the conclusion of the arbitral proceedings. It is so directed.
119. The parties are at liberty to approach the Arbitral Tribunal as and when the Arbitral Tribunal enters reference, to seek any variation, modification or vacation of the aforesaid order and/or seek any further relief as advised.
120. It is further clarified that all rights and contentions of the parties are reserved and nothing stated in this order shall be construed as a final expression of opinion on the merits of the disputes. The findings and observations made in this order are solely for the purposes of the present application and would not preclude the parties from advancing their respective contentions as may be advised, before the Arbitral Tribunal.
121. The petition is disposed in the aforesaid terms. The pending application is also disposed of."
27. We may note that though Kadam is a group company of the borrower but it has not availed any loan from Indiabulls. It has a separate and distinct entity as a juristic person. It has only pledged its shares and mortgaged 73 acre land as a collateral for the loan availed by the borrower which is its holding company.
28. As stated Indiabulls has transferred 100% pledged shares of Kadam on 1.7.2021 to M/s Creative Souls Technology India Private Limited, rechristened as Final Step Developer Private Limited. The transferee Company is the subsidiary company of M/s M3M India Private Limited (Petitioner No. 1 in Writ Petition No. 14053 of 2023). On 1.7.2023, M/s M3M India Private Limited has purchased the entire equity share holding of Kadam from Indiabulls. It is this part of the transaction which is the subject matter of the two FIRs under challenge in these petitions.
29. At this stage, we may note that the loan agreement pursuant to which 100% shares of Kadam were pledged in favour of Indiabulls contained an arbitration clause. This clause has already been invoked by the borrowers and various proceedings therein are already undertaken. Mr. Justice Vikramjit Sen, a retired Judge of the Supreme Court, has already been appointed an arbitrator in the matter.
30. In the arbitration proceedings instituted by M/s DLF Limited also Mr. Justice Vikramjit Sen has been appointed an arbitrator and the proceedings are pending before the learned arbitrator. The Arbitrator has already passed an order of status-quo in respect of the 73 acre mortgaged land of Kadam. These proceedings and the orders passed therein are, however, not referred to in the two FIRs or the complaint of borrower.
31. We shall refer to the proceedings of arbitration, a little later, while considering petitioners' argument that invocation of criminal proceedings vide impugned FIRs are intended to overreach and preempt such civil proceedings.
32. It is in the above backdrop and after the borrowers failed to obtain any protection in respect of transfer of pledged shares before the Delhi High Court that the 1st FIR came to be lodged pursuant to the order of the Chief Judicial Magistrate, dated 7.4.2023, as Case Crime No. 427 of 2023. This complaint contains assertion to the effect that M/s Shipra Group is engaged in real estate activity through its various group companies and needed finance for its four upcoming housing and commercial projects. The Directors of Indiabulls contacted M/s Shipra Group and offered to provide loan of Rs. 1939 crore on concessional rates and to secure such transaction properties worth Rs. 6 thousand crore was kept as security in favour of Indiabulls by the borrowers i.e. M/s Shipra Group of Companies.
33. The complaint alleges that substantial part of the loan amount disbursed was however unauthorizedly recalled by Indiabulls, from borrowers i.e. M/s Shipra Group of Companies and therefore the entire sanctioned loan amount was not given to the borrowers M/s Shipra Group. Signatures were also obtained from the Managing Director of M/s Shipra Estate Limited, namely Sri Mohit Singh. It is alleged that in collusion with various petitioner companies Indiabulls played fraud and only disbursed Rs. 866.88 crore to Shipra Group while balance amount was arbitrarily retained by it.
34. It is also alleged that loan of Rs. 1686 crore was actually forced upon Shipra Group by Indiabulls and the securities were liquidated notwithstanding the fact that no outstanding loan existed against Shipra Group.
35. It is also alleged that properties of Shipra Group consisting of 73 acres land has been transferred to M/s M3M Group on a kickback taken by Indiabulls. Grievance is also raised with regard to transfer of M/s Shipra Mall. It is further alleged that 73 acre land is valued at Rs. 4 thousand crore but has been transferred to M/s M3M Private Limited on payment of kickback of Rs. 300 crore. M/s M3M Private Limited is also alleged to have taken possession of 73 acre land in Sector 128 NOIDA. It is further complained that various documents have been forged to dupe M/s Shipra Group of its prime properties and that an appropriate report be lodged in the matter so as to unearth the fraud.
36. It is also alleged that the pledged shares of Kadam was agreed upon to be purchased by M/s DLF for Rs. 1250 crores but eventually it has been transferred to M/s Final Step Developer Private Limited for Rs. 900 crores only. The Mall belonging to Shipra Group has also been unauthorizedly encroached upon by Indiabulls. The FIR allegations further are that as against sanctioned loan of Rs. 1939 crores only Rs. 1256.6 crores has been paid to the borrower and Rs. 683 crore has not been disbursed to the borrower company despite the fact that Rs. 163 crore was paid till March, 2023 to Indiabulls.
37. The 2nd FIR is lodged by YEIDA in furtherance of the 1st FIR. The contents of the subsequent FIR is (i) that the transfer of shares of Kadam pledged with Indiabulls in favour of Creative Souls Technology India Private Limited was without the consent of YEIDA (the informant authority); (ii) non-payment of transfer charges has resulted in financial loss caused to the public authority to the extent of Rs. 200 crore; (iii) the contents of the FIR in Case Crime No. 427 of 2023 is also referred to and relied upon in the subsequent FIR.
38. On the basis of the above two FIRs proceedings have been initiated by the Enforcement Directorate, pursuant to ECIR//HIU-I/06/2023, and in the consequential investigation so undertaken the ED has found following facts:-
"(a) that there was undervaluation by Indiabulls of the value of shares of Kadam while transferring it to the M/s Creative Souls Technology Private Limited/Final Step Developer Private Limited; (b) purchase of shares of Kadam was funded by Indiabulls through loan and thus there was round tripping; (c) the valuation reports were back dated and thus forged."
39. In the counter affidavit filed by the Enforcement Directorate following facts are alleged have come to the knowledge of the Enforcement Directorate in respect of the present transaction:-
"i. Indiabulls used the forged documents in the form of valuation report which formed the basis of valuation of shares of Kadam.
ii. The valuation of land owned by Kadam and subsequently that of shares of Kadam was deliberately lowered/reduced which caused loss to public money and YEIDA.
iii. The valuation reports were backdated by the valuers at the instance of Indiabulls.
iv. The two valuers who submitted the report were not the registered valuers.
v. The reports submitted by the valuers were for internal purpose only and the same could not be used for any legal proceeding leave apart for taking away the right of property from any borrower as done by Indiabulls in the present case.
vi. The report was never placed before the board of Indiabulls which passed resolution with regard to sale of shares.
vii. M3M group was assured that it will get the shares of Kadam though Indiabulls was in negotiating with DLF for sale of shares of Kadam."
40. A chart has also been annexed by the Enforcement Directorate to show that shares of Kadam got transferred from Shipra Group to M/s Final Step Developer Private Limited for which funds were entirely provided by Indiabulls and, therefore, the purchase of shares of Kadam by Final Step Developer Private Limited was entirely funded by Indiabulls showing it to be a case of round tripping.
41. The first information report in Case Crime No. 427 of 2023 is challenged in Writ Petition No. 14101 of 2023 contending that there are three basic allegations levelled in the FIR which are as under:-
"(a) Finance company has disbursed only Rs. 866 instead of Rs. 1686 crore; (b) finance company has the fraudulent intention of grabbing the mortgaged property consisting of 73 acres of land situated at Sector 128 NOIDA in collusion with M/s M3M Private Limited as also grabbing the Shipra Mall situated at Ghaziabad; (c) Shipra Mall is being sold at an undervalued price."
42. The 1st FIR is challenged on the ground that it is an abuse of the process of law. It is urged that Mr. Amit Walia is the authorized signatory of borrower i.e. M/s Shipra Group, who had filed proceedings before the Delhi High Court, the arbitrator, the debt recovery tribunal and before the Supreme Court of India in respect of the grievances raised in the FIRs wherein the borrower M/s Shipra Group failed to obtain any relief but these facts have been withheld; the FIR does not disclose any criminal intent; the transactions are entirely fiscal in nature and no criminality is reflected; it is argued that sanction of loan, creation of mortgage and the manner in which the sanctioned loan were to be released are all contractual matters which are governed by the terms of contract and the provisions of the SARFAESI Act and Rules and issues in that regard cannot be raised by lodging an FIR; the impugned FIRs are lodged by the borrowers to escape their liability to repay the dues of the lender and only with an intent to evade repayment of loan malicious proceedings have been initiated with an intent to abuse the lender; no prima facie case of cheating, forgery or criminal conspiracy is made out even on the plain reading of the FIR. Reliance is placed upon the judgment of the Supreme Court in K. Virupaksha and another Vs. State of Karnataka and another, (2020) 4 SCC 440 and Priyanka Srivastava Vs. State of U.P., (2015) 6 SCC 287 apart from other judgments to assail the impugned FIRs and the consequential ECIR.
43. Before we proceed to examine the contentions urged in the writ petitions it would be necessary to refer to two orders passed by the Supreme Court of India in respect of the self same subject which would determine the scope of present proceedings.
44. It transpires that the two FIRs under challenge before this Court were subject matter of consideration by the Supreme Court of India in Gagan Banga v. Samit Mandal, (2024) 5 SCC 432, wherein following orders were initially passed:-
"4. Vide order dated 28-4-2023 [Gagan Banga v. State of W.B., 2023 SCC OnLine SC 1814] passed in WP (Crl.) No. 166 of 2023, criminal proceedings in three such FIRs instituted by borrowers in different States, namely, FIR No. 646/2022 dated 26-10-2022 registered at PS Titagarh, FIR No. 427/2023 dated 9-4-2023 registered at PS Indirapuram and FIR No. 25/2021 dated 27-1-2021 registered at PS EOW, Delhi were stayed.
5. Further FIR No. 197/2023 dated 15-4-2023 was filed by Yeida at PS Beta-2, Greater Noida, U.P., which also refers to the aforesaid FIR No. 427/2023 dated 9-4-2023 registered at PS Indirapuram with some overlapping facts. It is stated that on the basis of these two connected FIRs, namely, FIR Nos. 427/2023 and 197/2023, now ED has registered ECIR bearing No. ECIR/HIU-I/06/2023 in Delhi. The petitioners have now challenged the said FIRs and ECIR.
6. In the circumstances, as it may also involve adjudication on facts, we deem it appropriate to permit the petitioners to approach the respective jurisdictional High Courts to challenge all four FIRs and the ECIR within two weeks from today, with a request to the respective High Courts to consider and decide the petitions expeditiously, not later than six months of their presentation.
7. We also direct the DGPs of respective States to look into the matter, examine the contentions of the petitioners in respect of the contents of FIRs, and to take appropriate measures in accordance with law within a period of one month.
8. Till final disposal of the respective petitions, interim order dated 28-4-2023 [Gagan Banga v. State of W.B., 2023 SCC OnLine SC 1814] passed in WP (Crl.) No. 166 of 2023 would continue in the three FIRs mentioned therein.
9. Insofar as the further FIR No. 197/2023 dated 15-4-2023 filed by Yeida and ECIR bearing No. ECIR/HIU-I/06/2023 are concerned, no coercive steps would be taken against the petitioner financial institution and its officers, representatives and managers till final disposal of such petitions by the High Court, and it would be open for the petitioners to seek stay of proceedings which would be considered by the High Court on its own merits. It is clarified that this interim protection would only be applicable to the petitioner financial institution and its officers, representatives and managers, and not to any other person.
10. All contentions available to the parties in law are being kept open to be raised before the High Court and the High Court shall decide the petitions strictly on their own merits and in accordance with law."
45. It appears that before passing the aforesaid order by the Supreme Court no opportunity of hearing was given to ED in the matter. The ED was impleaded as a party on the very date when the proceedings were concluded by the above orders.
46. The Supreme Court on the application filed for recall of its aforesaid order observed that the above orders were passed unintentionally and consequently modified it vide following directions:-
"15. In the case on hand, the Enforcement Directorate, New Delhi, was impleaded as a party respondent in the writ petition on 04.07.2023, by way of the final order disposing of the case. The final order was passed without putting it on notice and affording it an opportunity of hearing. Therefore, the directions of this Court in the said order in relation to ECIR No. ECIR/HIU-1/06/2023 cannot be sustained. More so, as the final order only records that the interlocutory applications for impleadment and to bring on record additional facts were allowed and no more. Significantly, I.A. No. 81083 of 2023, seeking permission to file additional documents/facts/annexures, was alone reflected in the Record of Proceedings of that day in relation to the writ petition. I.A. No. 122413 of 2023 was not even listed or shown. In any event, the application for amendment of the prayers was not ordered. In effect, FIR No. 197 of 2023 and ECIR No. ECIR/HIU-1/06/2023 were not even made the subject matter of challenge in the writ petition.
16. Further, though this Court relegated the writ petitioners to the jurisdictional High Courts for challenging the FIRs registered against them, certain errors crept in by oversight while doing so. As regards FIR No. 197 of 2023, this Court directed that no coercive steps should be taken in relation thereto against the petitioner financial institution and its people till final disposal of such a petition by the High Court. Having said that, this Court went on to observe that it would be open to the writ petitioners to seek stay of proceedings in relation thereto, which was to be considered by the High Court on merits. In effect, though they stood protected from coercive action in relation to this FIR, proceedings pursuant thereto were permitted to go on and it was left open to them to seek stay of such proceedings before the High Court. Once, no coercive steps were permitted in connection with the said FIR till the final disposal of the petition which was to be filed, the question of permitting the petitioners to again seek stay of proceedings in relation to the said FIR before the High Court was unnecessary.
17. Further, the stay of proceedings granted by this Court in the writ petition, in relation to the first three FIRs, was directed to continue till the disposal of the writ petitions to be filed before the High Courts. When a party is relegated to the High Court to pursue its remedies, it would not be proper, in the normal course, to bind the said High Court with directions in relation to the proceedings to be impugned before such Court. Ordinarily, this Court would leave all issues open for the party so relegated to raise and pursue before the High Court. In Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra11, a 3-Judge Bench of this Court laid down guidelines for exercise of power under Section 482 CrPC, cautioning that criminal proceedings ought not to be scuttled and Courts, in the usual course, should not thwart investigation into cognizable offences. That being so and as no compelling reasons were recorded by this Court in the order dated 04.07.2023 to justify deviation in the case on hand, it clearly manifests that it was purely unintentional and due to sheer oversight.
18. That apart, such directions can be misconstrued by the High Courts to be observations by this Court on the merits of the matter, thereby influencing the adjudication of the case. Thus, for reasons more than one, we are of the opinion that the order dated 04.07.2023 requires to be modified. The said order shall stand recalled insofar as it pertains to ECIR No. ECIR/HIU-1/06/2023. It is left open to the High Court of Allahabad to consider the challenge thereto in Criminal Miscellaneous Writ Petition No. 10893 of 2023 on merits and in accordance with law, uninfluenced by any observations made in the order dated 04.07.2023. Further, the said order dated 04.07.2023 shall stand modified by substituting the words 'till final disposal of the respective petitions...' in paragraph 8 thereof with the words 'till the filing of the respective petitions'. This would mean that the High Courts in which proceedings have been instituted against the FIRs would be at liberty to entertain applications for interim relief in relation thereto and consider such applications and also the main cases on their own merits and in accordance with law, uninfluenced by any observations made in the order dated 04.07.2023. The miscellaneous applications and the interlocutory applications are disposed of accordingly.
Registry shall upload and attach a corrigendum to the order dater 04.07.2023 passed in Writ Petition (Crl.) No. 166 of 2023, stating that it stands duly modified by and to the extent indicated in this order."
47. In view of the above orders passed by the Supreme Court the challenge laid to the impugned FIRs and the consequential ECIR are required to be dealt with by this Court, in accordance with law, without being influenced in any manner with the previous orders of the Supreme Court of India.
48. We have carefully examined the contents of the two FIRs and the consequential ECIR, under challenge in these writ petitions. In substance, allegations are that the borrowers needed funds for its housing and commercial projects. The Directors of Indiabulls came to the borrowers and offered to provide an amount of Rs. 1939 crores on rates below the market rate and extend assistance for other projects also provided six properties of borrower are mortgaged with it; market value of these mortgaged properties are about Rs. 6000 crores; intent of Indiabulls from the very beginning was not fair and it wanted to grab the properties of the borrower; by playing fraud Indiabulls wanted the borrower to be shown as defaulter and thereby grab its properties; Rs.1686 crores were not released to the borrower, instead only Rs. 866.88 crores were credited to the account of borrower and immediately withdrawn and balance Rs. 820 crores were not credited to the account of borrower; false assurances were extended to the borrower by Indiabulls; loan recall notice was issued collusively by Indiabulls; an amount of Rs. 552.76 crores has been fraudulently embezzled by Indiabulls; loan amount as well as dues payable have been inflated contrary to the guidelines of RBI; sanctioned loan amount payable to borrower has been withheld by Indiabulls; Directors of borrower have been ill-treated and threatened; although Rs. 1939 crores were to be credited to the account of the borrower as per loan agreement but only Rs. 1256.6 crores were credited to the account of the borrower and Rs. 683 crores has still not been paid even though borrower has paid Rs. 163 crores till March, 2023; shares of Kadam have been transferred on a kick back of Rs. 300 crores; 73 acre land of borrower in Sector 128 has been misappropriated etc.
49. So far as the 2nd FIR is concerned the YEIDA has alleged that transfer of shares of Kadam is without its consent; it has resulted in loss to public authority of transfer charges to the tune of Rs. 200 crores in addition to the contents of the 1st FIR.
50. We have already noticed that sanction of loan to the borrower is pursuant to various loan agreements which admittedly contain Arbitration clause. The informant in the 1st FIR has made no disclosure about existence of Arbitration clause or the steps taken by the borrower to challenge the action of Indiabulls in Arbitration proceedings. The proceedings in that regard are relevant for the controversy raised in the FIR and would require its narration.
51. Sanction of loan is a commercial transaction. It is to be regulated by the terms of loan/contract and any dispute in respect thereof would require adjudication in the manner stipulated therein. It is undisputed that sanction of loan to the borrower is pursuant to loan agreement which contain an Arbitration clause. Even the pledge of shares of Kadam is in accordance with the pledge agreement dated 6.4.2018 which contains clause 20 as per which any dispute/disagreement/differences between the lender and pledger and/or confirming party (defined in the pledge agreement i.e. Indiabulls, borrower and Kadam) has to be resolved by way of arbitration.
52. Interestingly, the informant though is aware of the Arbitration clause but has made no reference of it in the complaint. There is complete suppression in the complaint filed before the Chief Judicial Magistrate, Gautam Budh Nagar with regard to the terms of loan agreement; existence of Arbitration clause, therein; invocation of Arbitration clause by the borrower; rejection of application filed by borrower before the Delhi High Court under Section 9 of the Act of 1996 and many other relevant facts which have a material bearing on the issue in question.
53. Shri Amit Walia who has filed the complaint is the authorized representative of the borrower and has instituted most of the proceedings before different forums, yet, he has concealed all previous proceedings in respect of the loan transactions in question.
54. Suppression and concealment of material facts by the borrower while instituting complaint before the Chief Judicial Magistrate cannot be viewed kindly. The effect of such misrepresentation would render the proceedings of borrower tainted. In a recent judgment of Kusha Duruka v. State of Odisha, (2024) 4 SCC 432, the Supreme Court of India emphasized the importance of disclosing correct facts before a court of law. Reliance was placed upon a previous judgment of the Court in K.D. Sharma Vs. Steel Authority of India and others, 2008 (12) SCC 481, wherein the Court observed as under in para 39:-
"39. If the primary object as highlighted in Kensington Income Tax Commrs. [(1917) 1 KB 486 : 86 LJKB 257 : 116 LT 136 (CA)] is kept in mind, an applicant who does not come with candid facts and "clean breast" cannot hold a writ of the court with "soiled hands". Suppression or concealment of material facts is not an advocacy. It is a jugglery, manipulation, manoeuvring or misrepresentation, which has no place in equitable and prerogative jurisdiction. If the applicant does not disclose all the material facts fairly and truly but states them in a distorted manner and misleads the court, the court has inherent power in order to protect itself and to prevent an abuse of its process to discharge the rule nisi and refuse to proceed further with the examination of the case on merits. If the court does not reject the petition on that ground, the court would be failing in its duty. In fact, such an applicant requires to be dealt with for contempt of court for abusing the process of the court."
55. In para 6 & 7 of the judgment in Kusha Duruka (supra), the Court observed as under:-
"6. It was held in the judgments referred to above that one of the two cherished basic values by Indian society for centuries is "satya" (truth) and the same has been put under the carpet by the petitioner. Truth constituted an integral part of the justice-delivery system in the pre-Independence era, however, post-Independence period has seen drastic changes in our value system. The materialism has overshadowed the old ethos and the quest for personal gain has become so intense that those involved in litigation do not hesitate to take shelter of falsehood, misrepresentation and suppression of facts in the court proceedings. In the last 40 years, the values have gone down and now litigants can go to any extent to mislead the court. They have no respect for the truth. The principle has been evolved to meet the challenges posed by this new breed of litigants. Now it is well settled that a litigant, who attempts to pollute the stream of justice or who touches the pure fountain of justice with tainted hands, is not entitled to any relief, interim or final. Suppression of material facts from the court of law, is actually playing fraud with the court. The maxim suppressio veri, expressio falsi i.e. suppression of the truth is equivalent to the expression of falsehood, gets attracted. It is nothing but degradation of moral values in the society, may be because of our education system. Now we are more happy to hear anything except truth; read anything except truth; speak anything except truth and believe anything except truth. Someone rightly said that:"Lies are very sweet, while truth is bitter, that's why most people prefer telling lies."
7. In a recent matter, this Court again came across a litigant who had tried to overreach the Court by concealing material facts in Saumya Chaurasia v. Enforcement Directorate [Saumya Chaurasia v. Enforcement Directorate, (2024) 6 SCC 401 : 2023 SCC OnLine SC 1674 : 2023 INSC 1073] . It was a case where the appellant before this Court had challenged the order [Saumya Chaurasia v. Directorate of Enforcement, 2023 SCC OnLine Chh 1907] passed by the High Court [ High Court of Chhattisgarh at Bilaspur in Miscellaneous Crl. Case No. 1258 of 2023] rejecting his bail application. He was accused of committing various crimes under the Penal Code, 1860 and the Prevention of Money-Laundering Act, 2002. His bail application was rejected by the High Court on 23-6-2023 [Saumya Chaurasia v. Directorate of Enforcement, 2023 SCC OnLine Chh 1907] . In the pleadings before this Court, it was mentioned that the High Court had committed gross error in not considering the charge-sheet dated 8-6-2023 and the cognizance order dated 16-6-2023, which clearly suggested that there was an error apparent on the fact of it. The fact which was available on record was that an order in the bail application was reserved by the High Court on 17-4-2023 [Saumya Chaurasia v. Enforcement Directorate, 2023 SCC OnLine Chh 5838] and pronounced on 23-6-2023 [Saumya Chaurasia v. Directorate of Enforcement, 2023 SCC OnLine Chh 1907] . Having some suspicion, this Court directed the appellant to file an affidavit to clarify the aforesaid position. There was no specific reply given to the aforesaid query to the Court. Rather vague statements were made. Considering the facts available, this Court observed that there was a bold attempt by and on behalf of the appellant therein to misrepresent the facts for challenging the order [Saumya Chaurasia v. Directorate of Enforcement, 2023 SCC OnLine Chh 1907] impugned therein, regarding the conduct of the parties and the counsel, this Court made the following observations : (Saumya Chaurasia case [Saumya Chaurasia v. Enforcement Directorate, (2024) 6 SCC 401 : 2023 SCC OnLine SC 1674 : 2023 INSC 1073] , SCC para 13) "13.It cannot be gainsaid that every party approaching the court seeking justice is expected to make full and correct disclosure of material facts and that every advocate being an officer of the court, though appearing for a particular party, is expected to assist the court fairly in carrying out its function to administer the justice. It hardly needs to be emphasised that a very high standard of professionalism and legal acumen is expected from the advocates particularly designated senior advocates appearing in the highest court of the country so that their professionalism may be followed and emulated by the advocates practising in the High Courts and the District Courts. Though it is true that the advocates would settle the pleadings and argue in the courts on instructions given by their clients, however their duty to diligently verify the facts from the record of the case, using their legal acumen for which they are engaged, cannot be obliviated." (emphasis supplied) Finally, this Court dismissed the appeal with costs of Rs 1,00,000."
56. Suppression of material facts by the borrower while invoking criminal proceedings against the lender assumes greater significance in the facts of the present case as repeated attempts made by it to injunct the lender i.e. Indiabulls from proceeding against the pledged property had not succeeded. The non-disclosure of material facts would lead to an inference that criminal proceedings are maliciously instituted with the intent to avoid repayment of availed loan facility; to secure leverage in pending Arbitration and other proceedings inter-se between the parties; coerce the lender i.e. Indiabulls to succumb to the terms dictated by the defaulter borrower.
57. The borrower, including M/s Shipra Leasing Pvt. Ltd. as well as Kadam and Shipra Estate Limited had already approached the Delhi High Court by invoking its jurisdiction under Section 9 of Act of 1996. The proceedings travelled upto the Hon'ble Supreme Court of India. On remand, the petition under Section 9 of the Act of 1996 came to be decided by an elaborate judgment of the learned Single Judge of the Delhi High Court on 20.05.2021. After noticing the background in which the controversy arose learned Single Judge noticed the contention of borrower in para 5.1 to para 5.19, which are reproduced hereinafter:-
"5.1. The loan facility granted in favour of the Borrowers has been arbitrarily recalled by Indiabulls vide loan recall notices dated 05th November, 2020 and 15th December, 2020, on account of an alleged 'impairment of the security' under Clause 12.1.9 of the Loan Agreement. The three ingredients of an Event of Default, as defined under Clause 12.1.9(a), being - (i) 'impairment of the security', (ii) causing the security to become 'unsatisfactory', and (iii) 'in the judgment of the lender' (i.e. Indiabulls) - are not met in the instant case. The same is demonstrated as below:
5.1.1. The term 'Security', as defined in Clause 1.1(xxix), has to be read to mean all securities provided by the Borrower, taken as a whole, and will have to be related to 'borrowers dues', which are defined in Clause 1.1(iv) to mean outstanding principal and other amounts payable by the Borrowers. In other words, Clause 12.1.9(a) gets attracted only if 'the Security' (i.e. all the securities as a whole) created in favour of Indiabulls become 'unsatisfactory'.
5.1.2. The 'Judgment of the lender' has to be exercised in a reasonable manner, as stipulated in Clause 12.3, which implies that the party cannot exercise unilateral discretion in an arbitrary manner. For this, Indiabulls should have taken into consideration whether the existing security was sufficient for fulfillment of all obligations, i.e., the outstanding principal amount. Indiabulls did not act in a reasonable manner, as the value of the security did not fall below the borrower's dues as they stood as on 05th November, 2020. Therefore, no Event of Default can be said to have occurred for Indiabulls to have recalled the loan.
5.1.3. In fact, neither the cure notice as well as the loan recall notices state that the security has become 'unsatisfactory', as required under Clause 12.1.9(a). Thus, the same are illegal and arbitrary.
2X SECURITY COVER MAINTAINED 5.2. Mr. Wadhwa strongly relies upon Indiabulls' own communication dated 3rd October, 2019 to highlight that Indiabulls offered to release the mortgage charge on one of the non-impaired properties at Noida (being Plot No. GH-1C, Sector 43, Noida). He contends that it is unfathomable how the impairment of a property of this quantum, could justify the cancellation of the entire loan amount of approximately Rs. 1600 crores, specially when the total security mortgaged towards Indiabulls was more than Rs. 5000 crores.
5.3. Indiabulls' conduct itself is indicative of the fact that there is no Event of Default. As recently as 9th September, 2020, Indiabulls had issued a satisfaction letter certifying that the loan account of the Borrowers was standard and satisfactory.
5.4. The cure notice dated 5th November, 2020 was only with respect to property situated at GH-1B mortgaged by VCL. However, even if the value of the allegedly impaired securities is deducted from the total value of security cover offered, Indiabulls still holds mortgaged properties to the extent of approx. Rs. 5200 crores - which is more than the 2x security cover required under Clause 2.3 of the Loan Agreements (which amounts to Rs. 3372 crores).
NO FINANCIAL DEFAULTS IN PAYMENTS 5.5. There has never been a default in repayment of loans on the part of the Borrowers. They have followed the repayment schedule in letter and spirit. In fact, Indiabulls has, at its sole discretion, rescheduled the loan agreements various times in the past, however, it has never been the case that any reschedulment charges were imposed on Borrowers. Further, on account of the outbreak of COVID-19 pandemic, revised loan repayment schedule was provided to the Borrowers, towards which further PDCs and UDCs were obtained by Indiabulls from the Borrowers. Reschedulment charges towards loans rescheduled on account of the COVID-19 pandemic is inconceivable even in terms of the guidelines provided by the RBI.
5.6. Indiabulls has further concealed that a sum of Rs. 3.33 crores is currently lying in the escrow account of the Shipra Group which is in complete control and custody of Indiabulls.
5.7. In the past, Indiabulls has never banked on any of the security cheques provided by the Petitioners at the time of execution of the loan agreements/reschedulment.
5.8. Out of the total amount of Rs. 759 crores paid by the Petitioners, an amount of approx. Rs. 80 crores was adjusted from the Escrow Account and about Rs. 679 crores was paid by way of RTGS/new Cheques, as can also be seen from Additional Affidavit dated 12th April 2021.
5.9. Further, Indiabulls by presenting the post-dated cheques of the Borrowers, has acted in contravention of the Loan Agreements. In fact, post-dated cheques were part of the original repayment schedule and not a part of the new repayment schedule that was agreed upon in September, 2020 and payments were, in fact, to be made by other modes such as withdrawal from escrow accounts, RTGS and through new cheques, and the same cannot be denied by Indiabulls."
58. After referring to the objections of Indiabulls and hearing the defaulters in rejoinder the Court analyzed the issues and returned specific findings on the issues raised before it. In paragraph 11 and 12 learned Single Judge held that if a security is impaired the event of default would get triggered regardless of the availability of other securities to satisfy the borrower's dues. The Court interpreted various clauses of the loan agreement to hold that the consequence of the two impaired mortgaged properties (Plot Nos. GH-1B & GH-1C, Sector 43, Noida) held as collaterals for the borrower's dues served as assets guaranteeing repayment and on its nullification provided justification for Indiabulls to invoke the pledged shares. Para 11 & 12 of the judgment are reproduced hereinafter for ready reference:-
"11. In the prima facie opinion of the court, the clauses of the loan agreement cannot be interpreted as propounded by Mr. Chib. The term 'Security' as defined in Clause 1.1 (xxix) of the Loan Agreement is widely worded and means, 'as the context requires' - a mortgage, charge, hypothecation, escrow, guarantee, pledge, lien and/or other security interest created in the favour of the Lender. It cannot be construed that 'impairment of the security' as an Event of Default has to mean impairment of all the securities as a whole, or that, as long as the 'the Security' (meaning all the securities as a whole) provided by Borrowers was sufficient to secure fulfilment of obligations, the judgment exercised by the Lender under Clause 12.1.9(a) would not be reasonable in terms of Clause 12.3. The clear use of 'and/or' in the Clause is indicative that the meaning of the word 'security' can be taken to either mean either each security individually, or to mean all the securities jointly. In such a situation, we are guided by the introductory part of the clause, which clearly stated that the meaning thereof has to be understood 'as the context requires'. Further, Clause 12.1.9(a) uses the phrase 'impairment of the Security, if any, or any part thereof'. Thus, even if we were to hypothetically accept that security must mean all securities as a whole, there is a clear provision for any part of the same to become impaired, leading to it becoming unsatisfactory in the judgment of the Lender, in which case, an Event of Default would occur. This argument, therefore, does not hold any water. Though, the correlation between the 'Securities' and the 'Borrower's dues' is a novel argument, it is not a persuasive one, and would amount to misinterpretation of clause 2.2 for the purpose deciding whether an Event of Default has occurred. If a security is impaired, which causes it to be become unsatisfactory as to character or value, the Event of Default would get triggered, regardless of the availability of other Securities to satisfy the borrower's dues.
12. As regards the exercise of discretion, we must note that the parties have contractually agreed, on a plain reading of Clause 12.1.9(a), that the question whether the 'impairment of the security' has rendered the security 'unsatisfactory as to character or value' has to be decided by the Lender alone. That apart, one must bear in mind the dominant purpose of accepting collaterals as security is to minimize the risk undertaken by a lender. In case of a default by a borrower, a lender can immediately take recourse against the same to offset its loss. In the instant case, the two impaired mortgaged properties were essentially collaterals for the Borrower's Dues and served as assets guaranteeing repayment. With the nullification of the mortgage, the option to offset the loss from these collaterals is now not available to Indiabulls. Thus, prima facie in the given facts, the exercise of discretion by Indiabulls cannot, by any stretch of imagination, be held to be unreasonable or arbitrary."
59. Learned Single Judge also held that impairment of securities occur when security twice over the borrowed sum ceases to exist. The Court discussed the facts extensively to hold in para 19 to 22 that an event of default has occurred in terms of the loan agreement. Para 22 of the judgment is reproduced hereinafter:-
"22. The legal effect of the aforesaid communications is that the mortgage created by the Mortgagers, today, has perished, which puts Indiabulls in a serious jeopardy. Today, if Indiabulls were to enforce this collateral, it cannot do so. This is not just impairment but a complete obliteration of the prime securities. Indiabulls' request for additional security has gone un-responded. In these circumstances, the requirement stipulated in Clause 12.1.9(a), that the security has become impaired, has occurred. There cannot be reservations or uncertainty about this aspect. The payment of Rs. 38,19,24,525/-, in terms of NOC issued by Noida Authority was to be done immediately. Borrowers defaulted in making the payment leading this to not only become overdue but it has burgeoned to Rs. 219 crores each. This court finds merit in the contention of Indiabulls that the default did not occur on the date of cancellation of NoC, but was a continuing default, as the amount of Rs. 38 crores was payable "immediately" on 23rd February, 2018 when the NoC was first granted. Thus, this is nothing less than a wilful impairment. Today, the court can only speculate as to the circumstances whereunder, without the payment to Noida Authority, the Mortgage Deed got registered, or the reasons for the delayed action of Noida Authority. These aspects would have to be examined in arbitration. Nevertheless, the fact of the matter is that Indiabulls cannot enforce the impaired securities, and is constrained to recall the loan. In these circumstances, the question arises whether the Court can interdict Indiabulls from taking recourse to the provisions of the Loan Agreement for enforcing other securities. The answer to this question has to be in the negative."
60. Upon consideration of borrower's plea regarding non-existence of financial default learned Single Judge held that an event of default has occurred and that such default is more serious and fundamental than dishonour of an EMI. The Court consequently rejected the application of borrower under Section 9 of the Act of 1996 vide observations made in para 25 and 26 of the judgment, which are reproduced hereinafter:-
"25. Without getting into the above controversy, Even if, one were to accept that there is no financial default, it cannot discern the fact that there has been an Event of Default on the date of issuance of recall notices. The significant fact is that loan recall notices are dated 05th November 2020 and 15th December 2020. Indiabulls has recalled the loans on the sole ground of 'impairment of the security' under Clause 12.1.9(a) and recalled the loan facility claiming the entire outstanding amount of Rs. 1763 crores. In pursuance to the said recall notices, Indiabulls proceeded to issue a purported Notice stating that it shall invoke the Pledge Agreements on 14th January, 2021. Thus, the afore-noted default in payments, with respect with EMI amounts due as on 5th April, 2021, are undeniably, after the issuance of the recall notices.
26. It cannot be denied that an Event of Default has occurred, irrespective of whether there is financial default or not. It is not as if the default, categorised as a 'financial default', in comparison to a default contemplated under Clause 12.1.9(a), have different consequences. The fact that the collaterals/mortgaged properties are not available for enforcement is, in fact, a default far more serious and fundamental than dishonour of an EMI. Therefore, this argument of the Petitioner does not convince this Court to grant the interim relief as sought for."
61. The grievance of borrower regarding undervaluation of the shares of Kadam also fell for consideration before the learned Single Judge of Delhi High Court in proceedings under Section 9 of the Act of 1996. The observations made by the Court in para 29 to 32 of the judgment are clearly apposite in the context of pleas raised, herein, and are reproduced hereinafter:-
"29. Indiabulls is bound by the statement recorded in the said order, that the pledge of shares will be undertaken in a completely transparent manner on a fair evaluation of the shares. Prima facie the Court finds that the sale of the pledge shares is being done in a transparent manner. Indiabulls has disclosed the purchaser and also the amount at which the sale has been done. When the Petitioners filed an application asking for furnishing of documents, Indiabulls provided the same without hesitation. In fact, before commencement of arguments, Mr. Nayar candidly disclosed the amount of sale and offered that in case the Borrowers were interested to redeem the security, they could do so on payment of Rs. 900 crores. However, no interest was shown by the Borrowers.
30. On the aspect of valuation, we note that KDPL, the company whose shares have been sold by Indiabulls to DLF, is a lease-holder and the title-holder of the plot of land, which is its only valuable asset. Thus, the valuation of the shares of KDPL has been done primarily on the basis of the value of the parcel of land, the shares having no other intrinsic value. Indiabulls supports its valuation on the basis of the reports on record, which are disputed and countered by the Petitioners. The valuation of land is not an exact science. It requires expertise, and certainly cannot be gone into in the present proceedings. The credibility of rival reports would be examined during the arbitration to determine which one is correct and realistic. At this juncture, the Court only has to see if the contractual terms as agreed between the parties under the Pledge Agreement have been adhered to. Undisputedly, notice of invocation had been issued by Indiabulls giving Borrowers and the Pledgor an opportunity to redeem, before proceeding with the sale of pledged shares. The Borrowers have neither provided additional security, nor redeemed the pledge. They have even failed to agree to the proposal of Indiabulls to pay/deposit Rs. 900 crores, being the sale consideration that it is receiving from DLF. Yet, the Borrowers seek restrain on the sale, alleging that there is mala fide motive in the sale, and that the shares are being sold for a song.
31. Indiabulls' interest lies in maximising the return from the sale of assets, in order to offset the cost of loans. Petitioners' contentions - that the sale of shares of KDPL for a trifling sum implies that shares are undervalued, and that the sale of shares to a competitor of the Borrowers at a discount is mala fide - are assumptions without any foundation. The urgency demonstrated by Indiabulls is predictable, as the assets secured are impaired and as per its contention no other asset is sufficient to realize the outstanding dues. The circle rates of land alone cannot determine its market value and several other factors often come into play. The Judgment in GNCTD v. CTA Apparels (supra), relied upon by Mr. Wadhwa, is distinguishable on facts and does not support the case as sought to be advanced by the Petitioner. In fact, it goes against the Petitioners' arguments and states that circle rates ought not to be relied upon when disputes as to valuation have arisen. Relevant extract is as follows:
"On the basis of this circle rate, the Registering Authority can, at best mechanically determine the valuation of the instrument, but, whenever the dispute arises, the exact market valuation, ought to be arrived at, by the Collector as mandated by Section 47A of the Act. Circle rate cannot be mechanically followed by Collector, as a sole factor, to determine market value of the property in question."
32. As discussed above, the objection made by Shipra Group on valuation of sold pledged shares is a matter of accounts, which can be only adjudicated upon by the Arbitral Tribunal, and the remedy available with the Borrowers is to claim damages. The Court cannot enter into the arena of what constitutes a fair valuation of shares. Does it mean that till the time the Arbitrator examines this question, Indiabulls should refrain from taking recourse as available to it under contract? In the opinion of the Court, having regard to the provisions in question, this Court cannot interfere on this aspect, and deprive Indiabulls from enforcing its right under the Pledge Agreement."
62. In light of the above discussions, learned Single Judge of the Delhi High Court rejected the borrower's petition under Section 9 of the Act of 1996. The undertaking given by the counsel for Indiabulls, at an earlier stage of the proceedings, were discharged. The Court also observed that observations made by it are prima facie in nature and would not come in the way of arbitral tribunal in adjudicating the dispute between the parties.
63. The aforesaid judgment of learned Single Judge was unsuccessfully assailed by the borrower in appeal preferred before the Division Bench of Delhi High Court. After referring to various observations of learned Single Judge the Division Bench concluded that in view of categorical observations made in last para of the judgment of learned Single Judge the apprehension of borrower that the observations of learned Single Judge would prejudice the arbitral proceedings is non-existent. The appeal was disposed of accordingly. The matter rests at it.
64. We are rather amazed that the borrower instead of pursuing the remedy of Arbitration available to it, in terms of the loan agreement, which it has already invoked/availed, choose to short circuit such proceedings available in law to it and instead has lodged the impugned FIRs for adjudication of issues already raised in arbitration so as to seek determination of civil/commercial causes in criminal proceedings.
65. We also find absolutely no reason disclosed in the criminal complaint with regard to unexplained delay in lodging the complaint. The transfer of shares of Kadam was on 1.7.2021. The complaint has been filed in April, 2023, which is nearly two years after the event. This is after the borrower invoked the Arbitration clause and its application under Section 9 of the Act of 1996, for interim relief against transfer of shares stood rejected and the matter is still pending before the Arbitrator. Unexplained delay in instituting criminal proceedings in the facts of the present case also renders the proceedings questionable.
66. The borrower is admittedly a group of companies dealing in real estate sector for fairly long. It is well aware that availing of loan from a non-banking finance company is a transaction with commercial flavour and is governed by the terms of contract. It is not the case of borrower that it has not signed the loan agreements. Having done so, with open eyes, it would not lie in the mouth of the borrowers to accuse the lender of putting unreasonable terms for offering loan or having fraudulent intent in offering loan to the borrower particularly when proceedings are initiated against it for default in repayment of loan.
67. Initiation of criminal action by a defaulter, against the lender, would be viewed with suspicion when the defaulter conceals previous adjudications, inter-se between the parties, in arbitral proceedings. It otherwise remains undisputed that the loan transaction contains an arbitration clause which is already invoked and issues raised in criminal proceedings are pending adjudication before the arbitrator appointed by the Delhi High Court.
68. Nevertheless, we have examined the allegations made in the two FIRs as also the ECIR within the limited scope of this Court to interfere in it as is settled by the Supreme Court in Madhu Limaye Vs. The State of Maharashtra, 1977 (4) SCC 551; The State of Haryana and others Vs. Bhajan Lal and others, 1990 SCR Suppl. (3) 259; State of Telangana Vs. Habib Abdullah Jeelani and others, (2017) 2 SCC 779 and Neeharika Infrastructure Pvt. Ltd. Vs. State of Maharashtra and others, (2021) 19 SCC 401.
69. The allegation in the FIRs that the Directors of Indiabulls contacted the borrower and induced the borrower to avail loan on rates lower than the market rate so as to grab the property of borrower cannot be countenanced. At the cost of repetition, we may reiterate that borrower herein is an established company which is aware of normal financing practices as also the terms on which loan is offered to it. To avail finance on terms indicated in the loan agreement is a commercial/managerial decision of the borrower. Availing of finance cannot be foisted upon the borrower by a non-banking finance company. Admittedly, loan was sanctioned to the borrower vide 16 separate loan agreements executed between 2017 to 2020. The event of default occurred in early 2021 itself. The borrower availed of remedies in Arbitration proceedings against Indiabulls and its interim application against coercive action has already failed.
70. Interestingly, in the Arbitration proceedings there are no allegations that Directors of Indiabulls made any misrepresentation or inducement or that loan was offered to the borrower with an intent to grab its properties. Such allegation in the complaint/FIRs are made after several years of default in repayment of loan for the first time. It would not be open for the borrower to come up with arguments that are otherwise available to a poor man who has gone to a village money lender having evil eyes on his property.
71. The petitioners' contention that in the Arbitration proceedings the defaulter made no allegation of inducement by Indiabulls in the grant of loans or that Indiabulls had secured its loan by obtaining securities on the strength of forged or fabricated documents is not denied in the counter affidavit. The limited case set up by the borrower in proceedings under Section 9 of the Act of 1996 was that no event of default had taken place. This argument of borrower has prima facie been rejected in proceedings under Section 9 by the Delhi High Court and issues, in that regard, are yet to be finally determined in Arbitration proceedings. The petitioners assertion, in this regard, made in para 9 of the writ petition has been vaguely denied in para 65 of the counter affidavit by stating that scope of Section 9 petition is altogether different.
72. The allegation that disbursal of loan of Rs. 1686 crore had in fact not taken place is also levelled for the first time in criminal proceedings vide complaint dated 23.3.2023 under Section 156(3) Cr.P.C. Otherwise, the disbursal of loan amount was not questioned in proceedings under Section 9 of the Act of 1996 and the Delhi High Court has rightly left all accounting issues, between the parties, in respect of the loan transaction to be resolved in Arbitration.
73. We find substance in the petitioners' argument that the conduct of borrower in initiating criminal action vide Complaint instituted under Section 156(3) Cr.P.C. on 23.3.2023 is lacking in bona fide. Admittedly, the borrower with open eyes had entered into commercial transaction with the Indiabulls and having prima facie defaulted in honouring the terms of contract, availed the remedy in respect of the coercive action taken against it. After having failed at it the borrower has initiated criminal action, concealing the orders of Delhi High Court in pending Arbitration proceedings as per which the issues raised are required to be resolved in Arbitration. Institution of criminal action can therefore be said to be with oblique motive.
74. Various issues in respect of the loan transaction are to be determined in accordance with the terms of contract. Any differences between the parties, in respect of such contract has to be resolved by Arbitration. The borrower as of now is prima facie a defaulter and its claim requires determination in Arbitration, which is pending before Hon'ble Mr. Justice Vikramjit Sen (Retired). We are, therefore, not required to enter into various claims of parties with any sense of definiteness regarding loan agreement or its performance when the issues are seized before the Arbitrator.
75. The allegation that entire loan amount was not disbursed or that a lesser amount was actually released to the borrower is also a grievance raised for the first time in criminal proceeding instituted with unexplained delay. Such claims can otherwise be determined only in accordance with the terms of loan agreement/contract and the disputes or differences between the parties, raised for the first time in criminal proceedings cannot be appreciated.
76. Any adjudication, in criminal proceedings, of issues that requires determination in pending Arbitration would only amount to preempting and overreaching the Arbitration proceedings where commercial transactions are yet to be determined as per the contract.
77. The Delhi High Court in proceedings under Section 9 of the Act of 1996 has rightly observed that issues with regard to undervaluation of the shares of Kadam since are to be determined in Arbitration, therefore, no adjudication on that aspect is warranted. Once that position is settled inter se between the parties we would not be justified in allowing such issues to be raised in criminal proceedings. Allowing such criminal proceedings would not only be an abuse of the process of law but may result in preempting the issues that are yet to be determined in proper proceedings.
78. We may reiterate that transfer of pledged shares of Kadam in favour of M/s M3M is on a consideration of Rs. 900 crores. In the earlier two attempts at transfer of these shares also the value of pledged shares were determined at Rs. 900 crores. In the second such attempt the borrower was itself was a party to the transaction where the pledged shares were valued at Rs. 900 crores. Once that be so, transfer of shares at Rs. 900 crores, prima facie, no criminality can be attached to such transaction. We find substance in the argument of Sri Mukul Rohatgi in this regard.
79. So far as the arguments advanced on behalf of the borrower that parallel civil and criminal proceedings are maintainable is concerned, there is no quarrel on this proposition. Ordinarily, where civil suit and criminal case both are pending the civil proceedings would ordinarily be stayed as such proceedings would take a longer time to resolve. However, whether civil or criminal proceedings ought to be given preference in a given case will depend upon the facts and circumstances of each case. The borrower has placed reliance upon the judgments of the Supreme Court in M.S. Sheriff & another Vs. State of Madras, AIR 1954 SC 397; P. Swaroopa Rani Vs. M. Hari Narayan @ Hari Babu, 2008 (5) SCC 765 and Syed Askari Hadi Ali Augustine Imam Vs. State (Delhi Administration), 2009 (5) SCC 528.
80. In M.S. Sheriff (supra) the Court held as under in para 12 and 13 of the judgment:-
"12. As between the civil and the criminal proceedings we are of the opinion that the criminal matters should be given precedence. There is some difference of opinion in the High Courts of India on this point. No hard-and-fast rule can be laid down but we do not consider that the possibility of conflicting decisions in the civil and criminal courts is a relevant consideration. The law envisages such an eventuality when it expressly refrains from making the decision of one court binding on the other, or even relevant, except for certain limited purposes, such as sentence or damages. The only relevant consideration here is the likelihood of embarrassment.
13. Another factor which weighs with us is that a civil suit often drags on for years and it is undesirable that a criminal prosecution should wait till everybody concerned has forgotten all about the crime. The public interests demand that criminal justice should be swift and sure; that the guilty should be punished while the events are still fresh in the public mind and that the innocent should be absolved as early as is consistent with a fair and impartial trial. Another reason is that it is undesirable to let things slide till memories have grown too dim to trust. This, however, is not a hard-and-fast rule. Special considerations obtaining in any particular case might make some other course more expedient and just. For example, the civil case or the other criminal proceeding may be so near its end as to make it inexpedient to stay it in order to give precedence to a prosecution ordered under Section 476. But in this case we are of the view that the civil suits should be stayed till the criminal proceedings have finished."
81. The last judgment relied upon by the borrower in Syed Askari (supra) has referred to the previous judgments on the point and explicitly enumerates the guiding principle on the issue. The Court has clearly held that determination of the question whether civil or criminal proceedings are to be given preference has to be case specific and no hard and fast rule can be laid down. Reliance was placed by the Court on Sardool Singh Vs. Nasib Kaur, 1987 Suppl. SCC 146 wherein the Court observed as under in para 2:-
"2. A civil suit between the parties is pending wherein the contention of the respondent is that no will was executed whereas the contention of the appellants is that a will has been executed by the testator. A case for grant of probate is also pending in the court of learned District Judge, Rampur. The civil court is therefore seized of the question as regards the validity of the will. The matter is sub judice in the aforesaid two cases in civil courts. At this juncture the respondent cannot therefore be permitted to institute a criminal prosecution on the allegation that the will is a forged one. That question will have to be decided by the civil court after recording the evidence and hearing the parties in accordance with law. It would not be proper to permit the respondent to prosecute the appellants on this allegation when the validity of the will is being tested before a civil court. We, therefore, allow the appeal, set aside the order of the High Court, and quash the criminal proceedings pending in the Court of the Judicial Magistrate, First Class, Chandigarh in the case entitled Smt Nasib Kaur v. Sardool Singh. This will not come in the way of instituting appropriate proceedings in future in case the civil court comes to the conclusion that the will is a forged one. We of course refrain from expressing any opinion as regards genuineness or otherwise of the Will in question as there is no occasion to do so and the question is wide open before the lower courts."
82. The Court distinguished the judgment in Sardool Singh (supra) by observing that in Syed Askari (supra) a criminal case had already been instituted and the question before it was as to whether it should be allowed to continue or not? It was in that context that the Court allowed the criminal proceedings to go on as not only the aspect of forgery of will, pending adjudication in civil proceedings was the subject of criminal trial but even trespass was alleged in the FIR. The Court held as under in para 43:-
"43. The FIR was lodged not only in regard to forgery of the will but also on the cause of action of a trespass. The appellant admittedly is facing trial under Sections 420, 468 and 448 IPC. It is, thus, possible that even if the will is found to be genuine and that no case under Section 468 IPC is found to have been made out, the appellant may be convicted for commission of other offences for which he has been charged against, namely, trespass into the property and cheating. If it is found that the appellant is guilty of trespass, he may be asked to hand over possession of the premises in question to the complainant."
83. The judgment in Syed Askari therefore has no applicability in the facts of the present case. In this case criminal proceedings are being initiated after almost two years by suppressing and concealing the fact that borrowers' interim application against transfer of shares is already rejected, subject to issues being resolved in arbitration. On facts, we do not approve the initiation of criminal action belatedly, on the strength of suppression and concealment of facts, when issues are otherwise pending before the Arbitrator pursuant to orders passed by the Delhi High Court, which have attained finality inter se between the parties.
84. In this Case we find that Indiabulls has recalled the loans sanctioned in favour of the borrower in December, 2020. Arbitration clause in the loan agreement was invoked in 2021 and the Arbitrator came to be appointed by the High Court under Section 11 of the Act of 1996. Application filed under Section 9 of the Act of 1996 was adjudicated against the borrower and its appeal was also dismissed on 30th November, 2022.
85. We are also informed that the Arbitrator has passed an order of status quo in respect of 73 acre land owned by Kadam. It is much thereafter that criminal action has been initiated notwithstanding the civil proceedings having progressed between 2021 to the start of the year 2023. The question before us is as to whether the FIRs and the ECIR be allowed to continue notwithstanding the orders passed by the Delhi High Court in proceedings under Section 9 of the Act of 1996 as per which all issues relating to loan transaction and valuation of pledged shares of Kadam has to be resolved in Arbitration.
86. We may also note that after the defaulter's application under Section 9 of the Act of 1996 came to be rejected by the Delhi High Court it made an offer to settle all dues of Indiabulls by offering Rs. 1300 crores (Interest free) as one time settlement vide proposal of informant Amit Walia vide Mail dated 1st July 2021. This proposal has been rejected by Indiabulls on 5th July, 2021. This fact is also suppressed by Amit Walia in his complaint filed before the Chief Judicial Magistrate, Gautambuddh Nagar.
87. The borrowers' contention in the criminal complaint that no event of default has taken place or that securities twice above the loan are pledged/mortgaged and, therefore, Indiabulls cannot proceed against the pledged shares of Indiabulls also cannot be countenanced in view of specific findings returned by learned Single Judge of the Delhi High Court in the judgment dated 20th May, 2021, against which no interference is made in appeal by the Division Bench of Delhi High Court on 30th November, 2022.
88. Once the contention of borrower that no event of default has taken place or that securities twice above the loan are pledged/mortgaged and, therefore, Indiabulls cannot proceed against the pledged shares of Indiabulls is rejected by the Delhi High Court and issues in that regard are to be finally determined in Arbitration by virtue of loan agreements it would not be appropriate to allow such issues to be raked up in criminal proceedings. This is so as inter se between the parties it is decided that these issues are to be resolved by way of Arbitration. The borrower's anxiety to overreach this position by seeking criminal adjudication of civil issues would clearly amount to abuse of the process of law.
89. So far as the stand of ED is concerned, we find that its allegation about undervaluation of shares on the strength of report of valuers or that the valuers report are manipulated has to be examined in the context of the financial transaction in its entirety. The valuers report is only an input for the determination of the value of pledged shares of Kadam. To what extent such report of the valuer is binding on Indiabulls would again be a matter to be determined as per the terms of pledge agreement in Arbitration proceedings.
90. Our attention has not been invited to any specific clause in the pledge agreement outlining the role of valuer in determining the value of share for its transfer on account of default in repayment of loan. The counter affidavit filed by ED alleges that the valuers report is ante-dated. It also says that the valuers were not authorized to undertake valuation of shares.
91. In the event valuers were not authorized to value the shares the question of its report being ante-dated or manipulated looses much of its importance. In either of the situation the larger issue that remains is as to whether the shares of Kadam have been undervalued?
92. Once the Delhi High Court has specifically left the issue of valuation of shares of Kadam to be determined in pending Arbitration proceedings, which are yet to be concluded, it would not be prudent to allow such issues to be dealt with in criminal proceedings. It would amount to prejudging the issue of valuation of shares. Even otherwise, if the Arbitrator finds any criminality having crept in the transaction the initiation of criminal action, at such stage, would not be barred. However, we are of the considered opinion that issues specifically entrusted for adjudication to the Arbitrator under the loan agreement cannot simultaneously be allowed to be adjudicated in criminal proceedings belatedly instituted on the strength of concealment and misrepresentation overlooking the scheme for adjudication.
93. So far as the plea of round tripping of funds for purchase of transferred shares is concerned, the allegation stems from a flawed understanding of the banking system itself. These are standard banking practices and unless it is shown to be violating any law that makes it an offence the institution of criminal proceedings would be impermissible. No such violation of law is pointed out by the defaulter. Moreover, issues being pending before the Arbitrator any further comments on this aspect, by us, would be unwarranted.
94. While adjudicating the instant cause we are mindful of the fact that the informant in the 1st FIR is a representative of the borrower which has defaulted in repayment of loan. Its objection against revocation of loan and coercive steps against pledged property has prima facie not found favour with the Delhi High Court in proceedings under Section 9 of the Act of 1996 and the issues, in that regard, are yet to be determined by the Arbitrator already appointed by the Delhi High Court under Section 11 of the Act of 1996. It is in this background that we are not inclined to sustain the invocation of criminal adjudicatory process by suppressing binding adjudications already done between the parties.
95. So far as the 2nd FIR lodged by YEIDA is concerned, the same is substantially based upon the allegations made in the 1st FIR. In a way the 2nd FIR is an offshoot of the 1st FIR.
96. So far as the allegation with regard to non obtaining of permission before transfer of shares of Kadam is concerned the petitioners allege that there are no applicable provision in law which required any permission to be obtained before such transfer of shares.
97. The 2nd FIR records that YEIDA had granted permission on 9.1.2018 for 73 acre land owned by Kadam to be mortgaged to Indiabulls. The 2nd FIR refers to the lodging of 1st FIR as well as complaint made by the borrower to YEIDA and records that no permission is obtained from it by Indiabulls before transferring the shares of Kadam. It also records that transfer of shares has caused expected loss of nearly Rs. 200 crores on the strength of fraud, misrepresentation and concealment, etc.
98. The petitioners state that the 73 acre land of Kadam is part of the concession agreement dated 7th February, 2003 between Taj Expressway Industrial Development Authority and M/s Jaiprakash Industries Limited which contains Clause 4.3(d) quoted hereinafter:-
"The Concessionaire shall be entitled to further sub-lease developed/undeveloped land to sub-lessees/end-users in its sole discretion without any further consent or approval or payment of any charges/fee etc. to TEA or any other relevant authority."
99. Clause 4.4 of the agreement dated 7th February, 2003 is also relied upon which provides that no permission would be needed for transfer of land covered under the concession agreement and the only restriction would be to follow the applicable master plan or any other regulations.
100. The Concessionaire M/s Jaiprakash Industries in turn executed sub-lease on 31.3.2008 in respect of 73 acre land to Kadam.
101. So far as ownership of 73 acre land of Kadam under sub-lease from YEIDA is concerned, the first charge of authority i.e. YEIDA under sub-lease is intact. In case of any dispute YEIDA continues to have first charge over such land.
102. With regard to transfer of shares of Kadam pledged to Indiabulls the petitioners allege that on the date of transfer of shares i.e. 1.7.2021 there existed no law or policy of YEIDA requiring imposition of transfer charges on the change in shareholding of a lessee. Such a policy has been introduced only on 8.10.2021. YEIDA was otherwise informed about the transfer of shares by Kadam on 29.7.2021 but no objection to it was taken nor any demand towards transfer charges was levied then.
103. YEIDA issued a demand notice only on 11.4.2023 imposing transfer charges on account of change of shareholding against Kadam pursuant to the complaint of borrower which led to lodging of the 2nd FIR. Kadam challenged the demand by filing writ petition no. 16196 of 2023 wherein an interim protection was granted. During pendency of the writ YEIDA withdrew the notice dated 11.4.2023 and consequently the writ petition was disposed of.
104. It is on 27.1.2014, after nearly 9 months of the registration of FIR that a demand notice for Rs. 243.73 crores on account of transfer of shares is again issued by YEIDA against Kadam. This notice is sub-judice before this Court wherein an interim order is operating.
105. The issue as to whether any transfer charges is payable on account of transfer of shares of Kadam is yet to be determined in pending writ proceedings before this Court where an interim order is operating. In our opinion the right of YEIDA to recover such transfer charges would have to be determined in the pending writ proceedings before this Court and such claim in no way would be effected by the outcome of the present petitions filed for quashing of the FIRs. If it is ultimately held by this Court in pending Writ Petition that transfer charges are payable the amount so determined would remain recoverable from Kadam on account of first charge over it by YEIDA notwithstanding the outcome of present petitions.
106. The 2nd FIR is otherwise in continuation to the 1st FIR and is on the prompting of the borrower. The transfer of pledged shares of Kadam by the Indiabulls pursuant to pledge agreement is on account of default by the borrower. Such exercise of authority under the pledge agreement is not shown to be an offence. Except for bald allegations no criminality in the transaction is shown in light of the discussions contained in this judgment. The levy of transfer charges is otherwise an issue pending adjudication before this Court in a separate writ and, therefore, no observations on that count are warranted by us.
107. The 2nd FIR is otherwise lodged pursuant to the direction of the authority contained in the letter dated 11.4.2023 which has since been withdrawn by YEIDA. What survives is the issue of transfer charges which is subjudice before this Court. In such circumstances, the 2nd FIR also cannot be sustained when no criminality is even prima facie indicated and the issues raised by the borrower in the 1st FIR are yet to be determined in appropriate proceedings.
108. It may also be noticed that at the time when pledged shares of Kadam were proposed to be transferred and proceedings were pending before the Delhi High Court under Section 9 of the Act of 1996 an offer was given to the defaulter to claim the pledged shares upon payment of Rs. 900 crores but this opportunity was also not availed by the borrower. This is specifically noticed in the order of the learned Single Judge of Delhi High Court.
109. In the context of the facts placed on record and for the discussions held hereinabove we are of the considered view that the impugned FIRs cannot be sustained as its lodging is an apparent abuse of the process of law.
110. So far as proceedings undertaken by ED are concerned, the counter affidavit filed by it only demonstrates that the investigation undertaken by it casts a doubt on the genuineness of valuers report as well as round tripping of funds for purchase of pledged shares of Kadam.
111. In any case the valuers report is at best an input for assessing the value of shares of Kadam. Since the larger issue of undervaluation of such transferred shares of Kadam is an aspect to be gone into by the Arbitrator, at the first instance, it would not be proper to allow the ED to proceed in the matter at this stage and overreach the proceedings of the Arbitrator.
112. Whether at all there is undervaluation of the shares of Kadam is to be determined finally in Arbitration, first. It is only thereafter that it can be ascertained as to whether the valuers report had played any role in such undervaluation or not? Not much reliance can be placed upon the correctness or otherwise of the valuers report, without first ascertaining the aspect of undervaluation of shares.
113. Further, the borrower has already alleged undervaluation before the Arbitral Tribunal and has also sought alleged damages in respect of it. Thus, this question cannot be agitated in the present criminal proceedings.
114. In K. Virupaksha v. State of Karnataka, (2020) 4 SCC 440, the Supreme Court dealt with a similar case of defaulter initiating criminal action against the lender bank. After examining the issue the Court held as under:-
9. As noted, the undisputed fact is that the complainant had approached Canara Bank for financial assistance, wherein the appellants herein were the officers in the circle office. The complainant had availed the loan facility to the tune of Rs 2.68 crores on 16-3-2009. Though the complainant contends that the entire amount of Rs 2.68 crores was not released, but only a sum of Rs 90 lakhs was released and the remaining amount was adjusted as repayment, the question would be as to whether that aspect and the other aspects as raised with regard to the non-consideration of OTS as also the value for which the property was sold and the manner in which it was sold could be investigated into by the police, merely, because allegations are made and certain sections of the Penal Code, 1860 are invoked when the action is resorted to and regulated under the Sarfaesi Act. While taking note of the sequence of events it is noticed that the secured asset though sold in the auction conducted on 31-1-2014 and the grievances as sought to be put forth at this point in the criminal complaint was available at that juncture, it is not as if the complaint was immediately filed. On the other hand, when the auction notice dated 13-10-2013 was issued, no grievance was made out by the complainant before any judicial forum. However, the sale did not take place for want of the purchasers and a fresh auction notice dated 30-12-2013 was issued indicating the reserve price at Rs 1.10 crores.
14. The issue, however is, as to whether such proceedings by the police in the present facts and circumstances could be permitted. At the outset, the sanction of loan, creation of mortgage and the manner in which the sanctioned loan was to be released are all contractual matters between the parties. The complainant is an industrialist who had obtained the loan in the name of his company and the loan account was maintained by Canara Bank in that regard. The loan admittedly was sanctioned on 16-3-2009. When at that stage the amount was released and if any amount was withheld, the complainant was required to take appropriate action at that point in time and avail his remedy. On the other hand, the complainant had proceeded with the transaction, maintained the loan account until the account was classified as NPA on 15-1-2013. Initially, the issue raised was only with regard to the undervaluation of the property when it was brought to sale. On that aspect, as taken note, the writ proceedings were filed and the learned Single Judge having examined, though did not find merit had reserved liberty to raise it before DRT, which option is also availed. It is only, thereafter, the impugned complaint was filed on 20-5-2016.
15. The Sarfaesi Act is a complete code in itself which provides the procedure to be followed by the secured creditor and also the remedy to the aggrieved parties including the borrower. In such circumstance, as already taken note of by the High Court in writ proceedings, if there is any discrepancy in the manner of classifying the account of the appellants as NPA or in the manner in which the property was valued or was auctioned, DRT is vested with the power to set aside such auction at the stage after the secured creditor invokes the power under Section 13 of the Sarfaesi Act. This view is fortified by the decision of this Court in Indian Overseas Bank v. Ashok Saw Mill [Indian Overseas Bank v. Ashok Saw Mill, (2009) 8 SCC 366 : (2009) 3 SCC (Civ) 403] wherein it is held as hereunder : (SCC pp. 375-76, paras 34-37) "34. The provisions of Section 13 enable the secured creditors, such as banks and financial institutions, not only to take possession of the secured assets of the borrower, but also to take over the management of the business of the borrower, including the right to transfer by way of lease, assignment or sale for realising secured assets, subject to the conditions indicated in the two provisos to clause (b) of sub-section (4) of Section 13.
35. In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the banks or financial institutions, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor, to make an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in sub-section (3) thereof.
36. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.
37. The consequences of the authority vested in the DRT under sub-section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The legislature by including sub-section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr Gopalan and Mr Altaf Ahmed that the DRT has no jurisdiction to deal with a post-Section 13(4) situation, cannot be accepted."
(emphasis supplied)
16. We reiterate, the action taken by the Banks under the Sarfaesi Act is neither unquestionable nor treated as sacrosanct under all circumstances but if there is discrepancy in the manner the Bank has proceeded it will always be open to assail it in the forum provided. Though in the instant case, the application filed by the complainant before DRT has been dismissed and Appeal No. 523 of 2015 filed before DRAT is also stated to be dismissed the appellants ought to have availed the remedy diligently. In that direction, the further remedy by approaching the High Court to assail the order of DRT and DRAT is also available in appropriate cases. Instead the petitioner after dismissal of the application before the DRT filed the impugned complaint which appears to be an intimidatory tactic and an afterthought which is an abuse of the process of law. In the matter of present nature, if the grievance as put forth is taken note of and if the same is allowed to be agitated through a complaint filed at this point in time and if the investigation is allowed to continue it would amount to permitting the jurisdictional police to redo the process which would be in the nature of reviewing the order passed by the learned Single Judge and the Division Bench in the writ proceedings by the High Court and the orders passed by the competent court under the Sarfaesi Act which is neither desirable nor permissible and the banking system cannot be allowed to be held to ransom by such intimidation. Therefore, the present case is a fit case wherein the extraordinary power is necessary to be invoked and exercised."
115. In M.N. Ojha Vs. Alok Kumar Srivastav, (2009) 9 SCC 682, the Supreme Court observed as under in paras 33, 34 & 35 of the judgment, which are reproduced:-
33. This is one case where the averments and allegations made in the complaint do not disclose the commission of any offence by the appellants or any one of them. They were merely discharging their duties to realise and recover the amounts due to the Bank from the borrower as well as the guarantors. The complaint obviously has been filed as a counterblast to the proceedings already initiated by the Bank including the first information report lodged by the first appellant against the complainant and the borrower for the offences of cheating and misappropriation.
34. Sequence of events undoubtedly suggests that the criminal proceedings have been maliciously instituted with an ulterior motive of wreaking vengeance on the appellants and with a view to spite them due to personal grudge. It was clearly intended to prevent the public servants from discharging their duties. The criminal law has been set in motion by the learned SDJM on mere asking to do so by the complainant.
35. The High Court almost abdicated its duty in refusing to exercise its jurisdiction under Section 482 of the Code of Criminal Procedure though the case on hand required its interference in order to prevent abuse of the process by a court subordinate to it. A clear case is made out requiring our interference to secure the ends of justice."
116. In Mitesh Kumar J. Sha Vs. State of Karnanataka (2022) 14 SCC 572, the Supreme Court observed in para 38, 40, 41 and 45, as under:-
38. Having considered the relevant arguments of the parties and decisions of this Court we are of the considered view that existence of dishonest or fraudulent intention has not been made out against the appellants. Though the instant dispute certainly involves determination of issues which are of civil nature, pursuant to which Respondent 2 has even instituted multiple civil suits, one can by no means stretch the dispute to an extent, so as to impart it a criminal colour. As has been rightly emphasised upon by this Court, by way of an observation rendered in Indian Oil Corpn. v. NEPC India Ltd. [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188] , as under : (SCC p. 749, para 14) "14. While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, in accordance with law."
40. On an earlier occasion, in G. Sagar Suri v. State of U.P. [G. Sagar Suri v. State of U.P., (2000) 2 SCC 636 : 2000 SCC (Cri) 513] , this Court has also observed : (SCC p. 643, para 8) "8. Jurisdiction under Section 482 of the Code has to be exercised with great care. In exercise of its jurisdiction the High Court is not to examine the matter superficially. It is to be seen if a matter, which is essentially of civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal court has to exercise a great deal of caution. For the accused it is a serious matter. This Court has laid certain principles on the basis of which the High Court is to exercise its jurisdiction under Section 482 of the Code. Jurisdiction under this section has to be exercised to prevent abuse of the process of any court or otherwise to secure the ends of justice."
41. Furthermore, in the landmark judgment of State of Haryana v. Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 : 1992 SCC (Cri) 426] regarding exercise of inherent powers under Section 482CrPC, this Court has laid down the following categories of instances wherein inherent powers of the Court can be exercised in order to secure the ends of justice. These are : (SCC pp. 378-79, para 102) "102. ... (1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.
(4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the Act concerned (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the Act concerned, providing efficacious redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."
45. In view of the above facts and discussions, the impugned order dated 13-8-2019 [Ramanlal M. Sha v. State of Karnataka, 2019 SCC OnLine Kar 3504] passed by the High Court of Karnataka is set aside. The impugned FIR No. 185 of 2016 dated 29-3-2016 and proceedings in CC No. 20609 of 2017 on the file of VIth Additional CMM, Bengaluru, in pursuance of charge-sheet dated 29-3-2017 against the appellants for the offences under Sections 406, 419, 420 read with Section 34 IPC stands quashed."
117. In Vijay Kumar Ghai Vs. State of West Bengal, (2022) 7 SCC 124, the Supreme Court observed in Paras 24, 25, 37, 38, as under:
24. This Court in G. Sagar Suri v. State of U.P. [G. Sagar Suri v. State of U.P., (2000) 2 SCC 636 : 2000 SCC (Cri) 513] observed that it is the duty and obligation of the criminal court to exercise a great deal of caution in issuing the process, particularly when matters are essentially of civil nature.
25. This Court has time and again cautioned about converting purely civil disputes into criminal cases. This Court in Indian Oil Corpn. [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188] noticed the prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. The Court further observed that : (Indian Oil Corpn. case [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188] , SCC p. 749, para 13) "13. ... Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged."
37. The following observation made by this Court in Uma Shankar Gopalika v. State of Bihar [Uma Shankar Gopalika v. State of Bihar, (2005) 10 SCC 336 : (2006) 2 SCC (Cri) 49] with almost similar facts and circumstances may be relevant to note at this stage : (SCC pp. 338-39, paras 6-7) "6. Now the question to be examined by us is as to whether on the facts disclosed in the petition of the complaint any criminal offence whatsoever is made out much less offences under Sections 420/120-BIPC. The only allegation in the complaint petition against the accused persons is that they assured the complainant that when they receive the insurance claim amounting to Rs 4,20,000, they would pay a sum of Rs 2,60,000 to the complainant out of that but the same has never been paid. ... It was pointed out on behalf of the complainant that the accused fraudulently persuaded the complainant to agree so that the accused persons may take steps for moving the consumer forum in relation to the claim of Rs 4,20,000. It is well settled that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In the present case, it has nowhere been stated that at the very inception that there was intention on behalf of the accused persons to cheat which is a condition precedent for an offence under Section 420IPC.
7. In our view petition of complaint does not disclose any criminal offence at all much less any offence either under Section 420 or Section 120-BIPC and the present case is a case of purely civil dispute between the parties for which remedy lies before a civil court by filing a properly constituted suit. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse of the process of court and to prevent the same it was just and expedient for the High Court to quash the same by exercising the powers under Section 482CrPC which it has erroneously refused."
38. There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. However, as held by this Court in Hridaya Ranjan Prasad Verma v. State of Bihar [Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168 : 2000 SCC (Cri) 786] , the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one. While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by Respondent 2 does not disclose dishonest or fraudulent intention of the appellants."
118. In Sarabjit Kaur Vs. State of Punjab, 2023 (5) SCC 360, the Summit Court held as under in para 11 to 13 of the report, which are reproduced:
11. Still not satisfied as the result of the earlier complaint was not to the liking of Respondent 2. He filed another complaint on 23-1-2017. Thereafter, another complaint was filed by Respondent 2 on 15-6-2017 on the basis thereof FIR in question was registered. On the facts of the case in hand, it is evident that the effort of Respondent 2 was merely to put pressure on the appellant while involving her in a criminal case to get his money back whereas there is nothing pleaded that Respondent 2 that he was ever ready and willing to get the sale deed registered. There was no effort made by Respondent 2 or the vendee in the agreement to sell to initiate any civil proceedings to get the sale deed executed on the basis of the agreement to sell. In fact, the last date fixed for execution of the sale deed even after extension was 24-12-2014.
12. There is nothing on record to suggest that any notice was issued by Respondent 2 or the vendee to the appellant to get the sale deed registered just either before expiry of the last date fixed for execution of sale deed or immediately thereafter. No civil proceedings were also initiated rather Respondent 2 proceeded only by filing complaints with the police two of which were earlier filed. Had there been any civil proceedings initiated, the question of readiness and willingness of the vendee is also an aspect to be examined by the court.
13. A breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. Merely on the allegation of failure to keep up promise will not be enough to initiate criminal proceedings. From the facts available on record, it is evident that Respondent 2 had improved his case ever since the first complaint was filed in which there were no allegations against the appellant rather it was only against the property dealers which was in subsequent complaints that the name of the appellant was mentioned. On the first complaint, the only request was for return of the amount paid by Respondent 2. When the offence was made out on the basis of the first complaint, the second complaint was filed with improved version making allegations against the appellant as well which was not there in the earlier complaint. The entire idea seems to be to convert a civil dispute into criminal and put pressure on the appellant for return of the amount allegedly paid. The criminal courts are not meant to be used for settling scores or pressurise parties to settle civil disputes. Wherever ingredients of criminal offences are made out, criminal courts have to take cognizance. The complaint in question on the basis of which FIR was registered was filed nearly three years after the last date fixed for registration of the sale deed. Allowing the proceedings to continue would be an abuse of process of the court."
119. Similarly, in Lalit Chaturvedi and others Vs. State of Uttar Pradesh, 2024 SCC OnLine SC 171, the Court held as under in paras 5, 6, 7, 9, 10, 11:-
"5. This Court, in a number of judgments, has pointed out the clear distinction between a civil wrong in the form of breach of contract, non-payment of money or disregard to and violation of the contractual terms; and a criminal offence under Sections 420 and 406 of the IPC. Repeated judgments of this Court, however, are somehow overlooked, and are not being applied and enforced. We will be referring to these judgments. The impugned judgment dismisses the application filed by the appellants under Section 482 of the Cr. P.C. on the ground of delay/laches and also the factum that the chargesheet had been filed on 12.12.2019. This ground and reason is also not valid.
6. In "Mohammed Ibrahim v. State of Bihar"4, this Court had referred to Section 420 of the IPC, to observe that in order to constitute an offence under the said section, the following ingredients are to be satisfied:--
"18. Let us now examine whether the ingredients of an offence of cheating are made out. The essential ingredients of the offence of "cheating" are as follows:
(i) deception of a person either by making a false or misleading representation or by dishonest concealment or by any other act or omission;
(ii) fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived; and
(iii) such act or omission causing or is likely to cause damage or harm to that person in body, mind, reputation or property.
19. To constitute an offence under section 420, there should not only be cheating, but as a consequence of such cheating, the accused should have dishonestly induced the person deceived
(i) to deliver any property to any person, or
(ii) to make, alter or destroy wholly or in part a valuable security (or anything signed or sealed and which is capable of being converted into a valuable security)."
7. Similar elucidation by this Court in "V.Y. Jose v. State of Gujarat"5, explicitly states that a contractual dispute or breach of contract per se should not lead to initiation of a criminal proceeding. The ingredient of 'cheating', as defined under Section 415 of the IPC, is existence of a fraudulent or dishonest intention of making initial promise or representation thereof, from the very beginning of the formation of contract. Further, in the absence of the averments made in the complaint petition wherefrom the ingredients of the offence can be found out, the High Court should not hesitate to exercise its jurisdiction under Section 482 of the Cr. P.C. Section 482 of the Cr. P.C. saves the inherent power of the High Court, as it serves a salutary purpose viz. a person should not undergo harassment of litigation for a number of years, when no criminal offence is made out. It is one thing to say that a case has been made out for trial and criminal proceedings should not be quashed, but another thing to say that a person must undergo a criminal trial despite the fact that no offence has been made out in the complaint. This Court in V.Y. Jose (supra) placed reliance on several earlier decisions in "Hira Lal Hari Lal Bhagwati v. CBI"6, "Indian Oil Corporation v. NEPC India Ltd."7, "Vir Prakash Sharma v. Anil Kumar Agarwal"8 and "All Cargo Movers (I) (P) Ltd. v. Dhanesh Badarmal Jain"9."
9. We will assume that the assertions made in the complaint are correct, but even then, a criminal offence under Section 420 read with Section 415 of the IPC is not established in the absence of deception by making false and misleading representation, dishonest concealment or any other act or omission, or inducement of the complainant to deliver any property at the time of the contract(s) being entered. The ingredients to allege the offence are neither stated nor can be inferred from the averments. A prayer is made to the police for recovery of money from the appellants. The police is to investigate the allegations which discloses a criminal act. Police does not have the power and authority to recover money or act as a civil court for recovery of money.
10. The chargesheet also refers to Section 406 of the IPC, but without pointing out how the ingredients of said section are satisfied. No details and particulars are mentioned. There are decisions which hold that the same act or transaction cannot result in an offence of cheating and criminal breach of trust simultaneously.10 For the offence of cheating, dishonest intention must exist at the inception of the transaction, whereas, in case of criminal breach of trust there must exist a relationship between the parties whereby one party entrusts another with the property as per law, albeit dishonest intention comes later. In this case entrustment is missing, in fact it is not even alleged. It is a case of sale of goods. The chargesheet does refer to Section 506 of the IPC relying upon the averments in the complaint. However, no details and particulars are given, when and on which date and place the threats were given. Without the said details and particulars, it is apparent to us, that these allegations of threats etc. have been made only with an intent to activate police machinery for recovery of money.
11. It is for the respondent no. 2/complainant - Sanjay Garg to file a civil suit. Initiation of the criminal process for oblique purposes, is bad in law and amounts to abuse of process of law."
120. Upon elaborate consideration of the issues raised in this matter, we have no hesitation in holding that initiation of criminal proceedings at the instance of borrower are instituted on the strength of suppression and concealment of relevant facts, with unexplained delay and malicious intent to thwart legitimate steps taken by Indiabulls to recover the financial assistance extended to the borrower. Such proceedings are also intended to create leverage in ongoing civil/arbitration proceedings inter se between the parties. The criminal proceedings are, therefore, clearly an abuse of the process of law and deserve to be quashed.
121. We may clarify that any observation made in this judgment will not influence the ongoing inter-se proceedings between the parties before the Arbitrator or pending before this Court. All contentions of the parties in respect of the issues pending before the competent forums are also left open for its adjudication in accordance with law.
122. For the reasons recorded above, the writ petitions succeed and are allowed. The FIRs in Case Crime No. 427 of 2023, dated 9.4.2023, under Sections 420, 467, 468, 471, 120B, 323, 504, 506 IPC, Police Station Indirapuram, District Ghaziabad as also in Case Crime No. 197 of 2023, dated 15.4.2023, under Sections 420, 467, 468, 471 and 120-B IPC, Police Station Beta-2, District Greater NOIDA as well as the proceedings initiated by ED pursuant thereto registered as ECIR/HIU-I/06/2023 are quashed. Parties to bear their own costs.
Order Date:- 20.12.2024
Ranjeet Sahu/RA
(Ashutosh Srivastava, J.) (Ashwani Kumar Mishra, J.)