Bangalore District Court
Konanakunte P S vs A1 Prameelamma on 29 July, 2025
1 Spl.CC. 1073/2019
KABC010296332019
IN THE COURT OF XLVII ADDITIONAL CITY CIVIL &
SESSIONS JUDGE AND SPECIAL JUDGE FOR CBI
CASES, BENGALURU (CCH-48)
DATED THIS THE 29th DAY OF JULY 2025
PRESENT
Sri.Satish J.Bali, B.Com, LL.M,
XLVII Addl. City Civil & Sessions Judge
and Special Judge for CBI cases,
Bengaluru.
SPL.CC.NO.1073/2019
COMPLAINANT: State of Karnataka by
Konanakunte Police Station,
Bengaluru.
(By Spl. Public Prosecutor)
Vs.
ACCUSED: 1. Smt. Prameelamma
W/o Manjunath Reddy,
Aged about 45 years.
2. Sri Manjunath Reddy,
S/o Jayarama Reddy,
Aged about 50 years,
Both are residing at No.65,
1st Main, 1st Cross, Kothanur
Dinne, Bangalore.
2 Spl.CC. 1073/2019
3. Sri Lokesh Reddy
S/o Narayana Reddy,
Aged about 42 years,
R/at No.77, Halanayakanahalli,
Sarjapur Road, Carmelaram
Post, Bengaluru Rural District.
4. Sri Pavan Reddy
S/o Manjunath Reddy,
Aged about 22 years,
R/at No. 65, 1st Main,
1st Cross, Kothanur Dinne,
Bangalore.
5. Smt. Preethi Reddy
W/o Bharath Reddy,
Aged about 22 years,
R/at No. 248, 1st Main,
1st Cross, Singasandra,
Hosur Road, Bengaluru.
A1 to A5 - By Sri SNR, Advocate
1.Date of Commission of Offence: During the
period from
10/03/2016 to
15/09/2017
2. Date of Report of Offence : 16/09/2017
3. Arrest of Accused : Accused No. 1 to 5
are on bail.
4. Name of the complainant : Mamatha Ramesh K.V.
5. Date of recording of Evidence : 27/01/2023
6. Date of closing Evidence : 03/05/2025
3 Spl.CC. 1073/2019
7. Offences complained of : Sec.406, 420, 504,
506 r/w Sec.120(B) of
IPC, and Sec.4
punishable u/s 76 of
Chit Funds Act, 1982
and Sec.9 of KPIDFE
Act.
8. Opinion of the Judge : As per the final order
(SATISH J. BALI)
XLVII Addl. City Civil & Sessions
Judge and Special Judge for CBI
Cases, Bengalulru.
****
JUDGMENT
This case emanates from the charge-sheet filed by the Police Inspector, Konanakunte Police, Bengaluru as against the accused persons for the offences punishable under Sections 406, 420, 504, 506 R/W 120B of IPC, for the offence punishable under Section 4 and 76 of Chit Funds Act, and also in respect of the offence punishable under Section 9 of Karnataka Protection of Interest of Depositors in Financial Establishments Act (in short KPIDFE ACT) 4 Spl.CC. 1073/2019
2. The brief facts of the prosecution case are as under:
Accused No.1 and 2 are husband and wife and accused no.4 and 5 are their children. Accused No.3 is the brother of accused no.1. It is the case of the prosecution that the accused persons entered into criminal conspiracy so as to cheat the public at large and have started chit business in the year 2012 at House No.65, 8th Stage, 4th Main, 4th Cross, Krishna Nagar, J.P.Nagar 8th Stage, Bengaluru, without obtaining license from the competent authority. It is also alleged that though the accused persons did not had license to run the said chit business make believed the public that they are having license from the competent authority to run the chit business and under the said guise induced the charge-sheeted witnesses and other subscribers and collected Rs.13 lakhs from CW.1 for the year 2016-17 towards two chits of Rs.8.10 lakhs and Rs.5 lakhs respectively 5 Spl.CC. 1073/2019 and also collected Rs.1,80,000/- from CWs. 3 to 33 towards chits of Rs.5 lakhs, Rs.8.10 lakhs and Rs. 9 lakhs respectively and also borrowed Rs.17,94,000/-
from CW.4 and failed to run the chits and return subscription amount to the CWs. 1 to 33 and thereby committed the offence of criminal breach of trust and cheating which are made punishable under Section 406 and 420 of IPC. It is also the case of the prosecution that, when CWs. 1 to 33 went near the house of the accused persons so as to demand for return of the subscription amount, the accused abused them in filthy language with dire consequences and thereby they have committed the offences punishable under Section 504 and 506 of IPC.
It is also alleged that the accused no.1 to 5 have collected the above said chit amount from CWs. 1 to 33 and failed to run the chit business and return the subscription amount and thereby 6 Spl.CC. 1073/2019 committed the offence punishable under Section 9 of Karnataka Protection of Interest of Depositors in Financial Establishments Act and also they run the said chit business without obtaining license from the concerned authority which is in contravention of provisions of Chit Funds Act,1982 and thereby committed offence punishable under Section 76 of Chit Funds Act, 1982.
3. After filing the charge-sheet, based upon the materials placed, as there were sufficient grounds and materials to proceed as against the accused, this Court has taken cognizance of the aforesaid offences as against the accused. The accused persons in response to the summons appeared before this Court through their counsel and were enlarged on bail. The copies of the prosecution papers furnished to the accused in compliance of Section 207 of Cr.P.C.,
4. As there were sufficient materials to proceed against the accused for the aforesaid 7 Spl.CC. 1073/2019 offences, the charges came to be framed for the aforesaid offences and same were read over and explained to the accused in the language known to them. The accused persons having understood the same did not pleaded guilty and claims to be tried.
5. The prosecution in order to bring home the guilt of the accused persons has got examined as many as 29 witnesses as PWs.1 to 29 and got marked documents Ex.P1 to Ex.P4(a), and closed its side.
6. The incriminating materials appearing in the evidence of the prosecution was read over to all the accused in compliance of section 313(2)(b) of Cr.Pc who denied the same. The answers and explanations given by them were recorded. The Accused persons did not chosen to lead the evidence on their behalf, as such matter was set for Arguments.
8 Spl.CC. 1073/2019
7. Heard Learned Special Public Prosecutor as well as Learned counsel for Accused persons and perused materials such as charge-sheet, charges,ocular as well documentary evidence placed on record.
8. The following points arises for my consideration:
1. Whether the prosecution proves beyond reasonable doubt that accused Nos.1 to 5 entered into criminal conspiracy to cheat the public at large, have started chit business in the year 2012 without obtaining license from the concerned authority and having dominion over the same, induced CWs-1 to 33 that they have license to do chit business and collected Rs.13 lakhs from CW-1 for the year 2016-17 towards two chits of Rs.8.10 lakhs and Rs.5 lakhs respectively and also collected Rs.1,80,000/- from CWs-3 to 33 towards chits of Rs.5 lakhs, Rs.8.10 lakhs and Rs.9 lakhs chits and also
9 Spl.CC. 1073/2019 borrowed Rs.17,94,000/- from CW-4 and failed to run the chits and return the subscription amounts to CWs-1 to 33 inspite of repeated requests and thereby committed an offence of criminal breach of trust punishable under Sec.406 R/w Sec.120(B) of IPC?
2. Whether the prosecution proves beyond reasonable doubt that accused Nos.1 to 5 in furtherance of criminal conspiracy, to cheat CWs-1 to 33 have collected Rs.13 lakhs from CW-1 for the year 2016-17 towards two chits of Rs.8.10 lakhs and Rs.5 lakhs respectively and also collected Rs.1,80,000/- from CWs-3 to 33 towards chits of Rs.5 lakhs, Rs.8.10 lakhs and Rs.9 lakhs chits and also borrowed Rs.17,94,000/- from CW-4 and failed to run the chits and return the subscription amounts to CWs-1 to 33 inspite of repeated requests and thereby committed the offence of cheating to the tune of 10 Spl.CC. 1073/2019 Rs.1,71,60,000/- punishable under Sec.420 R/w Sec.120(B) of IPC?
3. Whether the prosecution proves beyond reasonable doubt that, accused Nos.1 to 5 in furtherance of criminal conspiracy, to cheat CWs-1 to 33 have illegally collected amount of Rs.1,71,60,000/- and when CWs-1 to 33 came near their house and requested accused to return the subscription amount, accused abused them in filthy language and thereby committed the offence punishable under Sec.504 R/w Sec.120(B) of IPC?
4. Whether the prosecution proves beyond reasonable doubt that accused Nos.1 to 5 in furtherance of criminal conspiracy, to cheat CWs-1 to 33 have illegally collected amount of Rs.1,71,60,000/- and when CWs-1 to 33 came near house and requested accused to return the subscription amount, accused threatened them with dire consequences of life and thereby 11 Spl.CC. 1073/2019 commits the offence punishable under Sec.506 R/w Sec.120(B) of IPC?
5. Whether the prosecution proves beyond reasonable doubt that accused Nos.1 to 5 entered into criminal conspiracy to cheat CWs-1 to 33 have illegally collected amount of Rs.1,71,60,000/-
and committed the offence under Sec.120(B) of IPC?
6. Whether the prosecution proves beyond reasonable doubt that accused Nos.1 to 5 entered into criminal conspiracy to cheat the public at large, have started chit business in the year 2012 without obtaining license from the concerned authority and having dominion over the same, induced CWs-1 to 33 that accused have license to do chit business and collected Rs.13 lakhs from CW-1 for the year 2016-17 towards two chits of Rs.8.10 lakhs and Rs.5 lakhs respectively and also collected Rs.1,80,000/- from CWs-3 to 33 towards chits of Rs.5 lakhs, Rs.8.10 lakhs and Rs.9 lakhs chits and also 12 Spl.CC. 1073/2019 borrowed Rs.17,94,000/- from CW-4 and failed to run the chits and return the subscription amounts to CWs-1 to 33 inspite of repeated requests and thereby committed an offence punishable under Sec.9 of Karnataka Protection of Interest of Depositors in Financial Establishments Act?
7. Whether the prosecution proves beyond reasonable doubt that accused Nos.1 to 5 in furtherance of criminal conspiracy, illegally collected the chit amount from CWs-1, 3 to 33 to the tune of Rs.1,71,60,000/- without obtaining license from the concerned authority and failed to run the chit business and return the subscription amounts to the subscribers and thereby committed the offence within the meaning of Sec.4 punishable under Sec.76 of Chit Funds Act, 1982?
8. What order?
9. My answer to the above points are as under:
13 Spl.CC. 1073/2019 Point No.1: In the Negative;
Point No.2: In the Negative;
Point No.3: In the Negative;
Point No.4: In the Negative;
Point No.5: In the Negative;
Point No.6: In the Negative;
Point No.7: In the Negative;
Point No.8: As per final order; for the following:
REASONS
10. POINT NO.1 TO 7 : Since these points are interlinked with each other and in order to avoid repetition of facts, they are taken up together for common discussions.
11. The Learned Special Public Prosecutor with reference to the materials on record submitted that, the accused persons were running the chit business without obtaining valid license from the competent authority as contemplated under Chit Funds Act, and by inducing the subscribers i.e., CWs.1 to 27 made them to invest in the chit business and after 14 Spl.CC. 1073/2019 collecting the chit amount, they did not repaid the same and thereby committed the offence punishable under Section 406 and 420 of IPC. It is also submitted that when the subscribers and the prosecution witnesses asked for return of the amount, the accused persons abused them in filthy language with dire consequences and thereby committed the offences punishable under Section 504 and 506 of IPC. The Learned Special Public Prosecutor fairly submitted the provisions of Karnataka Protection of Interest of Depositors in Financial Establishments Act, 2002 are not applicable, as the accused were not running the financial establishment. It is also submitted that the prosecution witnesses have deposed as to the payment of chit amount to the accused and their evidence makes it very clear that the accused persons after collecting the chit amount did not repaid the same and thereby committed the alleged 15 Spl.CC. 1073/2019 offences. By referring to Ex.P1 - statement of account, it is submitted that said statement of account reveals the transaction between the accused and PW.2. The accused no.1 after borrowing sum of Rs.17,94,000/- has not returned the same and thereby cheated the said witness. It is submitted that, the accused induced the subscribers to make investment in the chit business run by them on the guise that they are having valid license from the competent authority and thereby cheated the subscribers and prayed to punish the accused for the alleged offences.
12. Per contra, the Learned counsel for the accused by taking this court to the evidence of PWs. 1 to 29 and also other documentary evidence submitted that there is no evidence as to the inducement so as to attract Section 406 and 420 of IPC. In order to punish the accused for criminal breach of trust, the prosecution has to prove the 16 Spl.CC. 1073/2019 entrustment of property, but same is not proved in the case on hand. It is also submitted that evidence of PWs. 1 to 29 does not reveal that there was an inducement on the part of the accused to make an investment in the alleged chit business and the Investigating Officer - PW.29 has not secured any documents as to the financial capacity of the subscribers. It is also submitted that only vague and omnibus allegations are made to attract the offence punishable under Section 504 and 506 of IPC, and the prosecution has utterly failed to prove through documentary evidence that the subscribers have invested the chit amount in the alleged chit business run by the accused. It is also submitted that, the accused no.5 after her marriage started to reside in her in-laws house, as such there is no overtact on her behalf. It is submitted that the prosecution has not proved the mahazar Ex.P3 and PW.28 is a stock witness as such the prosecution 17 Spl.CC. 1073/2019 has failed to prove the mahazar. It is also canvassed that said mahazar was drawn outside the house of the accused where it is alleged that they run the chit business. It is submitted that though the complainant claims to have paid Rs.1,00,000/- per month, but there is no document to that effect and also she has not furnished the income tax returns to show the payment of chit amount to the accused.
13. With reference to the offences punishable under Section 504 and 506 of IPC, the Learned counsel submitted that only on the basis of bald and omnibus allegations, the Investigating Officer has filed the charge-sheet without having sufficient materials. It is submitted that the prosecution has failed to prove the alleged offences with ocular evidence of PWs. 1 to 29 and though it is the case of the prosecution that accused no.3 abused the subscribers in filthy language through mobile phone, but no call records have been placed before the court 18 Spl.CC. 1073/2019 to show that he has committed the alleged offence. It is submitted that mere non-repayment of loan will not attract the offence punishable under Section 420 of IPC, and the offences punishable under Section 406 and 420 of IPC cannot be tried together and thereby prayed to acquit the accused of the alleged offence.
14. Before appreciating the above said rival arguments canvassed by both the learned counsels, it is necessary to know the evidence led by the prosecution.
15. The prosecution has got examined as many as 29 witnesses as PWs. 1 to 29. Among them, PWs. 1 to 25 and 27 are stated to be the subscribers who have deposited the amount in the alleged chit business run by the accused. PW.26 and PW 28 are the witnesses to the mahazar- Ex.P3 and PW.29 is the Investigating Officer who registered the case 19 Spl.CC. 1073/2019 against the accused and conducted the investigation and filed the charge-sheet against them.
16. PW.1 - Sri Prashanth Kumar s/o Venkatesh has deposed that in the year 2016, the accused persons were running the chit business at Kothnur village and he came in contact with them through CW.4 - Geetha. He further deposed that he became subscriber of chit of Rs.5 lakhs and has to pay Rs.20,000/- for a period of 25 months, and accordingly he has paid said amount for 13 months. He further deposed that the accused used to collect the amount by coming to his house and on some occasions, he used to went to their house so as to pay the amount. He further deposed that the accused are in due of Rs.2,60,000/- to him. In the cross-examination, this witness has stated that from CW.4, he came to know that accused were holding license to run the chit business, but she has not shown the said license to him. He further admitted 20 Spl.CC. 1073/2019 that, he has no documents to show regarding payment made to the accused no.1 and 2 for a period of 13 months and accused have not given any notes to all subscribers regarding the bid amount. He failed to state the name of all 25 subscribers. He further submitted that he is an income tax assessee and there is no document to show that he has paid Rs.20,000/- every month towards chit. Though this witness has stated that the payment of chit installment is reflected in his income tax returns, but same has not been produced by him or by the Investigating Officer. He also failed to state whether the amount due from the accused is reflected in his income tax returns or not. The said evidence of PW.1 makes it very clear that though he is an income tax assessee and payment of alleged chit amount is reflected in his income tax returns, but same has not been produced before the court. This witness has 21 Spl.CC. 1073/2019 clearly admitted that he has no documents to show payment of chit installment to the accused.
17. PW.2 - Smt. Geetha w/o Suresh who is none other than the co-sister of accused no.1 has deposed that she became subscriber of two chits with the accused of Rs. 5 lakh and Rs.9 lakh each and supposed to pay chit amount of Rs.30,000/- every month till 2016, and she deposed that she paid Rs.18 lakhs of chit amount to the accused and after completion of the chit period, they have not paid the chit amount. She further stated that accused no.1 in the year 2015 requested for loan of Rs.10 lakhs for construction of house which has been paid by her through cheque on 21/12/2015. Again, she has also paid sum of Rs.5,60,000/- and Rs.2,34,000/- by way of two cheques to the accused no.1, but she did not repaid the said amount and she got marked her statement of account as per Ex.P1. She further deposed that when she requested for repayment of 22 Spl.CC. 1073/2019 the chit amount, the accused threatened her with dire consequences and abused her in filthy language.
18. In the cross-examination, this witness has admitted that she attended the marriage of accused no.5, and after marriage, Accused no 5 resided with her husband at Singasandra. She further admitted that the accused have not issued any documents or notes for having received the chit amount every month. In the cross-examination dated 21/2/2025, this witness has admitted that herself and her husband both are income tax assessees and failed to state the successful bidders of the chit and also their names. She admitted that there was no impediment for her to pay chit amount of Rs.60,000/- by way of cheque and it is in the knowledge of her husband that any payment of more than Rs.25,000/- is to be made by way of cheque. Further, this witness has admitted that she has not filed any suit for recovery 23 Spl.CC. 1073/2019 of loan amount as against the accused and she has not made notes of chit transactions of every month and she did not remember when the chit was ended.
19. PW.3 - Smt. Manjula w/o Late Paramesh has deposed that she became subscriber of two chits of Rs.5 lakhs and Rs.10 lakhs each and supposed to pay Rs.20,000/- till March 2017. She deposed that accordingly she paid the chit amount to the accused no.1 to 5 and after completion of the chit, the accused persons did not repaid the chit amount. In the cross-examination, this witness has admitted that she has no documents to show that she used to pay the chit amount of Rs.20,000/- each to the accused persons. Further, she has also admitted that accused no.3 is residing at Halanayakanahalli and she never visited his house.
20. The prosecution has also got examined the first informant Smt. Mamatha Ramesh w/o Ramesh as PW.4 who deposed that the accused at 24 Spl.CC. 1073/2019 Kothnur village were running chit for Rs.5 lakhs, Rs.9 lakhs and Rs.10 lakhs respectively and she was told that they had license to do the chit business. She deposed that she became subscriber of two chits of Rs.8,10,000/- and Rs. 5 lakhs each. She has deposed that she had paid chit amount of Rs. 1,00,000/- every month for four chits till March 2017 to the accused no.1 to 5, but after completion of the chit period, the accused have not paid the chit amount and dragged the matter for one or the other reason. She further deposed that when she requested the accused persons to repay the amount, they abused her in filthy language and there- afterwards she approached the police and lodged the first information as per Ex.P2 and identified her signature at Ex.P2(a). She also deposed that after registration of the FIR, police came to the house of the accused and as per Ex.P3 drawn mahazar in her presence and she identified her signature appearing 25 Spl.CC. 1073/2019 on the mahazar as Ex.P3(a). She further deposed that in total, the accused have cheated her to the extent of Rs. 13 lakhs.
21. In the cross-examination, this witness has admitted that she has no documents to show that she has paid chit amount of Rs.1,00,000/- every month in respect of both chits and she has not shown the said amount in her income tax returns though she is an income tax assessee. She clearly admitted that she has no documents to show that she had paid Rs.13 lakhs and except Ex.P2 first information, she has not lodged any complaint as against the accused persons in respect of use of alleged filthy language.
22. The prosecution has also got examined the husband of PW.4 - Sri Ramesh s/o Ramakrishna Gowda as PW.5 who though not a subscriber has deposed that the accused were running chit business at Kothnur village since from 20 years and 26 Spl.CC. 1073/2019 PW.4 reposing confidence on the accused persons had became subscriber of two chits of Rs.8,10,000/- and Rs.5 lakhs each and paid Rs.1,00,000/- every month till March 2017. He further deposed that the accused assured to settle the amount within three months but when he along with CW.1 requested to repay the amount, the accused persons abused them in filthy language, and there-afterwards CW.1 lodged the complaint against the accused.
23. In the cross-examination, this witness has admitted that there are no documents to show that CW.1 has paid the amount towards the above said chits and he has not lodged the complaint as against the accused persons for using filthy language against him and he has also not given CDR details to the police in respect of alleged filthy language used by the accused. Though this witness stated that CW.1 is the income tax assessee, but he deposed that he do not remember whether he has enquired 27 Spl.CC. 1073/2019 with CW.1 as to disclosing of payment of chit amount in her income tax returns. The evidence of PWs. 4 and 5 makes it very clear that they are income tax assessees, but have not produced income tax returns or any other documents to show that PW.4 has paid Rs.1,00,000/- every month towards chit run by the accused persons.
24. The prosecution has also got examined one Srinivas Reddy s/o Lakshmaiah as PW.6 who deposed that accused were running chit business at Kothnur village and he came to know about the same through one Shankar Reddy. He became subscriber of five chits of Rs.2,50,000/- . Rs.3,00,000/- and Rs.5,00,000/- and he totally paid Rs.60,000/- and in total, he has paid Rs.10 lakhs for one year. He further deposed that after one year, the accused stopped to run the chit business and on enquiry, the accused took three months time for payment and after three months, the accused 28 Spl.CC. 1073/2019 refused to pay the amount. In the cross- examination, this witness has stated that there was no impediment for him to force the accused persons to issue receipts for having received the chit amount and he has no difficulty to lodge the complaint in the month of June or July 2017 itself. This witness has also admitted that the accused no.5 used to come to her parental house after marriage on occasions like festivals and marriages. Again the above evidence discloses that there is record to show the this witness has paid alleged chit amount to the Accused persons
25. Another subscriber by name Ramachandra s/o Junjappa was examined as PW.7 by the prosecution. He has deposed that the accused no.1 to 5 belonged to one family who were running chit business at Kothnur village and he became member of two chits of Rs.3 lakhs each and used to pay Rs.10,000/- per month towards each chit. He 29 Spl.CC. 1073/2019 further deposed that totally, he has paid Rs.6 lakhs and after closure of the chits, the accused have not paid the chit amount. In the cross-examination, this witness has admitted that he was doing milk vending business and also coolie work and he gave statement to the police on 20/9/2017. Though this witness has stated that the chit was closed in the year 2015 itself, but he has not lodged the complaint against the accused. It is also admitted that he has got documents to show the income from milk vending business and he has also no difficulty to produce the said documents, but he has not produced the said documents before the court. This witness has admitted that he has no documents to show that he was earning Rs.1,00,000/- per year. The above said evidence raises a doubt as to the earning capacity of this witness. Further, this witness has stated that at the beginning, he forced accused persons to give the receipts but they have not given the same. As a 30 Spl.CC. 1073/2019 prudent man, if accused persons failed to issue any receipts in respect of chit amount, this witness could have lodged the complaint immediately before the jurisdictional police, but same has not been done by this witness.
26. The prosecution has also got examined Smt.Manasa w/o Sri Abbaiah Reddy as PW.8 who deposed that she became a subscriber of two chits of Rs.9 lakhs and Rs.3 lakhs and used to pay Rs.30,000/- and Rs.10,000/- respectively towards the said chits per month to the accused persons. She deposed that she had paid the chit amount almost the end period and she came to know that accused persons are having license to run the chit business. In the cross-examination, this witness admitted that she had no transactions with the accused no.3 and at relevant point of time, she was drawing salary of Rs.30,000/- per month working in ITPL and income tax assesse. She admitted that any 31 Spl.CC. 1073/2019 payment of Rs.25,000/- and above is to be made by way of cheque. Though this witness has stated that payment of Rs.40,000/- towards chit is reflected in her income tax returns, but same is not produced by her before the court or by the Investigating Officer. She clearly admitted that she has no documents to show that she had paid Rs.40,000/- every month to the accused. The above said evidence of PW.8 makes it very clear that though she is having income tax returns in which the payment towards chit of Rs.40,000/- is reflected, but for not having produced the same, an adverse inference has to be drawn against this witness.
27. The prosecution has also got examined one Smt.Girija w/o Sri Srinivas Reddy as PW.9 who deposed that she became subscriber of a chit of Rs.9 lakhs and used to pay Rs.30,000/- every month towards the same. In the cross-examination, this witness has clearly admitted that she has no 32 Spl.CC. 1073/2019 documents to show that chit amount was paid to the accused persons and she has not received any receipts in connection with the same from the accused. Further, in the cross-examination, it has been elicited that this witness is a tailor by profession, though she stated that she earns Rs.30,000/- per month, but no documents whatsoever is placed before this court to show the income of this witness.
28. The prosecution has also got examined one Smt. Shanthamma w/o Nagaraj as PW.10 who deposed that in the year 2017, she subscribed a chit which was run by the accused no.1, and every month she used to pay a sum of Rs.6,000/-, out of which Rs.3,000/- was paid by her and remaining amount of Rs.3,000/- was paid by her neighbor Smt. Nethra. She further deposed that the accused persons were in due of Rs.1,80,000/- to her.
33 Spl.CC. 1073/2019
29. In the cross-examination, this witness has admitted that there are no receipts towards payment of chit amount and she came in contact with the accused through one Smt. Bhagyamma. She also admitted that sometimes she used to pay chit amount into the hands of Smt. Nethra.
30. The prosecution has also examined one Sri Vijay Mahantesh s/o Late Sri Veeraiah as PW.11 who was school bus driver by profession who deposed that he became subscriber of a chit of Rs.1,80,000/- with the accused and was regularly paying a sum of Rs. 6,000/- per month. He deposed that the said chit was ended in the year 2017, but inspite of it, the accused have not paid the chit amount. In the cross-examination, this witness has admitted that he was drawing a salary of Rs.18,000/- per month, and he used to take care of entire family consisting of one son and daughter who were studying in 10th and 9th standard 34 Spl.CC. 1073/2019 respectively. It has been elicited that he used to pay chit amount on 18th of every month and chit transactions was conducted on 12th of every month. He admitted that he had not seen the license for running the chit business, but by believing the words of Smt.Bhagyamma, he paid the chit amount to the accused. It is pertinent to note that this witness as admitted by him was drawing a salary of Rs.18,000/- per month, and except him there were nobody who were earning in the family and he was under obligation to look after entire family including the educational expenses of his two children. Under such circumstances, the financial capacity of this witness to pay chit amount of Rs.6,000/- every month is again doubtful.
31. The prosecution has got examined one Smt.Pavithra w/o Umashankar as PW.12 who deposed that she subscribed for two chits of Rs.5 lakhs and Rs.1,80,000/- with the accused and was 35 Spl.CC. 1073/2019 paying a sum of Rs.26,000/- per month towards the said chit and she had paid the entire amount. In the cross-examination, this witness has admitted that she was running a provisional store and earning more than Rs.20,000/- per month as profit from the said store, but failed to produce any license for having the provisional store or any documents to show she was earning profit of more than Rs.20,000/- per month from the said store.
32. The prosecution has also got examined one Mr. Muniraja w/o Shyamanna as PW.13 who deposed that he subscribed two chits with the accused from 2012 to 2017 for Rs.1,80,000/- and was paying a sum of Rs.6,000/- each towards the said chits and in total, he was paying Rs.12,000/- per month. He further deposed that he had totally paid a sum of Rs. 23,00,000/- and chit was completed in the year 2017 and inspite of it, the accused have not repaid the chit amount. In the 36 Spl.CC. 1073/2019 cross-examination, this witness has admitted that in the statement before the police, he stated that he is a daily wage earner. Though this witness has stated that he was driver by profession and earning Rs.20,000/- and Rs.30,000/- to Rs.40,000/- from milk vending business, but during the evidence, he has made the improvement by stating the same as at the time of recording his statement, he stated that he is a daily wager by profession. Under such circumstances, it creates doubt as to the capacity of this witness to pay such huge amount of Rs.12,000/- per month towards the chit. This witness has also admitted that he has not collected any documents or receipts for subscribing the chit.
33. One Mr. Manjunatha Reddy s/o Gurumurthy Reddy was examined by the prosecution as PW.14 who deposed that he subscribed three chits for Rs.3,00,000/- each with the accused and was paying Rs.30,000/- per month 37 Spl.CC. 1073/2019 towards the said chit. He deposed that he had paid entire chit subscription and chit was completed in the year 2017, but the accused have not repaid the chit amount and when he requested for the return of the chit amount, the accused abused him in filthy language and threatened with dire consequences. This witness in the cross-examination has stated that at relevant point of time, during the year 2014, he was tractor driver and earning Rs.30,000/- per month. Though this witness stated the names of the members of the chit, but again there is no document to show that this witness has paid Rs.30,000/- per month towards the chit. When the earning of this witness during the relevant period is Rs.30,000/- per month without saving any amount for leading his life, the version of this witness cannot be believed that he used to contribute entire Rs.30,000/- towards the chit amount.
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34. The prosecution has also got examined one Shankar Reddy s/o Pilla Reddy as PW.15 who deposed that he had subscribed for two chits of Rs.3,00,000/- each with the accused and was paying Rs.20,000/- per month towards the said chit. He deposed that he had paid entire two chit amount to the accused persons, but they have not returned the said amount. He further deposed that totally, the accused persons were required to pay Rs.8,60,000/- to him and same was postponed on some or the other pretext. In the cross-examination this witness has stated that he was paid Rs.15,000/- per month towards JCB work and during the year 2014 to 2016, he was not getting regular income and at that time, he was sole bread earner of his family. Further, this witness has admitted that accused no.5 is residing at Singasandra after her marriage and he does not know whether the accused no.3 is residing with other accused and his relationship with 39 Spl.CC. 1073/2019 accused no.1. This witness has further admitted that he has no documents to show the payment of Rs.10,000/- per month towards chit and he has not lodged any complaint with respect to the balance chit amount of Rs.1,80,000/- in the year 2014.
35. One Smt. Lalithamma w/o Lingappa was examined as PW.16 by the prosecution who deposed that she had subscribed for a chit of Rs.5,00,000/- with the accused and was paying Rs.10,000/- per month. She further deposed that sometimes accused no.1 used to receive amount and sometimes accused no.2 or their daughter used to receive the same. She deposed that she has paid more than Rs.3,00,000/- to the accused which has not been repaid by them. This witness has not been cross-examined by the accused.
36. The prosecution has also got examined one Jaishankar w/o Nanjappa as PW.17 who deposed that he subscribed for a chit with the 40 Spl.CC. 1073/2019 accused no.1 who had obtained license to run the chit transaction. He deposed that he subscribed for two chits for Rs.3,00,000/- and one chit of Rs.5,00,000/- and totally he used to pay Rs.40,000/- every month to the accused no.1 in cash. He further deposed that the accused no.1 has not issued any documents for collecting the amount and in the year 2017, chit business was stopped by the accused. In the cross-examination, this witness has stated that he is in a real estate business and not an income tax assessee and used to earn profit of Rs.50,000/- to Rs.1,00,000/- during the year 2014. This evidence of the witness makes it very clear that though he used to earn Rs.50,000/- to Rs.1,00,000/- per month during the year 2014, he must be an income tax assessee and if really he had paid Rs.40,000/- per month towards chit, same should have been reflected in his income tax returns. Further, this witness has admitted that he has no 41 Spl.CC. 1073/2019 documents or documentary proof with respect to subscribing the chit with accused persons.
37. One Mr. Choodappa was examined as PW.18 by the prosecution who deposed that from CW.29 - Smt.Bhagyamma, he came to know about the accused running the alleged chit business and he subscribed a chit of Rs.1,80,000/- and used to pay Rs.6,000/- per month and has paid the entire amount till last chit. He deposed that he started paying the chit amount from 2014 till 2016 and accused persons after completion of the above said period have not repaid the chit amount. In the cross- examination, this witness has failed to state the date and month of commencing the chit and also failed to state the bid amount and admitted that he has no documents to show that he has paid the chit amount to the accused no.1. This witness has also admitted that he has no documents to show that accused no.1 was running any chit business.
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38. One Smt. Shanthamma w/o Thimmarayappa was examined as PW.19 by the prosecution who deposed that she subscribed for a chit of Rs.1,80,000/- with the accused towards which she used to pay a sum of Rs.6,000/- per month. She deposed that she used to pay the chit amount in the hands of CW.26 and she paid the said amount for a period of 3 years but after completion of the chit period, the accused have not paid the amount. In the cross-examination, this witness has clearly admitted that she has not directly paid the chit amount in the hands of accused no.1 and she does not know accused no.3 to 5. She also failed to state the month in which chit was started and she admitted that police have not recorded her statement. The above said evidence makes it very clear that this witness has not directly transacted with the accused no.1 in connection with the alleged chit transaction.
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39. The prosecution has also got examined one Smt.Jayamma w/o Choodappa as PW.20 who deposed that she subscribed for a chit amount of Rs.1,80,000/- and she used to pay a sum of Rs.18,000/- per month towards the same. She further deposed that even after the completion of the chit period, the accused have not paid the chit amount and she along with other subscribers went to the police station to lodge the complaint against the accused persons.
40. In the cross-examination, this witness has stated that she used to do saree as well as flower business from which she was earning RS.10,000/- per month, but to substantiate the same, she has not produced any documents. Further, this witness has admitted that she has no documents to show that she had paid chit amount to the accused and she failed to state the month in which the chit business was commenced by the accused. In her 44 Spl.CC. 1073/2019 cross-examination, this witness at first instance admitted that her husband is a coolie by profession and she is a home maker but subsequently she stated that she used to do saree as well as flower business, but no documents are furnished to that effect.
41. Smt. Neela w/o Vinodh Kumar - PW.21 in her evidence deposed that through CW.26 she came to know that accused no.1 and her children were running chit business and she used to pay a sum of Rs.6,000/- for chit of Rs.1,80,000/-. She further deposed that she used to tender the chit amount in the house of the accused and sometimes the accused used to collect the same in her house. She further deposed that on 2 to 3 occasions accused no.2 collected the chit installment amount from her residence and she has paid entire chit amount. She further deposed that accused no.2 assured to make payment after two months of completion of chit 45 Spl.CC. 1073/2019 amount, but did not returned the amount, and there-afterwards the accused absconded. In the cross-examination, this witness stated that she used to work at Sai Garments on a salary of Rs.6,000/- per month, and her husband is a Driver by profession who used to drive the vehicle on rental basis. She further admitted that she has got two children one male and female and accused have paid the subscription amount in respect of two chits, but did not paid the amount in respect of third chit. She admitted that she has no documents to show that accused no.2 to 4 used to collect the chit amount and she further admitted that the accused no.5 is married. The perusal of the above said evidence of PW.21 makes it very clear that though she stated that she used to contribute a sum of Rs.6,000/- towards the chit, but her salary itself was Rs.6,000/- per month. Though this witness has stated that her husband also used to earn by driving profession, but 46 Spl.CC. 1073/2019 there are no documents to that effect. This witness has also admitted that she has no documents to show that she has paid chit amount into the hands of accused no.2 to 4.
42. The prosecution has also got examined one Govindaraju s/o Venkatesh as PW.22 who deposed that he subscribed for the chit of Rs.3,00,000/- with the accused and used to pay monthly a sum of Rs.10,000/-. He deposed that he used to pay the chit amount in the house of the accused no.1 and in her absence, he used to pay the amount in the hands of her husband and children after informing the accused no.1through phone. He deposed that the accused used to make entries in a book for having received the chit amount and accused after completion of the chit period have not returned the chit amount. He further deposed that accused no.5 also assured of returning the chit amount but have not returned the amount and 47 Spl.CC. 1073/2019 vacated the house and thereby cheated him. In the cross-examination, this witness has admitted that there are no documents to show that accused were running chit business and also collected chit amount from him in cash. Though this witness has stated that the accused used to make entry in a book after receiving chit amount, but no such book is forthcoming from the records. He also failed to identify the accused no.3 by stating that he does not know a person by name Lokesh Reddy who is accused no.3. Though this witness in the cross- examination has stated that the accused have maintained register in respect of the chit business, but no such register was produced by the Investigating Officer by seizing from the accused persons.
43. The prosecution has also got examined one Smt.Bhagyamma w/o Krishnappa as PW.23 who deposed that she used to pay chit amount to the 48 Spl.CC. 1073/2019 accused no.1 since from 2013 and she had paid Rs.5,00,000/-. She deposed that the accused have assured to return the chit amount as and when it falls due, but later escaped without returning the amount. She deposed that she used to pay Rs.15,000/- every month towards the chit in the hands of accused no.1 and also to her children and she had paid entire amount. She further deposed that when she went to the house of the accused demanding for return of the amount, it was locked and came to know that accused have vacated the house and thereby cheated her. In the cross- examination, this witness failed to state the period of the chit and also the month in which the said chit was commenced. She also failed to state for how long she paid the chit amount and admitted that she has no documents to show that she used to pay the chit amount to the accused. This evidence makes it clear that, if really this witness has invested the amount 49 Spl.CC. 1073/2019 in chit business run by the accused, she ought to have stated about the period of commencing the chit and also its duration.
44. One Sri Nanjundi s/o Sonnappa was examined as PW.24 who deposed that through his friend Mr.Suresh he came to know that accused no.1 to 5 were running chit business and on enquiry with the accused, he came to know that they have license to run the said chit business. He further stated that he used to pay a sum of Rs.10,000/- every month towards the chit which was completed in the year 2017 and in total, he has paid Rs.3,00,000/- to the accused. He stated that accused no.2 used to collect the chit amount and after completing the chit period, he requested for the return of the chit amount which was postponed on one or the other pretext. He further deposed that accused have not issued any receipts or made any entry in the diary for having received the chit amount and as he is having faith on 50 Spl.CC. 1073/2019 accused no.1 continued to pay chit amount every month. He further deposed that the accused have failed to return the amount as promised and thereby cheated him. In the cross-examination, this witness has admitted that he does not know the accused directly and he is doing work in garments at that time. He admitted that accused no.3 was not doing any chit business and he has not transacted with him. Further, he clearly admitted that he has no documents to show that accused were running the chit business.
45. The prosecution has also got examined one Smt.Vijayalakshmi w/o Muniraju as PW.25 who deposed that during the year 2014-15 she used to pay chit amount of Rs.6,000/- per month and she had paid the said amount for about 29 months and in total, she has paid Rs.1,80,000/- to the accused. She deposed that she used to pay the chit amount in cash and accused used to make entry in a book to 51 Spl.CC. 1073/2019 which she used to sign. She further deposed that inspite of repeated requests, the accused have not returned the chit amount as promised and thereby cheated her.
46. In the cross-examination, this witness has admitted that she does not know accused no. 3 to 5 and she does not have any documents to show that she subscribed and paid chit amount to the accused. Further, this witness though stated that the accused used to make entry in a book after receipt of the chit amount, but has not produced the said book before this court for the reasons best known to her. Though this witness has stated that she has lodged separate complaint against the accused, but same is not forthcoming from the records. Therefore, it is hard to believe that this witness has contributed her amount towards chit alleged to have been run by the accused.
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47. The prosecution has also got examined one Mr. Suresh s/o Jayaramareddy as PW.26 to prove the spot panchanama- Ex.P3. Except identifying his signature as Ex.P3(b), this witness has not supported the prosecution and thereby he was treated as hostile and permission was granted to learned Special Public Prosecutor to cross-examine this witness. Eventhough the learned Special Public Prosecutor cross-examined this witness, nothing worthwhile has been elicited from him to support drawing of mahazar as per Ex.P3.
48. The prosecution has also got examined one Mr.Devaraj s/o Sonnappa as PW.27 who stated that the accused no.1 to 5 were running the chit business in which he used to pay a sum of Rs.10,000/- each towards two chits and he subscribed for a chit of Rs.3,00,000/- and he had paid three installments of Rs.10,000/- each to the accused and in total he has paid Rs.60,000/- to the 53 Spl.CC. 1073/2019 accused. He further deposed that in the year 2017, he has paid Rs.20,000/- in the hands of accused no.5 towards chit amount and there-afterwards the accused absconded and he along with all investors lodged the complaint at Konanakunte Police Station against the accused persons. He further deposed that by not returning the chit amount, accused have cheated him. In the cross-examination, this witness has admitted that he has no documents to show that he has paid the chit amount and the accused were running the chit business. He clearly admitted that he has no monetary transactions or any transactions with accused no.3 and he has no documents to show that he has paid Rs.60,000/- towards installments of the chit to the accused. He further admitted that he has not lodged any complaint personally against the accused and he has not given any statement before the police in writing.
54 Spl.CC. 1073/2019
49. The prosecution in order to prove the spot mahazar- Ex.P3 examined one Mr.Abdul Samad s/o Late Mohammed Peer as PW.28 who deposed that he has signed to Ex.P3 - mahazar which was conducted in 4th Main, 4th Cross, Door No.66, J.P.Nagar, Bengaluru, at that time police officers by name Mamatha and Kavitha were present. He stated that in connection with chit business, Ex.P3 mahazar was drawn and he has signed to the spot mahazar and identified his signature as Ex.P3(c).
50. In the cross-examination, this witness has failed to state the boundaries of the spot where mahazar was conducted and also he failed to state the number of floors of the building in respect of which the spot mahazar was conducted. Though this witness has stated that there were four officials at the spot while drawing mahazar, but failed to state their names and also the names of the police official who has typed Ex.P3. This witness has stated that 55 Spl.CC. 1073/2019 police have not issued any notice to him to be present at the time of drawing the mahazar.
51. The prosecution has also got examined Investigating Officer Smt. Kavitha G.M w/o Mallesha Reddy as PW.29 who deposed as to registration of FIR on the basis of written first information as against the accused for the alleged offences, drawing of the mahazar as per Ex.P3, recording statement of the witnesses and also as to filing of charge-sheet against the accused persons after completing the investigation. This witness has identified her signature on the first information as per Ex.P1(a),on spot mahazar as Ex.P3(d) and FIR as Ex.P4.
52. In the cross-examination, this witness completely given go by to the case of the prosecution by admitting that she had not collected documents to come to the conclusion that the accused were running unregistered chit business before registering 56 Spl.CC. 1073/2019 the FIR. Though this witness has stated that she made efforts to secure the said documents during the investigation, but could not secure the same. She admitted that she had not made investigation with the Registrar of Chits or competent authority in respect of the alleged chit business run by the accused. This witness has also admitted that no complaint came to be lodged against the accused by any of the depositors and neither the complainant nor any witnesses have produced any documents to show that they have paid chit installments to the accused. This witness has admitted that except the statement of the witnesses, there are no other documents to show that accused were running the alleged chit business. She further admitted that Ex.P1 statement of account of CW.4 is not related to any deposit or payment of chit amount and she has not secured any documents to show that accused were running alleged chit business and also she had 57 Spl.CC. 1073/2019 not collected any call details registers pertaining to the mobile phone of accused no.3 or PW.5 -Ramesh. This witness has clearly admitted that she has not collected any documents as to the financial capacity either of the complainant or any of the witnesses and she has not conducted investigation to ascertain whether there is a any civil suit pending against the accused. She admitted that she has not produced any documents to show that accused were running any financial institutions.
53. Having discussed the above said testimonies of the prosecution witnesses, let me advert to merits of the present case.
54. The gist of the allegations leveled against the accused persons relates to offences punishable under Section 420, 406, 506 r/w Section 120-B of IPC and also the offences punishable under Section 76 of Chit Funds Act, 1982. It is also alleged that the accused have committed the offence punishable 58 Spl.CC. 1073/2019 under Section 9 of Karnataka Protection of Interest of Depositors in Financial Establishments Act.
55. In order to attract the provisions of Karnataka Protection of Interest of Depositors in Financial Establishments Act 2004, the prosecution has to prove that the alleged chit business falls within the definition of 'Financial Establishment' as defined under Section 2 (3) of the Act. When the definition of the 'Deposit' as defined under Section 2(2) of the Act is carefully perused, it is quite clear that, any amount received by way of subscription in respect of 'chit' does not fall within the definition of the 'Deposit'.
56. In view of above said provisions of Karnataka Protection of Interest of Depositors in Financial Establishments Act, it is quite clear that the provisions of the said Act are not applicable in case of chit business. Moreover, the careful perusal of records makes it very clear that, it is not the case 59 Spl.CC. 1073/2019 of the prosecution that, the accused alleged to have run their business under the 'Financial Establishment' as defined under Section 2(3) of the Karnataka Protection of Interest of Depositors in Financial Establishments Act. Therefore, viewed from any angle, Section 9 of Karnataka Protection of Interest of Depositors in Financial Establishments Act which deals with punishment for fraudulent default by financial establishment, is not applicable to the present case on hand.
OFFENCE OF CHEATING
57. In order to attract the provisions of Section 420 of IPC, the prosecution has to necessarily prove that accused had entertained the dishonest intention right from the beginning. In this regard, it is useful to refer to a decision of Hon'ble Apex Court reported in (2005) 9 SCC 15 between Devender Kumar Singla Vs. Baldev Krishna Singla wherein it is held as under:
60 Spl.CC. 1073/2019 "7. In order to appreciate the rival submissions, it would be necessary to consider on the background of the factual position as to whether offence punishable under Section 420 IPC is made out. Section 420 deals with certain specified classes of cheating. It deals with the cases whereby the deceived person is dishonestly induced to deliver any property to any person or to make, alter or destroy, the whole or any part of a valuable security or anything which is signed or sealed and which is capable of being converted into a valuable security. Section 415 defines "cheating". The said provision requires, (i) deception of any person (ii) whereby fraudulently or dishonestly inducing that person to deliver any property to any person or to consent that any person shall retain any property or (iii) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property. Deception of any person is common to the second and third requirements 61 Spl.CC. 1073/2019 of the provision. The said requirements are alternative to each other and this is made significantly clear by use of disjunctive conjunction 'or'. The definition of the offence of cheating embraces some cases in which no transfer of property is occasioned by the deception and some in which no transfer occurs. Deception is the quintessence of the offence. The essential ingredients to attract Section 420 are: (i) cheating; (ii) dishonest inducement to deliver property or to make, alter or destroy any valuable security or anything which is sealed or signed or is capable of being converted into a valuable security and the (iii) mens rea of the accused at the time of making the inducement. The making of a false representation is one of the ingredients for the offence of cheating under Section 420. (See Bashirbhai Mohamedbhai v. State of Bombay, AIR (1960) SC 979: 1960 Cri L.J. 1383]
8. As was observed by this Court in Shivanarayan Kabra v. State of Madras, AIR (1967) SC 986 it is not necessary that a false pretense should be made in express words by the accused. It may be inferred from all the 62 Spl.CC. 1073/2019 circumstances including the conduct of the accused in obtaining the property. In the true nature of things it is not always possible to prove dishonest intention by any direct evidence. It can be proved by number of circumstances from which a reasonable inference can be drawn."
58. The above said decision of Hon'ble Apex Court culls out the following essential ingredients of offence punishable under Section 420 of IPC.
(i) There must be deception i.e., the accused must have deceived someone;
(ii) That by the said deception, the accused must induce a person;
(a) To deliver any property or;
(b) To make, alter or destroy the whole
or part of the valuable security or anything which is signed or sealed and which is capable of being converted into a valuable property;
(iii) That the accused did so dishonestly.
59. A person can be said to have done a thing dishonestly, if he does so with the intention of 63 Spl.CC. 1073/2019 causing wrongful gain to himself or wrongful loss to another person. Wrongful loss is the loss by unlawful means of property to which a person is entitled, while wrongful gain to a person means a gain to him by unlawful gains of property to which the person gaining is not legally entitled.
60. Applying the above said principles of law to the facts of the present case, it is to be noted that though prosecution has got examined PWs.1 to 29 to prove its case beyond reasonable doubt, but none of the witnesses have deposed that, there was a intention to fraud on behalf of the accused persons since from the inception. When the averments of the first information is carefully perused, it is quite clear that only it is alleged that by not repaying the subscription amount, the accused have cheated. But, there is no specific allegation to the effect that the accused had intention to cheat since from the inception because in order to attract the offence 64 Spl.CC. 1073/2019 punishable under Section 420 of IPC, it is incumbent on the part of the prosecution to prove that there was an intention to cheat or deceive since from the inception. But, the evidence on record as well as the materials does not disclose that there was such intention on the part of the accused to cheat the subscribers since from the inception. It is also necessary that prosecution must prove that there was a deception on the part of the accused and also inducement on their part so as to make the subscribers to invest their money in the alleged chit business. But, the evidence on record reveals that, there was no such inducement or deception on the part of the accused so as to make the subscribers to participate in the alleged business of chit run by them. Once the prosecution failed to prove that there was a dishonest or fradulent intention to cheat since from the inception, the question of going into other essentials of offence of cheating does not arise at all.
65 Spl.CC. 1073/2019 The prosecution has also got marked the statement of account of CW.2 - Geetha to prove that the accused no.1 by not returning loan availed from her cheated her. PW.2 has deposed that, in the year 2015, the accused no.1 requested for loan of Rs.10,00,000/- for the purpose of construction of the house which was paid by issuing a cheque on 21/12/2015. She further deposed that, as per the request of accused no.1, she issued cheques for Rs.5,60,000/- and Rs.2,34,000/- respectively on 29/12/2015 and 31/12/2015, and in total the accused no.1 had not paid an amount of Rs.17,94,000/- and thereby cheated her. To substantiate the same, the prosecution has got marked statement of account of CW.2 of Indian Bank as Ex.P1 which reveals the payment of the above said amounts to the accused no.1 by way of cheque on various dates. Now, the question which arises for consideration is whether non-repayment of 66 Spl.CC. 1073/2019 this amount amounts to cheating. While discussing supra, this court has come to conclusion that in order to attract the offence of cheating punishable under Section 420 of IPC, there must be an inducement and intention to cheat from the inception. In view of the same, when the contents of first information at Ex.P2 is carefully perused, it is quite clear that there is no whisper as to the alleged loan transaction between CW.2 and accused no.1. Moreover, the prosecution has failed to prove that the accused no.1 had intention to cheat CW.2 from the inception. The evidence of PW2 is also silent on the said aspect and she only deposed that accused no 1 not returned the loan amount. In this regard, it is useful to refer to a decision of Hon'ble Apex Court in the matter between Satishchandra Ratanlal Shah Vs. State of Gujarath reported in AIR 2019 SUPREME COURT 1538, wherein at Para No.14 while discussing the charges under Section 415 of 67 Spl.CC. 1073/2019 IPC which is made punishable under Section 420 of IPC, it is observed as under:
"The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is crux of the offence. Even if all the facts in the complaint and material taken on their face value, no such dishonest representation or inducement could be found or inferred."
61. Applying the above said principle of law to the facts of the case on hand, even the evidence of PW.2 does not reveal that there was fraudulent or dishonest intention right at the beginning of the transaction on the part of the accused no.1 in not returning the said loan. The evidence of the prosecution witnesses particularly the alleged subscribers reveals that though they have paid huge amount of Rs.6,000/- to Rs.1,00,000/- per month 68 Spl.CC. 1073/2019 towards their contribution for alleged chit run by the accused, but they have not furnished any record such as their statement of account or any other document to show that the above said their contribution amount was withdrawn from their account. Moreover, it has come in the evidence that, one of the witness has insisted for receipt for having paid the chit amount and when the accused refused to issue such receipt he continued to pay chit installment. As a prudent man the said witness ought to have lodged the complaint with the jurisdictional police immediately when the accused persons refused to issue acknowledgment or receipt for having received chit installment. But, no such effort is made by the witness and he has also not lodged complaint against the accused immediately, and waited till the first information is lodged by PW.4. Though, some of the witnesses have stated that the accused used to make entries in a book and 69 Spl.CC. 1073/2019 registers after receipt of chit installment, but prosecution has utterly failed to recover said book and register and produce same before the court. The mahazar at Ex.P3 reveals that same was not conducted in the house of the accused where alleged chit business was run by them. The careful perusal of mahazar makes it very clear that it was not conducted inside the said house but on the other hand, it was conducted outside the said house when it was locked. The IO has not made any efforts to break open the lock of the said house under due process of law and seize the material from the said house such as registers or small books relating to the alleged chit business. The Investigating Officer PW.29 has clearly admitted that, during the course of investigation, she has not come across any such register or book in relation to the alleged chit business run by the Accused persons. Therefore, when the ocular evidence of PWs. 1 to 29 is carefully 70 Spl.CC. 1073/2019 perused, it is quite clear that none of the witnesses have deposed as to the dishonest intention on the part of accused since from inception to cheat them by accepting the subscription amount. Therefore, the prosecution has utterly failed to prove the allegation of cheating as contemplated under Section 415 of IPC which is made punishable under Section 420 of IPC.
OFFENCE OF CRIMINAL BREACH OF TRUST
62. In order to attract the offence punishable under Section 406 of IPC, it is necessary to know Section 405 of the said Act, which deals with criminal breach of trust. For the purpose of better understanding the said provision is extracted below:
"405. Criminal breach of trust. - Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to 71 Spl.CC. 1073/2019 be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust".
[Explanation [1] - A person, being an employer [of an establishment whether exempted under section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or not] who deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.] [Explanation 2, - A person, being an employer, who deducts the employees' contribution from the wages payable to the employee for credit to the Employees' State 72 Spl.CC. 1073/2019 Insurance Fund held and administered by the Employees' State Insurance Corporation established under the Employees' State Insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.]
63. The offence of criminal breach of trust is made punishable under Section 406 to 409 of IPC, as the case may be. It is also worth mentioning that one of the key ingredient for constituting offence under Section 406 of IPC is that, the entrustment over the money or property should be made by the victim to the accused in furtherance of some understanding which is termed as the mode of discharging the trust or of any legal contract and the accused misappropriates or converts into his own 73 Spl.CC. 1073/2019 such money or property contrary to such direction of law prescribing the mode in which the trust was to be discharged or against any such legal contract. It is to be emphasized that entrustment over the property or money shall be made by the victim to the accused in furtherance of some legal contract or any directions stipulated under law, without which the offence of criminal breach of trust cannot be said to be constituted.
64. So far as the offence punishable under Section 406 of IPC which deals with criminal breach of trust is concerned, first and foremost the prosecution has to prove that there was an entrustment of the property which was misused or got converted by the accused as of their property.
65. The evidence of subscribers reveals that, in the cross-examination they have admitted that, there is no receipt or any acknowledgment to prove the payment of chit installment to the accused 74 Spl.CC. 1073/2019 persons. Except Ex.P1, the prosecution has not produced any material to show that accused have collected chit installment from the prosecution witnesses. The PW.29 who is the Investigating Officer in her cross-examination admitted that, Ex.P1 is not related to payment of chit installments to the accused. Once Ex.P1 is brushed aside, there is no material on record to come to conclusion that, subscribers have paid chit installment into the hands of accused persons. In other words, the prosecution has utterly failed to prove the entrustment of property i.e., chit installment amount with the accused and same being converted as their personal property. The prosecution has also failed to seize the subscription amount which alleged to have been collected by the accused from the subscribers. No such effort was made by the Investigating Officer to seize the subscription amount from the accused. Therefore, the prosecution has failed to prove that 75 Spl.CC. 1073/2019 there was an entrustment of property in favour of the accused and same was converted by them as their property. Hence, the prosecution has failed to prove the offence of criminal breach of trust as defined under Section 406 of IPC. Moreover, the prosecution has failed to examine any of the successful bidders who received prized money from the accused persons in order to prove that accused persons were running the alleged chit business.
66. The Hon'ble Apex Court in the matter between Delhi Race Club (1940) Ltd., and others Vs. State of U.P. and another in Crl. Appeal No. 3114/2024 while discussing the provisions of Section 420 and 406 of IPC at Para No. 30 observed as under:
"30. The distinction between mere breach of contract and the offence of criminal breach of trust and cheating is a fine one. In case of cheating , the intention of the accused at the time of inducement should be looked into 76 Spl.CC. 1073/2019 which may be judged by a subsequent conduct, but for this, the subsequent conduct is not the sole test. Mere breach of contract cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the transaction i.e., the time when the offences said to have been committed. Therefore, it is this intention which is the gist of the offence. Whereas, for the criminal breach of trust, the property must have been entrusted to the accused or he must haver dominion over it. The property in respect of which the offence of breach of trust has been committed must be either the property of some person otherthan the accused or the beneficial interest in or ownership of it must be of some other person. The accused must hold that property on trust of such other person. Although the offence i.e., the offence of breach of trust and cheating involve dishonest intention, yet they are mutually exclusive and different in basic concept. There is a distinction between criminal breach of trust and cheating. For cheating, criminal intention is necessary at the time of 77 Spl.CC. 1073/2019 making a false or misleading representation since inception. In criminal breach of trust, mere proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriated the same. Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver any property. In such a situation, both the offences cannot co-exist simultaneously."
67. Further, the Hon'ble Apex Court in the said decision also at Para No.27 observed as under:
"27. In our view, the plain reading of complaint fails to spell out any of the aforesaid ingredients noted above. We may only say, with a view to clear a serious misconception of law in the mind of police as well as the courts below, that if it is a case of the complainant that offence of criminal breach of trust as defined under Section 405 of IPC, punishable under Section 406 of IPC, is committed by the accused, then in the same breath, it cannot be said that the accused has also committed the 78 Spl.CC. 1073/2019 offence of cheating, as defined and explained in Section 415 of the IPC, punishable under Section 420 of IPC."
68. The above said observation of the Hon'ble Apex Court makes it very clear that offence punishable under Section 406 IPC and Section 420 of IPC cannot co-exist simultaneously. Viewed from the above said principle of law, it is quite clear that at one breath, the prosecution cannot contend that the accused have committed the offence punishable under Section 406 of IPC as well as under Section 420 of IPC. Be that as it may, the evidence on record makes it very clear that the prosecution has utterly failed to prove the entrustment of property i.e., installments of chit with the accused and misappropriation of the said installments by them. Moreover, in order to attract the offence punishable under Section 420 of IPC, the prosecution has to prove that the accused since from the inception i.e., 79 Spl.CC. 1073/2019 from the date of commission of alleged offence had intention to defraud the complainant as well as other subscribers. The mens rea i.e., intention to defraud or dishonest intention must be present and in the case of cheating, it must be there from the very beginning or inception. But, in this case, the oral evidence of prosecution witnesses does not reveal that the accused had intention to defraud them from the very beginning or from inception. Moreover, it is also pertinent to note that, in order to attract the offence punishable under Section 406 of IPC, there must be lawful contract touching the discharge of the trust. But, in this case, the prosecution has failed to prove that accused have carried on the business of chit unlawfully. It is also to be noted that Section 4 of the Chit Funds Act, 1982 clearly prohibits commencement of any chit fund scheme without obtaining any prior sanction of the State Government or registration under the provisions of 80 Spl.CC. 1073/2019 the said Act. Therefore, it clearly implies that chit fund has to be registered under the provisions of Chit Funds Act. Eventhough, if it is come to the conclusion that the accused were running the alleged chit business without obtaining the license under the provisions of Chit Funds Act, same cannot be at any stretch of imagination be termed as a lawful / legal contract and hence entrustment of any money in furtherance of such unlawful contracts by the complainant and other subscribers in favour of the accused persons is not sufficient to hold that the accused persons are liable for the offence of criminal breach of trust. Because, as per Section 23 of the Indian Contract Act, the agreements which are unlawful or which are forbidden under law cannot be enforced. Viewed from this angle also, the prosecution has failed to prove its case beyond reasonable doubt in respect of the offences punishable under Section 406 and 420 of IPC.
81 Spl.CC. 1073/2019 OFFENCE OF INTENTIONAL INSULT
69. The prosecution has also alleged that, the accused persons abused the subscribers in filthy language when they went to near their house and requested for return of the subscription amount and thereby committed the offence punishable under Section 504 of IPC. For better appreciation of the said provision, it is necessary to extract the same which reads as under:
"S. 504. Intentional insult with intent to provoke breach of the peace. - Whoever intentionally insults, and thereby gives provocation to any person, intending or knowing it to be likely that such provocation will cause him to break the public peace, or to commit any other offence, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.
(a) Essential Ingredients. - An offence under this section has following essential ingredients:
82 Spl.CC. 1073/2019
(i) Intentionally insulting a person and thereby giving provocation to him;
(ii) The person insulting must intend or know it to be likely that such provocation will cause him to break the public peace or to commit any other offence. The intentional insult must be of such a degree that should provoke a person to break the public peace or to commit any other offence. The person who intentionally insults intending or knowing it to be likely that it will give provocation to any other person and such provocation will cause to break the public peace or to commit any other offence, in such a situation, the ingredients of section 504 are satisfied. One of the essential elements constituting the offence is that there should have been an act or conduct amounting to intentional insult and the mere fact that the accused abused the complainant, as such, is not sufficient by itself to warrant a conviction under section 504 of the Indian Penal Code, 1860.
83 Spl.CC. 1073/2019
(b) To bring home an offence under Section 504 of the Indian Penal Code, 1860, the prosecution must prove (a) that the accused insulted the victim; (b) that the accused did so intentionally (c) that the accused by the insult hurled to victim provoked him; (d) that the accused intended or knew it to be likely that the resulting provocation would lead the victim to break the public peace or to commit any other offence.''
70. In this regard it is useful to refer to a decision of Honble Apex court reported in AIR 2014 SC 957 between Fiona Shrikhande v State of Maharastra, wherein it is observed as under;
''The intentional insult must be of such a degree that should provoke a person to break the public peace or to commit any other offence. The person who intentionally insults intending or knowing it to be likely that it will give provocation to any other person and such provocation will cause to break public peace or to commit any other offence, in such a situation the ingredients of section 504 are satisfied. One 84 Spl.CC. 1073/2019 of the essential elements constituting the offence is that there should have been an act or conduct amounting to intentional insult and mere fact that the accused abused the complainant, as such is not sufficient by itself to warrant a conviction under section 504 of IPC.''
71. Keeping in view the above said position of law, let me appreciate the evidence on record relating to the above said alleged offence. PW.1, PW.2, PW.4, PW.8 and PW.14 in their evidence have deposed that, they have been abused in a filthy language by the accused persons when they went near the house demanding for return of the subscription amount. But, in the cross-examination, PW.1 has failed to state the day on which the accused persons abused him in a filthy language and he has admitted that he has not lodged the complaint in this regard. PW.2 and PW.4 also in their cross-examination have not specifically stated as to the words which are used to 85 Spl.CC. 1073/2019 abuse her in filthy language. PW.8 in her cross- examination has also admitted that, she has not stated before the police with regard to the alleged insult made by the accused persons at the time of giving her statement. The prosecution witnesses have admitted that accused no.5 after her marriage residing in her in-laws house and occasionally she used to visit her parents house. This evidence creates doubt as to the involvement of the accused no.5 in the alleged chit business. PW.14 though stated that, the accused have abused him in filthy language but he has not lodged individual complaint against them. The above said witnesses have only spoken to the effect that, the accused persons have abused them in filthy language, but in view of the above said position of law, the prosecution has failed to prove that there was an intentional insult on behalf of the accused in abusing them. The prosecution has to prove that, there should have 86 Spl.CC. 1073/2019 been an act or conduct amounting to intentional insult and mere fact that accused abused the witnesses, as such is not sufficient itself to come to the conclusion that, they have committed the offence punishable under Section 504 of IPC.
OFFENCE OF CRIMINAL INTIMIDATION
72. So far as offence punishable under Section 506 of IPC is concerned, the prosecution has to prove the following ingredients. For the better understanding, it is necessary to extract Section 503 of IPC which deals with criminal intimidation.
"Criminal Intimidation: Whoever threatens another with any injury to his person, reputation or property, or to the person or reputation of anyone including that person interested, with intent to cause alarm to that person, or to cause that person to do any act which he is not legally bound to do as the means of avoiding the execution of such threat, commits criminal intimidation.
Explanation. - A threat to injure the reputation of any deceased person in whom the 87 Spl.CC. 1073/2019 person threatened is interested, is within this section."
73. The bare perusal of the above said provision makes it very clear that the following essential ingredients have to be proved.
1) Threatening a person with any injury;
i) to his person, reputation or property; or
ii) to the person, or reputation of any one in whom that person is interested.
2) The threat must be with intent
i) to cause alarm to that person, or
ii) to cause that person to do any act which he is not legally bound to do as the means of avoiding the execution of such threat; or
iii) to cause that person to omit to do any act which that person is legally entitled to do as the means of avoiding the execution of such threat.
Therefore, the intention must be to cause alarm to the victim.
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74. In this regard, it is profitable to rely upon Judgment of Hon'ble Apex Court in the matter between Manik Taneja Vs. State of Karnataka and another reported in 2015 AIR SCW 948, where at para no.15, it is observed as under:
"It is the intention of the accused that has to be considered in deciding as to whether what he has stated comes within the meaning of "criminal intimidation". The threat must be with an intention to cause alarm to the complainant to cause the person to do or omit to do any work. Mere expression of words without any intention to cause alarm would not be sufficient to bring in the application of section. But, materials have to be placed on record to show that, the intention is to cause alarm to the complainant."
75. Keeping in view the aforesaid position of law, let me appreciate the evidence on record.
76. The perusal of first information marked at Ex.P2 reveals that, the accused no.3 through his mobile bearing no. 9036778381 called to the mobile 89 Spl.CC. 1073/2019 number of her husband PW.5 - Sri Ramesh bearing No. 9845368839 and threatened to cause murder of him if came near to the house of the accused no.1 seeking for return of the chit amount. But, perusal of the evidence of complainant PW.4 reveals that she has not deposed the above said allegations of criminal intimidation in her examination in chief. Moreover, PW.5 has only deposed that, accused abused him in filthy language. There is no evidence on the part of the PW.5 as to attracting Section 506 of IPC. Furthermore, the evidence of Investigating Officer PW.29 makes it very clear that, she during the investigation has not made efforts to secure the call record details of mobile phones of accused no.3 and PW.5. This fact is admitted by her in the cross- examination. Therefore, there is no evidence on record placed by the prosecution to attract the offence punishable under Section 506 of IPC.
90 Spl.CC. 1073/2019 OFFENCE UNDER CHIT FUNDS ACT,1982
77. The prosecution has alleged that accused have committed the offence punishable under Section 76 of Chit Funds Act, 1982.
78. Section 76 deals with Penalties. As per Section 4 of the Act, in order to commence a chit, previous sanction of the State Government is necessary. Further, there must be a chit agreement as contemplated under Section 6 of the Act. Moreover, as per Section 5 of the Act, unless notice, circular, prospectus has been published as to the obtaining of previous sanction as required under Section 4, no notice, circular or proposal can be issued inviting public to subscribe for the chit. If the above said provisions are not complied with, same is punishable under Section 76 of the Act. Moreover, Section 16, 17 and 18 of the Act deals with the bid / auction has to be held on the date, at the time and place mentioned in the chit agreement and to that 91 Spl.CC. 1073/2019 effect, the minutes of proceedings of every draw/ bid shall be prepared and entered in a book kept for that purpose immediately after the closure of the draw. Further, the said minutes of the proceedings of every draw certified by an organizer shall be filed with the Registrar within 21 days from the date of draw. If the said provisions are not complied, then Section 76 of the Act, comes into play.
79. It is pertinent to note that the prosecution has failed to prove that accused at any point of time have run the chit business by producing registers or any materials. Hence, invoking provisions of Chit Funds Act, 1982 does not arise at all. Therefore, the allegations under Section 4 and 76 of the Chit Funds Act, 1982 also falls to the ground.
80. Therefore, viewed from any angle, this Court is of the opinion that the prosecution has utterly failed to prove that the accused have 92 Spl.CC. 1073/2019 committed the alleged offences. Hence, I answer the above said Points No. 1 to 7 in the "Negative".
81. POINT NO.8 : In view of my findings on Point No.1 to 7 supra, I proceed to pass the following:
ORDER Acting under Section 248(1) of Cr.P.C., the Accused No.1 - Smt. Prameelamma, Accused No.2 - Sri Manjunath Reddy, Accused No.3 - Lokesh Reddy, Accused No.4 - Pavan Reddy and Accused No.5 - Preethi Reddy are hereby acquitted for the offences punishable under Section 406, 420, 504, 506 r/w Section 120-B of IPC, Section 4 and 76 of the Chit Funds Act,1982 and Section 9 of Karnataka Protection of Interest of Depositors in Financial Establishments Act.
93 Spl.CC. 1073/2019
The bail bond of the Accused No. 1
to 5 so also their sureties stands
cancelled.
*****
**
**
(Dictated to the Judgment Writer, transcribed by her, Script corrected and then pronounced by me in open court this the 29th day of July 2025.) (Satish J. Bali) XLVII Addl. City Civil & Sessions Judge and Special Judge for CBI Cases, Bengalulru.
***** ANNEXURE LIST OF WITNESSES EXAMINED ON BEHALF OF PROSECUTION:
PW.1 : Prashanth Kumar
PW.2 : Geetha
PW.3 : Manjula
PW.4 : Mamatha Ramesh
PW.5 : Ramesh
PW.6 : Srinivas Reddy
PW.7 : Ramachandra
PW.8 : Smt. Manasa
PW.9 : Smt. Girija
PW.10 : Smt. Shanthamma
PW.11 : Vijay Mahantesh
PW.12 : Pavithra
PW.13 : Muniraja
PW.14 : Manjunatha Reddy
PW.15 : Shankar Reddy
PW.16 : Lalithamma
94 Spl.CC. 1073/2019
PW.17 : Jaishankar
PW.18 : Choodappa
PW.19 : Shanthamma
PW.20 : Jayamma
PW.21 : Neela
PW.22 : Govindaraju
PW.23 : Bhagyamma
PW.24 : Nanjundi
PW.25 : Smt. Vijayalakshmi
PW.26 : Suresh
PW.27 : Devaraj
PW.28 : Abdul Samad
PW.29 : Smt. Kavitha G.M.
LIST OF DOCUMENTS MARKED THROUGH
PROSECUTION:
Ex.P1 Self attested copy of the statement of account.
Ex.P1(a) Signature of PW.29
Ex.P2 Complaint.
Ex.P2 Signature of PW.4
Ex.P3 Mahazar
Ex.P3(a) Signature of PW.4
Ex.P3(b) Signature of PW.26
Ex.P3(c) Signature of PW.28
Ex.P3(d) Signature of PW.29
Ex.P4 FIR
Ex.P4(a) Signature of PW.29
LIST OF WITNESSES EXAMINED ON BEHALF OF DEFENCE:
NIL.
95 Spl.CC. 1073/2019 LIST OF DOCUMENTS MARKED THROUGH DEFENCE SIDE:
NIL.
(SATISH J. BALI) XLVII Addl. City Civil & Sessions Judge and Special Judge for CBI Cases, Bengalulru.
96 Spl.CC. 1073/2019 ..ORDER pronounced in the Open Court (Vide Separate detailed Judgment..) ORDER Acting under Section 248(1) of Cr.P.C., the Accused No.1 - Smt. Prameelamma, Accused No.2 - Sri Manjunath Reddy, Accused No.3 - Lokesh Reddy, Accused No.4 - Pavan Reddy and Accused No.5 - Preethi Reddy are hereby acquitted for the offences punishable under Section 406, 420, 504, 506 r/w Section 120-B of IPC, Section 4 and 76 of the Chit Funds Act,1982 and Section 9 of Karnataka Protection of Interest of 97 Spl.CC. 1073/2019 Depositors in Financial Establishments Act.
The bail bond of the Accused No. 1 to 5 so also their sureties stands cancelled.
(SATISH J. BALI) XLVII Addl. City Civil & Sessions Judge and Special Judge for CBI Cases, Bengalulru.
98 Spl.CC. 1073/2019