Gujarat High Court
Amit Tripathi S/O.Ravindra Nath ... vs State Of Gujarat & on 15 September, 2017
Author: Biren Vaishnav
Bench: Biren Vaishnav
R/SCR.A/2298/2008 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CRIMINAL APPLICATION NO. 2298 of 2008
With
SPECIAL CRIMINAL APPLICATION NO. 1754 of 2008
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR.JUSTICE BIREN VAISHNAV
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of
the judgment ?
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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AMIT TRIPATHI S/O.RAVINDRA NATH TRIPATHI & 2....Applicant(s)
Versus
STATE OF GUJARAT & 1....Respondent(s)
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Appearance:
MR. S V RAJU, SENIOR ADVOCATE WITH MR SUNIL SETHI, ADVOCATE
WITH MR NIMIT Y SHUKLA, ADVOCATE WITH MR ROHAN RAVAL,
ADVOCATE WITH BHADRISH S RAJU, ADVOCATE WITH MR NARENDRA L
JAIN, ADVOCATE for the Applicant(s) No. 1 - 3
MR. HARDIK J JANI, ADVOCATE for the Respondent(s) No. 2
PUBLIC PROSECUTOR for the Respondent(s) No. 1
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CORAM: HONOURABLE MR.JUSTICE BIREN VAISHNAV
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R/SCR.A/2298/2008 JUDGMENT
Date : 15/09/2017
ORAL JUDGMENT
1 Accused Nos. 2 and 5 have filed Special Criminal Application No. 1754 of 2008 and accused Nos. 3, 4 and 6 have filed Special Criminal Application No. 2298 of 2008.
2 Both these petitions have been filed invoking Articles 226 and 227 of the Constitution of India read with Section 482 of the Code of Criminal Procedure. The applicants have come forth with the prayer for quashing and setting aside the Criminal Case No. 4845 of 2005 pending before the Judicial Magistrate, First Class, Vadodara. The respondent No.2 filed a First Information Report alleging that the present applicants had committed offences punishable under Sections 418, 420, 477A and Section 120B of the Indian Penal Code, which was subsequently converted into MCase No. 1 of 2005 on 04.01.2005. 3 At the stage of the FIR, the present applicants came before this Court by filing Special Criminal Page 2 of 37 HC-NIC Page 2 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT Applications Nos. 976 of 2005 to 979 of 2005, praying that the FIR against them be quashed. On record is the order dated 26.07.2005. The applicants had withdrawn the petitions for quashing of the FIR. The said order reads as under:
" Mr Gupta, Ld. Advocate for the petitioners seeks permission to withdraw these petitions with a view to file appropriate application for discharge before the trial court. Permission granted. All the petitions stand disposed of as withdrawn."
4 Further, having carried out investigation and after filing a report, the charge sheet was filed on 28.10.2005. This again prompted the applicants original accused to approach this Court by filing the present petitions.
5 The First Information Report is annexed to the petition. As per the respondent No.2complainant, he was in the business of running tutorials in the name of 'Pranjali' which conducted management education classes. It was his case that, a subsidiary Company of Hughes Network System, USA, through its Officers present applicants approached him. This was because of the fact that they wanted to promote partnership in Page 3 of 37 HC-NIC Page 3 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT the course of promoting education with premiere management and engineering colleges. They had undertaken the education initiative in the name of "Direct Way Global Education" also known as Hughes Net Global Education.
6 According to the complainant, these Officials of the Company, who are the Senior Vice President, National as well as Regional Manager, met the complainant at a hotel in Vadodara. This meeting happened in September,2002. Encouraged by the prospects of entering into a partnership to promote such educative initiatives through Audio Visual Technology, the complainant thought it fit to engage into business relationship with the Company, which the accused represented. According to the complainant, in order to set up facilities to promote educative initiatives through Audio Visual Mechanism, a Franchisee Agreement was to be entered into. The Company, as per the agreement which the accused represented, would furnish suitable equipments at the cost of Rs.4,50,000/ which would be set up at the franchisee. The Agreement further provided that the Page 4 of 37 HC-NIC Page 4 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT fees that such franchisee would receive from students would be remitted to the principalthe Company, of which 45% of such share would form the part of the earnings of such franchisee, which the complainant represented.
7 According to the complainant, he spent an amount of Rs.18,00,000/ (Rs Eighteen Lakhs Only/) in order to set up an establishment in accordance with the promise held by the accused on behalf of their Company. An amount of Rs.50 lakhs as fees was collected, which was deposited in the account of the Company. However, the accused on behalf of the Company failed in their promise to remit 45% of the share that the complainant was entitled to. No proper accounts were maintained. The franchisee was compelled to issue an advertisement for conducting such course, for which Principal Company and the accused did not pay any amount as reimbursement of expenses, though the Agreement entitled him to such reimbursement. The franchisee which the complainant represented was entitled to a sum of Rs.13,50,000/ from the Company. Falsification of accounts occurred, as a result of Page 5 of 37 HC-NIC Page 5 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT which, the accused not only were liable for offences of cheating, but also of falsification of records / accounts, which was an offence under Section 477A of the Indian Penal Code. Such a complaint was, therefore, filed invoking Sections 418, 420 and 477A of the Indian Penal Code against the present applicants herein.
8 It is in such background of facts as narrated in the First Information Report that the applicants have approached this Court requesting that the First Information Report, the charge sheet and the consequential proceedings be quashed. 9 At the outset, Mr Hardik Jani, learned advocate for the respondentcomplainant, invited my attention to the order passed by this Court on 26.07.2005. He primarily objected as regards to the maintainability of the petitions. It was his case that, once the present applicants had come before this Court for getting the First Information Report quashed, and having withdrawn the petition, it was not open for the accusedapplicants to once again file the present Page 6 of 37 HC-NIC Page 6 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT petitions seeking the same reliefs. Mr. Jani, submitted that rather than approaching the Court for quashing the First Information Report, the applicants accused should approach the trial Court for discharge as held out by them in the order of 26.07.2005. They have approached this Court contrary to the undertaking so made, by filing second petition, therefore, the petitions should be dismissed mainly on the ground of it being not maintainable.
10 Mr S V Raju, learned Senior Advocate appearing for the applicants, invited my attention to the judgment in the case of Superintendent And Remembrancer of Legal Affairs, West Bengal vs. Mohan Singh & Ors., reported in (1975) 3 SCC 706. Mr Raju, learned Senior Advocate, pointed out that when he approached this Court by filing petitions earlier and which were withdrawn by an order of 26.07.2005, it was only at the stage when the First Information Report was filed. He further contended that circumstances have changed thereafter. Mr Raju, learned senior advocate also relied on a judgment in the case of Devendra and Others vs. State of Uttar Pradesh and Page 7 of 37 HC-NIC Page 7 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT another, reported in (2009) 7 SCC 495, to contend that circumstances have changed thereafter. Mr Raju, learned senior advocate also relied on the observations made in the case of Superintendent And Remembrancer of Legal Affairs, West Bengal vs. Mohan Singh & Ors.,(Supra), that even though earlier application was rejected by the High Court, since the criminal case dragged on, the applicant therein was constrained to move the High Court. Earlier, it was only when the First Information Report was filed that he was constrained to approach this Court. Circumstances have changed thereafter and as materials collected now show that prima facie, no offence is made out though a charge sheet is filed, it gives him a new cause of action.
11 It will therefore be in the fitness of things to deal with the preliminary contentions:
(I) True it is that the applicants had approached this Court earlier by filing a petition seeking quashment of the First Information Report. The First Information Report was filed on 04.01.2005. It was in these Page 8 of 37 HC-NIC Page 8 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT circumstances that the petition for seeking quashing of such FIR was filed. The petition was withdrawn at such stage. The charge sheet as is evident was filed on 28.10.2005. The present petitions are filed in the year 2008. The petitions have been filed after the investigation has been carried out and a report has been filed by the Investigating Officer in accordance with provisions of Section 156(3) of the Code of Criminal Procedure. Having reasons to believe that their defence was genuine and that the basic ingredients of the sections invoked against them are not satisfied, they have approached this Court by filing the present petitions. As observed by the Supreme Court in the case of Superintendent And Remembrancer of Legal Affairs, West Bengal vs. Mohan Singh & Ors., as also in the case of Devendra and Others vs. State of Uttar Pradesh and another (Supra), when a criminal case drags on for long time, and when materials are collected and charge sheet is filed on the basis of which the Magistrate takes cognizance of the offence, it would certainly Page 9 of 37 HC-NIC Page 9 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT give the applicants a rise for a new cause of action. The relevant paragraph in the case of Superintendent And Remembrancer of Legal Affairs, West Bengal vs. Mohan Singh & Ors., (supra) reads as under:
"2 The main question debated before us was whether the High Court had jurisdiction to make the order dated April 7, 1970 quashing the proceeding against respondents Nos. 1, 2 and 3 when on an earlier application made by the first respondent, the High Court had by its order dated December 12, 1968 refused to quash the proceeding. Mr. Chatterjee on behalf of the State strenuously contended that the High Court was not competent to entertain the subsequent application of respondent Nos.1 because that was tantamount to a review of its earlier order by the High Court, which was outside the jurisdiction of the High Court to do. He relied on two decisions of the Punjab and Orissa High Courts in support of his contention, namely, Hoshiar Singh v. State and Namdeo Sindhi v. State. But we fail to see how these decisions can be of any help to him in his contention. They deal with a situation where an attempt was made to persuade the High Court in exercise of its revisional jurisdiction to reopen an earlier order passed by it in appeal or in revision finally disposing of a criminal proceeding and it was held that the High Court had no jurisdiction to revise its earlier order, because the power of revision could be exercised only against an order of a subordinate court. Mr.Chatterjee also relied on a decision of this Court in U.J.S. Chopra v. State of Bombay where N.H. Bhagwati, J., speaking on behalf of himself and Imam, J., observed that once a judgment has been pronounced by the High Court either in exercise of its appellate or its revisional jurisdiction, no review or revision can be entertained against that judgment and there is no provision in the Criminal Procedure Code which Page 10 of 37 HC-NIC Page 10 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT would enable the High Court to review the same or to exercise revisional jurisdiction over the same. These observations were sought to be explained by Mr Mukherjee on behalf of the first respondent by saying that they should not be read as laying down any general proposition excluding the applicability of Section 561 A in respect of an order made by the High Court in exercise of its appellate or revisional jurisdiction even if the conditions attracting the applicability of that section were satisfied in respect of such order, because that was not the question before the Court in that case and the Court was not concerned to inquire whether the High Court can in exercise of its inherent power under Section 561A review an earlier order made by it in exercise of its appellate or revisional jurisdiction. The question as to the scope and ambit of the inherent power of the High Court under Section 561A visavis an earlier order made by it was, therefore, not concluded by this decision and the matter was res integra so far as this Court is concerned. Mr Mukherjee cited in support of this contention three decisions, namely, Raj Narain v. State, Lal Singh v. State and Ramvallabh Jha v. State of Bihar. It is, however, not necessary for us to examine the true effect of these observations as they have no application because the present case is not one where the High Court was invited to revise or review an earlier order made by it in exercise of its revisional jurisdiction finally disposing of a criminal proceeding. Here, the situation is wholly different. The earlier application which was rejected by the High Court was an application under Section 561A of the Code of Criminal Procedure to quash the proceeding and the High Court rejected it on the ground that the evidence was yet to be led and it was not desirable to interfere with the proceeding of about one and a half years without any progress at all and it was in these circumstances that respondents Nos. 1 and 2 were constrained to make a fresh application to the High Court under Section 561A to quash the proceeding. It is difficult to see how in these circumstances, it could ever be Page 11 of 37 HC-NIC Page 11 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT contended that what the High Court was being asked to do by making the subsequent application was to review or revise the order made by it on the earlier application. Section 561A preserves the inherent power of the High Court to make such orders as it deems fit to prevent abuse of the process of the Court or to secure the ends of justice and the High Court must, therefore, exercise its inherent powers having regard to the situation prevailing at the particular point of time when its inherent jurisdiction is sought to be invoked. The High Court was in the circumstances entitled to entertain the subsequent application of respondents Nos. 1 and 2 and consider whether on the facts and circumstances then obtaining the continuance of the proceeding against the respondents constituted an abuse of the process of the Court or its quashing was necessary to secure the ends of justice. The facts and circumstances obtaining at the time of the subsequent application of respondents Nos. 1 and 2 were clearly different from what they were at the time of an earlier application of the first respondent because, despite the rejection of the earlier application of the first respondent, the prosecution had failed to make any progress in the criminal case even though it was filed as far back as 1965 and the criminal case rested where it was for a period of over one and half years. It was for this reason that, despite the earlier order dated December 12, 1968, the High Court proceeded to consider the subsequent application of respondents Nos. 1 and 2 for the purpose of deciding whether it should exercise its inherent jurisdiction under Section 561A. This the High Court was perfectly entitled to do and we do not see any jurisdictional infirmity in the order of the High Court. Even on the merits, we find that the order of the High Court was justified as no prima facie case appears to have been made out against respondents Nos. 1 and 2."
The relevant paragraph of Devendra and Others Page 12 of 37 HC-NIC Page 12 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT vs. State of Uttar Pradesh and another (Supra), reads as under:
"26 The High Court has refused to quash a first information report as a different standard therefor was required to be applied. However, when materials are collected and a chargesheet is filed on the basis whereof the Magistrate takes cognizance of the offence, the same would give rise to a new cause of action. An order taking cognizance of an offence on the basis of a chargesheet filed by the investigating officer and/ or directing issuance of summons on a complaint petition, indisputably, would attract the provisions of Section 482 of the Code of Criminal Procedure if a case has beenmade out for invocation thereof."
12 As is evident from the discussion, herein after, to show how the basic ingredients of the offences have not been made out, I deem it fit to entertain the petition, though, it is a second one for the same cause. This is so as, in view of the fact, that in my opinion when the accused make out a prima facie case it is unnecessary for them to undergo the travails of criminal investigation and face trial, in the case which apparently has been pending now for almost ten years.
13 Coming to the merits of the case, the reading of the complaint indicates that it was a case of the Page 13 of 37 HC-NIC Page 13 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT complainant the he was running an educational institution in the name of 'Pranjali'. When the accused Officers of the Company met the complainant at Vadodara, a discussion was held in order to setup a franchisee by the complainant on their behalf. This was to setup an establishment, which could encourage the initiative of management education through its visual technology. According to the complainant, he would have to buy the equipments worth Rs.4,50,000/ from the Company. On admission of students who would undergo the course at such a franchisee, he would receive fees from such students. The franchisee would be entitled to 45% of the total share of earnings. According to him, he spent an amount of Rs.18 lakhs towards the infrastructural development of this franchisee. On remittance of the amount of Rs.50 lakhs that he collected towards the students fees, according to the complainant, he did not receive the due share of 45% that he is entitled to. Further, the equipments that were handed over on payment of Rs.4.50 lakhs were old equipments.
14 Learned Senior Counsel Shri S V Raju, read the Page 14 of 37 HC-NIC Page 14 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT First Information Report extensively and contended that:
(I) The reading of the First Information Report would suggest that basic ingredients of Sections 418, 420 and 477A are not made out.
(II) In order to come within the web of the offences so alleged to have been committed, there has to be deception, dishonest inducement or an intention to cheat at the time when the offence was committed. Reading of the FIR would indicate that it was a pure and simple agreement to enter into a transaction and, when the transaction was so entered into and the Agreement signed, there was no intention to cheat, and therefore, the basic ingredients of Sections 418 and 420 are not made out.
(III) Mr Raju, learned Senior Advocate, invited my attention to the papers annexed with the charge sheet. He invited my attention to the statement given by the complainant Shri Prakashbhai Dhebar during investigation. According to him, there was discrepancy in the figure even mentioned in the complaint. According to the statement before the Page 15 of 37 HC-NIC Page 15 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT police authorities what the complainant has stated was a sum of Rs.41,61,400/ was paid and he was entitled to 45% thereof i.e. Rs.18,72,630/ The complainant named a different figure. Mr Raju, invited my attention to several discrepancies vizaviz contents of the FIR and the statement made by the complainant to show that basically what was intended to be ironed out were accounting disputes minus the intention and the mens rea to commit offences so as to attract the ingredients of Sections 418 and 420. Even on statement of one Shri Sandeepbhai Shah, reliance was placed to show that the statement made in the FIR regarding supplying of equipments to the extent of Rs.4.50 lakhs also was a matter of accounting dispute.
(IV) Mr Raju, further contended that even before entering into a Franchisee Agreement with the complainant in the name of 'Pranjali', an agreement existed with the promoter of the same franchisee in the name of 'Radiance'. Agreements have been placed on record, which show that, had the accused officers on behalf of the Company an Page 16 of 37 HC-NIC Page 16 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT intention to cheat, the complainant would not have entered into a fresh agreement to set up a franchisee in Vadodara after having entered into an agreement to set up such a franchisee in Mumbai / Thane.
(V) The contention that the amount towards advertisement was to be reimbursed by the Company was also incorrect in view of the terms of the agreement which categorically specified that such advertisement would be at the cost of franchisee.
(VI) Letters are on record dated 31.05.2004 from the Chief Executive Officer of the Company to 'Pranjali' showing that in fact, amounts were recoverable from the franchisee. Further, it was pointed out that letters were exchanged to invoke the arbitration clause. An arbitrator was appointed in order to see that the disputes inter se are settled by arbitration.
(VII) Had the accused an intention to cheat, they would not have, inspite of the franchisee owing some amount to the Company, pay them an amount by way of cheque subject to adjustments. Attention is invited to letter dated 03.06.2004, by which Page 17 of 37 HC-NIC Page 17 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT the advance of Rs.88,020/ was paid towards the revenue share for the month of May and June.
Though, admittedly the earlier correspondence showed that the franchisee owed some amount to the Company. Had there been an intention to cheat, no such amount towards their revenue share would be forwarded to such a franchisee. 15 According to Mr Raju, the arbitration award declared on 02.07.2007 showed that, it was the complainantfranchisee which owed some amounts. There was, therefore, purely a civil dispute and the complaint was filed only with a view to harass the Officers of the Company.
16 Reliance has been placed by Shri Raju, learned senior advocate, in a judgment in the case of Hiralal Harilal Bhagwati vs. CBI, New Delhi, reported in (2003) 5 SCC 257 to contend that in order to constitute an offence of cheating such intention be present at the time of commission of such offences. The relevant paragraph of which, reads as under:
"40 It is settle law, by a catena of decisions, that for establishing the offence of cheating, Page 18 of 37 HC-NIC Page 18 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. From his making failure to keep promise subsequently, such a culpable intention right at the the beginning that is at the time when the promise was made cannot be presumed. It is seen from the records that the exemption certificate contained necessary conditions which were required to be complied with after importation of the machine. Since the GCS could not comply with it, therefore, it rightly paid the necessary duties without taking advantage of the exemption certificate. The conduct of the GCS clearly indicates that there was no fraudulent or dishonest intention of either the GCS or the appellants in their capacities as officebearers right at the time of making application for exemption. As there was absence of dishonest and fraudulent intention, the question of committing offence under Section 420 of the Indian Penal Code does not arise. We have read the charge sheet as a whole. There is no allegation in the first information report or the chargesheet indicating expressly or impliedly any intentional deception or fraudulent/dishonest intention on the part of the appellants rightfrom the time of making the promise ormisrepresentation. Nothing has been said on what those misrepresentations were and how the Ministry of Health was duped and what were the roles played by the appellants in the alleged offence. The appellants, in our view, could not be attributed any mens rea of evasion of customs duty or cheating the Government of India as the Cancer Society is a nonprofit organisation and, therefore, the allegations against the appellants levelled by the prosecution are unsustainable. The Kar Vivad Samadhan Scheme certificate along with Duncan and Sushila Rani judgments clearly absolve the appellants herein from all charges and allegations under any other law once the duty so demanded has been paid and the alleged offence has been compounded. It is also settled law that once a civil case has been compromised and the alleged offence has been compounded, to continue the criminal proceedings Page 19 of 37 HC-NIC Page 19 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT thereafter would be an abuse of the judicial process."
In support of the submission Mr Raju, learned senior advocate, has also relied on a judgment in the case of S W Palanitkar vs. State of Bihar, reported in (2002) 1 SCC 241. The relevant paragraph of which, reads as under:
"21 ...................In order to constitute an offence of cheating, the intention to deceive should be in existence at the time when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise."
17 It was further contended by Mr Raju, learned senior advocate, that apparent it is from reading of the contents of the First Information Report that no specific role has been attributed to each individual officer to show as to how each one of the Officers/accused have played a role to make out a case of having exposed themselves to the criminal liability under the Sections invoked against them. Unlike in a case involving Special Acts where vicarious liability needs to be attributed, when offences under the Indian Penal Code are sought to be invoked against the officers, the complaint must disclose what active role each official of the Company has played. Such basic Page 20 of 37 HC-NIC Page 20 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT averments were absent in the complaint. On this ground, the complaint deserves to be quashed and set aside. For this purpose, Shri Raju, learned senior advocate, relied on a judgement in the case of Sunil Bharti Mittal vs. CBI, reported in (2015) 4 SCC 479 and the case of S K Alagh vs. State of Uttar Pradesh & ors., reported in (2008) 5 SCC 662 and in the case of Maksud Saiyed vs. State of Gujarat & ors., reported in (2008) 5 SCC 668. The relevant paragraphs in the case of Sunil Bharti Mittal vs. CBI, (Supra)., reads as under:
"40 It is abundantly clear from the above that the principle which is laid down is to the effect that the criminal intent of the "alter ego" of the company, that is the personal group of persons that guide the business of the company, would be imputed to the company/corporation. The legal proposition that is laid down in the aforesaid judgment in Iridium India Case is that if the person or group of persons who control the affairs of the company commit an offence with a criminal intent, their criminality can be imputed to the company as well as they are "alter ego" of the company.
41 In the present case, however, this principal is applied in an exactly reverse scenario. Here, company is the accused person and the learned Special Magistrate has observed in the impugned order that since the appellants represent the directing mind and will of each company, their state of mind is the state of mind of the company and, therefore, on this premise, acts of the company are attributed and imputed to the appellants. It is difficult to accept it as the correct principle of law. As Page 21 of 37 HC-NIC Page 21 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT demonstrated hereinafter, this proposition would run contrary to the principle of vicarious liability detailing the circumstances under which a Director of a Company can be held liable."
(III) Circumstances when Director/person in charge of the affairs of the company can also be prosecuted, when the company is an accused person.
42 No doubt, a corporate entity is an artificial person which acts through its officers, Directors, Managing Directors, Chairman etc. If such a company commits an offence involving mens rea, it would normally be the intent and action of that individual who would act on behalf of the company. It would be more so, when the criminal act is that of conspiracy. However, at the same time, it is the cardinal principle of criminal jurisprudence that there is no vicarious liability unless the statute specifically provides so."
The relevant paragraph in the case of S K Alagh vs. State of Uttar Pradesh & ors.,(Supra)., reads as under:
"16 The Penal Code, save and except some provisions specifically providing therefor, does not contemplate any vicarious liability on the part of a party who is not charged directly for commission of an offence.
17 A criminal breach of trust is an offence committed by a person whom the property is entrusted.
18 Ingredients of the offence under Section 406 are:
1) a person should have been entrusted with property, or entrusted with dominion over property;
2) that person should dishonestly
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misappropriate or convert to his own use that property, or dishonestly use or dispose of that property or wilfully suffer any other person to do so;
3) that such misappropriation, conversion, use or disposal should be in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract which the person has made, touching the discharge of such trust."
The relevant paragraph in the case of Maksud Saiyed vs. State of Gujarat., (Supra), reads as under:
"13 Where a jurisdiction is exercised on a complaint petition filed in terms of Section 156(3) or Section 200 of the Code of criminal Procedure, the Magistrate is required to apply his mind. The Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is the Company. The learned Magistrate failed to pose unto himself the correct question viz. as to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability."
Mr Raju, further relied on a judgment in the case Page 23 of 37 HC-NIC Page 23 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT of Central Bureau of Investigation Vs. Duncans Agro Industries Ltd.,Calcutta, reported in (1996)5 SCC 591, to contend that when it is apparent that they were all accounting disputes and an Arbitration Agreement had been entered into and by virtue of an award, it is the complainant who owe him some amount. The facts of the case would show that it was purely a civil dispute. The relevant paragraphs of Central Bureau of Investigation Vs. Duncans Agro Industries Ltd.,Calcutta,(Supra) reads as under:
"23 Coming to the offence under Section 420 IPC as alleged in the FIR, Mr Shanti Bhushan has submitted that the offence of cheating has been defined in Section 415 IPC and consists of fraudulently and dishonestly inducing a person by deceiving him to deliver any property or to do or omit to do anything which he would not do or omit if he were not so deceived. Two essential ingredients of offence would be (I) To make a false statement so as to deceive any person and (ii) fraudulently and dishonestly inducing the person to deliver any property or to do or omit to do something. It is submitted that neither in the FIR nor in the extracts from the FIR which have been referred to in the CBI's submission, there is any reference to any false representation about the existence of stocks of Rs.17.50 crores on any particular day. That the credit facility limit sanctioned to M/s DAIL on 12.1.1984 was to the tune of Rs.17.50 crores. It is also wrongly stated in the written submission of the CBI that the grant of credit facility amounts to delivery of property. The grant of credit facility only means that the Bank is prepared to give loans up to the limit sanctioned. Hence, no case of cheating has been Page 24 of 37 HC-NIC Page 24 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT made out even prima facie.
24 Mr Shanti Bhushan has also submitted that even if a view is taken that an offence of cheating as alleged in the FIR is prima facie maintainable the offence of cheating is compoundable. In civil proceedings, the claims of both the Banks have been satisfied and the disputes have been compromised in the civil suits filed by the Banks. Accordingly, it will no longer be a fit case for carrying out further investigation in respect of the offences alleged. Referring to a recent decision of this Court in Phiroze Dinshaw Lan v. Union of India, Mr Shanti Bhushan has submitted that in that case althout a clear offence of fabrication of evidence had been established against Godrej Company and its Directors and officials, the Supreme Court set aside the order of the High Court directing a complaint to be filed holding that in view of all the circumstances including the payment of the excise duty, it would not be expedient to proceed against the accused persons. Mr Shanti Bhushan has submitted that any further investigation in the matter of offences alleged in the FIRs after such a long lapse of time and after the claims of the Banks have been satisfied in civil suits instituted by the Banks, is not at all expedient and on that score also no interference by this Court under the discretionary jurisdiction under Article 136 of the Constitution against the impugned decision of the High Court is called for.
25 Mr Shanti Bhushan has also submitted that the FIR was registered in 1987 and the second one was registered in 1989. The challenge to the FIRs was made in the Calcutta High Court only in 1991. The CBI therefore, had more than four years' time to complete the investigation without any interruption. But admittedly the investigations have not yet been completed. Mr Shanti Bhushan has submitted that the FIRs havebeen filed in order to resort to arm twisting tactics by the CBI and for launching a fishing and roving enquiry without any reasonable basis. In any event, when the interest of Page 25 of 37 HC-NIC Page 25 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT the Banks have been safeguarded in the civil suits instituted by the Banks having ended in compromise, no useful purpose will be served in proceeding with further investigation after such a long lapse of time. Such course of action, in the facts of the case, will be an abuse of the process of law and impugned order of quashing the FIRs being reasonable no interference by this Court is warranted. The appeals, therefore, should be dismissed.
26 After giving our careful consideration to the facts and circumstances of the case and the submissions made by the respective counsel for the parties, it appears to us that for the purpose of quashing the complaint, it is necessary to consider whether the allegations in the complaint prima facie make out an offence or not. It is not necessary to scrutinise theallegations for the purpose of deciding whether such allegations are likely to be upheld in the trial. Any action by way of quashing the complaint is an action to be taken at the threshold before evidences are led in support of the complaint. For quashing the complaint by way of action at the threshold, it is, therefore, necessary to consider whether on the face of the allegations, a criminal offence is constituted or not. In recent decisions of this Court, in the case of Bhajan Lal, P P Sharma and Janata Dal, since relied on by Mr Tulsi, the guiding principles in quashing a criminal case have been indicated.
27 In the instant case, a serious dispute has been raised by the learned counsel appearing for the respective parties as to whether on the face of the allegations, an offence of criminal breach of trust is constituted or not. In our view, the expression "entrusted with property" or "with any dominion over property" has been used in a wide sense in Section 405 IPC. Such expression includes all cases in which goods areentrusted, that is, voluntarily handed over for a specific purpose and dishonestly disposed of in violation of law or in violation of contract. The expression 'entrusted' appearing in Section 405 IPC is not necessarily a Page 26 of 37 HC-NIC Page 26 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT term of law. It has wide and different implications in different contexts. It is, however, necessary that the ownership or beneficial interest in the ownership of the property entrusted in respect of which offence is alleged to have been committed must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit. The expression 'trust' in Section 405 IPC is a comprehensive expression and has been used to denote various kinds of relationships like the relationship of trustee and beneficiary, bailor and bailee, master and servant, pledger and pledgee. When some goods are hypothecated by a person to another person, the ownership of the goods still remains with the person who has hypothecated such goods. The property in respect of which criminal breach of trust can be committed must necessarily be the property of some person other than the accused or the beneficial interest in or ownership of it must be in the other person and the offender must hold such property in trust for such other person or for his benefit. In a case of pledge, the pledged article belongs to some other person but the same is kept in trust by the pledgee. In the instant case, a floating charge was made on the goods by way of security to cover up credit facility. In our view, in such case for disposing of the goods covering the security against credit facility the offence of criminal breach of trust is not committed. In the facts and circumstances of the case, it, however, appears to us that the respondents moved the High Court only in 1991 although the first FIR was filed in 1987 and the second was filed in 1989. The CBI, got sufficient time to complete the investigation for the purpose of framing the charge.
28 Although Mr. Tulsi, the learned Additional Solicitor General, is justified in his submission that a particular act may constitute both civil wrong as well as criminal wrong and merely because a civil action is also pursued, it does not render the criminal action impermissible, in the facts of the case, it Page 27 of 37 HC-NIC Page 27 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT appears to us that long after the completion of civil suits, the further investigation in connection with the complaints may not be expedient. It may be noted that the opinion given by the Senior Manager (Legal) that the credit facility which was given to DAIL for its tobacoo division should be transferred to the newly formed Company, namely, New Tabacoo Company Limited, cannot be held to be per se malafide or illegal in vies of the provisions of Section 394 of the Companies Act. That apart, the legal opinion of the said Senior Manager (Legal) was placed for consideration by the highest administrative body of the bank i.e. the Board that the credit liability which stood infavour of DAIL should be transferred in favour of the New Tobacoo Company Limited. In the aforesaid circumstances, it appears to use that even if the Senior Manager (Legal) or any other officer of the bank had not acted properly, in view of the fact that the ultimate decision was taken by the Board of Directors, it cannot be reasonably held that some of the Officers of the Bank connived and misled the Board. It may be noted that no allegation has been made against the members of the Board.
29 In the facts of the case, it appears to us that there is enough justification for the High Court to hold that the case was basically a matter of civil dispute. It Banks had already filed suits for recovery of the dues of the Banks on account of credit facility and said suits have been compromised on receiving the payments from the concerned Companies. Even if an offence of cheating is prima facie constituted, such offence is compoundable offence and compromise decrees passed in the suits instituted by the banks, for all intents and purposes, amount to compounding of the offence of cheating. It is also to be noted that long time has elapsed since the complaint was filed in 1987. It may also be indicated thatalthough such FIRs were filed in 1987 and 1989, the Banks have not chosen to institute any case against the alleged erring official despite allegations made against them in the FIRs.
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R/SCR.A/2298/2008 JUDGMENT
Considering that the investigations had not been completed till 1991 even though there was no impediment to complete the investigations and further investigations are still pending and also considering the fact that the claims of the Banks have been compromised on receiving payments, we do not think that the said complaints should be pursued any further, In our view proceeding further with the complaints will not be expedient. In the special facts of the case, it appears to us the decision of the High Court in quashing the complaints does not warrant any interference under Article 136 of the Constitution. We, therefore, dismiss these appeals."
18 Mr Jani, learned advocate for the complainant, on reading of the First Information Report has pointed out that it is evident that:
I) A promise was held that on his investing an amount of Rs.18 lakhs towards establishment expenses, equipments worth Rs.4.50 lakhs would be given to him.
II) On the remittance of fees of Rs.50 lakhs that collected, 45% of such shares would be given as earnings, which in fact was not paid.
III) Accounting disputes were primarily because of the falsification of the accounts on the part of the Officers of the Company, which gave rise of their being exposed to criminal liability under Section 477A of the Indian Penal Code.Page 29 of 37
HC-NIC Page 29 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT 19 Based on the First Information Report so filed, police investigation was carried out, charge sheet was filed, prima facie, the complaint and the charge sheet substantiated his stand that the accused were culpable of having committed the offences alleged against them. The investigating authorities having taken such a prima facie view, this Court should not quash the complaint in exercise of its extraordinary jurisdiction under Article 226 of the Constitution of India or under the inherent power under Section 482 of the Code of Criminal Procedure. Noteworthy judgments which Mr Jani, learned advocate for the respondent No.2original complainant cited were, in the case of Shri Krishna Agencies vs. State of Andhra Pradesh reported in AIR (2009)SC 1011, that merely because of simultaneous criminal and civil proceedings was pending, the criminal court proceeding need not be quashed. He further relied on a judgment in the case of Ravindra Kumar Madhanlal Goenka vs. Rugmini Ram Raghav Spinners P. Ltd.,its equivalent citation of (2009)11 SCC 529, this was stated in support of his submission that once Magistrate has issued a process Page 30 of 37 HC-NIC Page 30 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT and has taken one view, this Court in exercise of its powers under Section 482 of the Cr.P.C should not quash the complaint. He also relied on a judgment reported in the case of Iridium India Telecom Ltd., vs. Motorola Incorporated, reported in 2011(1) SCC 74 to suggest that when ingredients of the offences have been made out, the Court should be slow in interfering with the complaint lodged and should not quash such a complaint.
20 Let us examine the facts as made out in the complaint on the basis of the submissions made by the learned advocates for the respective parties. Reading of the First Information Report so filed, indicates the following sequence of events, which grievance that the complainant makes out:
a) That, pursuant to the meeting held in Vadodara in September 2002, the Company Officers/accused and the complainant, it was decided to enter into a Franchisee Agreement. The Company, which was not a U.S based Company was promoting education initiative through Audio Visual Mechanism. Setting up of such a franchisee would involve developing infrastructure and Page 31 of 37 HC-NIC Page 31 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT buying equipments from the principal, the Company, that the accused represented.
b) According to the complainant, he set up such facilities at an expense of Rs.18 lakhs, equipments which were given to him of Rs.4.50 lakhs were old.
c) Of the promised 45% of his share of students fees that he remitted, the Company did not give him any sum and that he was compelled to spend for the advertisement for the franchisee which amount was not reimbursed.
21 When the First Information Report is read in its entirety, what emerges is that the complainant has made out a case, where a pure business transaction seems to have failed. General allegations are being made to show that what was promised was not paid or what appeared to be a profitable transaction did not materialize to be one.
Evidence on record as produced by the accused in their petitions and the statements of the complainant and the officers given before the Police Authorities, show the picture as otherwise. Letters are on record of May/June 2004, which show that it was the Page 32 of 37 HC-NIC Page 32 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT complainant who owed some money to the principal Company which the accused represented. This was obviously after having entered into an agreement to undertake such a franchisee, which agreement is on record and was entered into in May 2003. Outstanding amounts towards certain dues which the complainant owed are in 2004. Evident also it is from such letters on record, especially that on 03.06.2004 that even though the amounts were due to the Company, the Company paid their share of Rs.88,020/ to the complainant. This was irrespective of the fact that the complainant owed the company some amount. Had there been an intention to deceive, default or cheat, such exchange of money would not have occurred at the hands of the Company which the accused represented.
Though the arguments of learned advocate Shri Jani supported by the judgment of the Supreme Court in the case of Shri Krishna Agencies vs. State of Andhra Pradesh (Supra), would indicate that merely because arbitration proceedings were pending, criminal action is not barred, in the facts of the present case, it is evident that the process of entering into an arbitration on account of accounting disputes was Page 33 of 37 HC-NIC Page 33 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT pending and was initiated even before the FIR was filed in the year of 2005. Correspondences exchanged in the year 2004, which are on record indicated that the Company, through its Officers initiated the process of arbitration. It was the complainant who refused to agree. The arbitrator in July 2007 had to pass an exparte award. Even according to such award of the arbitrator, it was the complainant who owed the amount to the Company. Merely because the agreement showed that 45% share of fees that the complainant was entitled was not paid would not expose such company to criminal liability. In fact, from the correspondence on record, the facts showed otherwise. From the judgments in the case of Hiralal Harilal Bhagwati vs. CBI, New Delhi,(supra) and that of S.W. Palanitkar vs. State of Bihar, (Supra) what is apparent is that in order to invoke an offence of cheating, there has to be an intention to deceive at the time when the inducement was made. It is necessary to show that the person had fraudulent or dishonest intention at the time of making promise. Apparent it is from the contents of the First Information Report that it was not the intention of accused when a meeting was held Page 34 of 37 HC-NIC Page 34 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT in 2002 or thereafter through subsequent occasions to show that there was an intention to cheat. Basic ingredients of the Sections 418 and 420 are not made out.
22 There is a vague allegation that there was falsification of accounts, and therefore, the complainant was entitled to invoke the provisions of Section 477A. Basic ingredients of the section when read, there is nothing to convey that such falsification had occured at the hands of clerk or an Officer of the Company. Apparently, such a fiduciary relationship between the complainant and accused does not exist, so as to, invoke the provisions of Section 477A of the Indian Penal Code.
23 Taking all these factors into consideration, namely, that when the basic ingredients of the offences against the accused have not been made out, that much before the complaint was filed, process to undertake the arbitration was triggered by the Company in 2004, that the Company though had some amount due from the complainant it was willing and had paid its Page 35 of 37 HC-NIC Page 35 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT revenue share for the month of May / June 2004 to the complainant.
24 Apparently, accounting disputes on hand needed to be sorted out through arbitration, which process was initiated. Arbitration award was passed, which apparently showed that it was the complainant who owed some amount to the company. All the circumstances put together also make out clear that it was a civil dispute.
25 Based on such categorical findings, I am of the opinion that there is fresh material on record to suggest that the accused have been unnecessarily made to undergo the travails of criminal trial and in respect of having approached earlier and failed would not disqualify them. This is fit case warranting quashment of the FIR. This Court ought to interfere and the quash the Criminal Case No. being 4845 of 2005 pending before the Chief Judicial Magistrate, First Class, Vadodara, under Sections 418, 420, 477A and Section 120B of the Indian Penal Code, which was subsequently converted into MCase No. 1 of 2005 on Page 36 of 37 HC-NIC Page 36 of 37 Created On Sun Oct 01 17:29:55 IST 2017 R/SCR.A/2298/2008 JUDGMENT 04.01.2005. Accordingly, the Criminal Case No. 4845 of 2005 and M Case 1 of 2005 pending before the Chief Judicial Magistrate First Class, Vadodara is quashed. The petitions are allowed in the above terms. Rule is made absolute to the aforesaid extent in each petitions.
(BIREN VAISHNAV, J.) Bimal Page 37 of 37 HC-NIC Page 37 of 37 Created On Sun Oct 01 17:29:55 IST 2017