Karnataka High Court
Sri. Prashantha K. V. @ Prashanth vs State Of Karnataka on 24 August, 2022
Author: M. Nagaprasanna
Bench: M. Nagaprasanna
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 24TH DAY OF AUGUST, 2022
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
CRIMINAL PETITION No.6848 OF 2020
C/W
CRIMINAL PETITION No.6175 OF 2020
CRIMINAL PETITION No.6178 OF 2020
CRIMINAL PETITION No.6850 OF 2020
CRIMINAL PETITION No.6888 OF 2020
CRIMINAL PETITION No.6893 OF 2020
IN CRIMINAL PETITION No.6848 OF 2020
BETWEEN:
SRI PRASHANTHA K.V., @ PRASHANTH
S/O VEERASWAMY REDDY
AGED ABOUT 30 YEARS
R/AT NO.1112/3
FCI MAIN ROAD, H.P.GAS
KADUGODI, BENGALURU CITY
BENGALURU - 560 001.
... PETITIONER
(BY SRI SHIVAPRASAD SHANTANAGOUDAR, ADVOCATE)
AND:
1. STATE OF KARNATAKA
BY H.D.KOTE POLICE STATION
H.D.KOTE CIRCLE
MYSURU DISTRICT - 571 114.
2
REPRESENTED BY:
STATE PUBLIC PROSECUTOR
HIGH COURT OF KARNATAKA
BENGALURU.
2. SRI M.R.L. NARASIMHA RAO
DEPUTY GENERAL MANAGER
AGED ABOUT 62 YEARS
REGIONAL OFFICE, NAZARBAD MOHALLA
MYSURU - 570 001.
... RESPONDENTS
(BY SRI K.S.ABHIJITH, HCGP FOR R1;
SRI VIGNESH SHETTY A/W
SRI NAUSHAD A.K., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE CHARGE SHEET AND ENTIRE
PENDING AND FURTHER PROCEEDINGS IN C.C.NO.688/2019
(CR.NO.313/2016, H.D.KOTE P.S.) FOR THE OFFENCE P/U/S 406,
409, 417, 420 R/W 34 OF IPC PENDING ON THE FILE OF THE
PRL.CIVIL JUDGE (JN. DN) AND JMFC COURT, H.D.KOTE MYSORE
AS AGAINST THE PETITIONER.
IN CRIMINAL PETITION No.6175 OF 2020
BETWEEN:
SRI PRASHANTHA K.V., @ PRASHANTH
S/O VEERASWAMY REDDY
AGED ABOUT 30 YEARS
R/AT NO.1112/3
FCI MAIN ROAD, H.P.GAS
KADUGODI, BENGALURU CITY
BENGALURU - 560 001.
... PETITIONER
(BY SRI SHIVAPRASAD SHANTANAGOUDAR, ADVOCATE)
3
AND:
1. STATE OF KARNATAKA
BY H.D.KOTE POLICE STATION
H.D.KOTE CIRCLE
MYSURU DISTRICT - 570 001.
REPRESENTED BY:
STATE PUBLIC PROSECUTOR
HIGH COURT OF KARNATAKA
BENGALURU - 560 001.
2. SRI M.R.L. NARASIMHA RAO
DEPUTY GENERAL MANAGER
REGIONAL OFFICE, NAZARBAD MOHALLA
MYSURU - 570 001.
... RESPONDENTS
(BY SRI K.S.ABHIJITH, HCGP FOR R1;
SRI VIGNESH SHETTY A/W
SRI NAUSHAD A.K., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE CHARGE SHEET AND ENTIRE
PENDING AND FURTHER PROCEEDINGS IN C.C.NO.746/2019
(CR.NO.317/2016, H.D.KOTE POLICE STATION) FOR THE OFFENCE
P/U/S 114, 406, 409 AND 420 R/W 34 OF IPC PENDING ON THE
FILE OF PRINCIPAL CIVIL JUDGE (JR. DN.) AND J.M.F.C., H.D.
KOTE, MYSURU IN RELATION TO THE PETITIONER HEREIN.
IN CRIMINAL PETITION No.6178 OF 2020
BETWEEN:
SRI VEERASWAMY REDDY
S/O NARASA REDDY
AGED ABOUT 59 YEARS
4
R/AT NO. 1112/3
FCI MAIN ROAD, H.P.GAS
KADUGODI, BENGALURU CITY
BENGALURU - 560 001.
... PETITIONER
(BY SRI SHIVAPRASAD SHANTANAGOUDAR, ADVOCATE)
AND:
1. STATE OF KARNATAKA
BY H D KOTE POLICE STATION
H.D.KOTE CIRCLE
MYSURU DISTIRCT.
REPRESENTED BY:-
STATE PUBLIC PROSECUTOR
HIGH COURT OF KARANATAKA
BENGALURU - 560 001.
2. SRI M.R.L. NARASIMHA RAO
DEPUTY GENERAL MANAGER
AGED ABOUT 62 YEARS
REGIONAL OFFICE NAZARBAD MOHALLA
MYSURU - 570 001.
... RESPONDENTS
(BY SRI K.S.ABHIJITH, HCGP FOR R1;
SRI VIGNESH SHETTY A/W
SRI NAUSHAD A.K., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE CHARGE SHEET AND ENTIRE
PENDING AND FURTHER PROCEEDINGS IN C.C.NO.770/2019
(CR.NO.315/2016, H.D.KOTE POLICE STATION) FOR THE OFFENCE
P/U/S 114, 406, 409 AND 420 R/W 34 OF IPC PENDING ON THE
5
FILE OF PRINCIPAL CIVIL JUDGE (JR. DN.) AND J.M.F.C., H.D.
KOTE, MYSURU IN RELATION TO THE PETITIONER HEREIN.
IN CRIMINAL PETITION No.6850 OF 2020
BETWEEN:
1. SRI VEERASWAMY REDDY
S/O NARASA REDDY
AGED ABOUT 59 YEARS
R/AT NO.1112/3
FCI MAIN ROAD, H.P.GAS
KADUGODI, BENGALURU - 560 067.
2. SRI.PRASHANTHA K.V. @ PRASHANTH
S/O VEERASWAMY REDDY
AGED ABOUT 30 YEARS
R/AT NO.1112/3
FCI MAIN ROAD, H.P.GAS
KADUGODI, BENGALURU-560 067.
... PETITIONERS
(BY SRI SHIVAPRASAD SHANTANAGOUDAR, ADVOCATE)
AND:
1. STATE OF KARNATAKA
BY H.D.KOTE POLICE STATION
H.D.KOTE CIRCLE
MYSURU DISTRICT.
REPRESENTED BY:
STATE PUBLIC PROSECUTOR
HIGH COURT OF KARNATAKA
BENGALURU.
2. SRI M.R.L. NARASIMHA RAO
DEPUTY GENERAL MANAGER
6
MAJOR
REGIONAL OFFICE
NAZARBAD MOHALLA
MYSURU - 570 001.
... RESPONDENTS
(BY SRI K.S.ABHIJITH, HCGP FOR R1;
SRI VIGNESH SHETTY A/W
SRI NAUSHAD A.K., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE CHARGE SHEET AND ENTIRE
PENDING AND FURTHER PROCEEDINGS IN C.C.NO.765/2019
(CR.NO.312/2016, H.D. KOTE P.S) FOR THE OFFENCE P/U/S 406,
409, 417, 420 R/W 34 OF IPC PENDING ON THE FILE OF THE
PRL.CIVIL JUDGE (JR.DN) AND JMFC, COURT, H.D.KOTE MYSORE
AS AGAINST THE PETITIONERS.
IN CRIMINAL PETITION No.6888 OF 2020
BETWEEN:
SRI VEERASWAMY REDDY
S/O NARASA REDDY
AGED ABOUT 59 YEARS
R/AT NO.1112/3
FCI MAIN ROAD, H.P.GAS
KADUGODI , BENALURU - 560 067.
... PETITIONER
(BY SRI SHIVAPRASAD SHANTANAGOUDAR, ADVOCATE)
AND:
1. STATE OF KARNATAKA
BY H.D.KOTE POLICE STATION
H.D.KOTE CIRCLE
MYSURU DISTRICT - 570 001.
7
REPRESENTED BY:-
STATE PUBLIC PROSECUTOR,
HIGH COURT OF KARNATAKA
BENGALURU .
2. SRI M.R.L. NARASIMHA RAO
DEPUTY GENERAL MANAGER
AGED ABOUT 62 YEARS
REGIONAL OFICE, NAZARBAD MOHALLA
MYSURU - 570 001.
... RESPONDENTS
(BY SRI K.S.ABHIJITH, HCGP FOR R1;
SRI VIGNESH SHETTY A/W
SRI NAUSHAD A.K., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE CHARGE SHEET AND ENTIRE
PENDING AND FURTHER PROCEEDINGS IN C.C.NO.764/2019
(CR.NO.314/2016, H.D.KOTE POLICE STATION) FOR THE OFFENCE
P/U/S 114, 406, 419 AND 420 R/W 34 OF IPC, PENDING ON THE
FILE OF PRINCIPAL CIVIL JUDGE (JR. DN.) AND J.M.F.C.,
H.D.KOTE, MYSURU IN SO FAR AS PETITIONER (ACCUSED NO.6) IS
CONCERNED.
IN CRIMINAL PETITION No.6893 OF 2020
BETWEEN:
SRI PRASHANTHA K.V., @ PRASHANTH
S/O VEERASWAMY REDDY
AGED ABOUT 30 YEARS
R/AT NO.1112/3
FCI MAIN ROAD, H.P.GAS
KADUGODI, BENGALURU CITY
BENGALURU - 560 001.
... PETITIONER
(BY SRI SHIVAPRASAD SHANTANAGOUDAR, ADVOCATE)
8
AND:
1. STATE OF KARNATAKA
BY H.D.KOTE POLICE STATION
H.D.KOTE CIRCLE
MYSURU DISTRICT - 571 114.
REPRESENTED BY:
STATE PUBLIC PROSECUTOR
HIGH COURT OF KARNATAKA
BENGALURU.
2. SRI M.R.L. NARASIMHA RAO
DEPUTY GENERAL MANAGER
AGED ABOUT 62 YEARS
REGIONAL OFFICE, NAZARBAD MOHALLA
MYSURU - 570 001.
... RESPONDENTS
(BY SRI K.S.ABHIJITH, HCGP FOR R1;
SRI VIGNESH SHETTY A/W
SRI NAUSHAD A.K., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE CHARGE SHEET AND ENTIRE
PENDING AND FURTHER PROCEEDINGS IN C.C.NO.691/2019
(CR.NO.316/2016 H.D KOTE P.S.,) FOR THE OFFENCES P/U/S 114,
406, 419, 420 R/W 34 OF IPC, PENDING ON THE FILE OF
PRINCIPAL CIVIL JUDGE (Jr. Dn) AND JMFC, H.D KOTE, MYSORE IN
RELATION TO THE PETITIONER HEREIN.
THESE CRIMINAL PETITIONS HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 26.07.2022, COMING ON FOR
PRONOUNCEMENT THIS DAY, THE COURT MADE THE FOLLOWING:-
ORDER
Batch of these petitions arise out of a particular transaction where the petitioners, who are either borrowers or guarantors to 9 loans granted by the 2nd respondent/Complainant-Vijaya Bank ('the Bank' for short). Different loan accounts are made subject matter of different crimes and are therefore, different in each of these cases. But, the fact of receipt of certain loans and the complainant being the Bank, is the common stream that runs through the petitions. Therefore, they are heard together and considered by this common order.
2. For the sake of convenience, facts in Criminal Petition No.6848 of 2020, which are common in all other petitions except some figures, are considered.
3. Heard Sri Shivaprasad Shantanagoudar, learned counsel appearing for the petitioners, Sri K.S.Abhijith, learned High Court Government Pleader appearing for respondent No.1/State and Sri Vignesh Shetty, learned counsel appearing for respondent No.2/Bank.
4. Brief facts as projected by the prosecution, are as follows:
10Complaints are registered by the 2nd respondent/Deputy General Manager of the Bank on 24-12-2016, that the petitioners in two of the petitions as principal borrowers and in the remaining four of the petitioners as guarantors to the principal borrowers alleging that the petitioners approached the Bank seeking finance in the name of agricultural term loans. The documents submitted by them were scrutinized and agricultural term loans to the tune of Rs.40/-
lakhs in each of these petitions were sanctioned. The purpose of availing loans was construction of green house and cultivation of high tech rose plants in Sy.No.61/17 measuring 4 acres and in other Survey numbers at Yedathore Village, H.D. Kote Taluk. The loans were applied before the H.D.Kote Branch of the 2nd respondent/Branch. After all the documentation, creation of mortgage in favour of the Bank, agricultural loans were sanctioned and disbursed in favour of the petitioners. The further allegations in the complaints are that loans became sticky and were declared to be a Non-Performing Assets ('NPAs'). The secured creditor/2nd respondent-Bank then initiated proceedings against the petitioners before the Debt Recovery Tribunal ('the Tribunal' for short) in O.A.No.479 of 2017 for recovery of debt amounts. Before 11 approaching the Tribunal, on the ground that the loans had become sticky, 2nd respondent/Bank registered complaints in Crime Nos.312 to 317 of 2016 for offences punishable under Section 420 of IPC read with 34 of the IPC. The crime was registered on 24-12-2016.
In turn, the petitioners filed complaints against the officials of the Bank on 02-03-2018 alleging that it was the petitioners who were cheated. Therefore, the said crime was also registered for offences punishable under Sections 406, 409, 417 and 420 r/w 34 of the IPC. The police after investigation have filed charge sheet in the crime registered against the petitioners for offences punishable under Section 420 of the IPC. It is filing of the charge sheet that drives the petitioners to this Court in the subject petitions. The petitions having been entertained, interim order stalling of all further proceedings is granted and is in operation even as on date.
Therefore, further proceedings in C.C.Nos.688 of 2019, 691 of 2019, 746 of 2019, 764 of 2019, 765 of 2019 and 770 of 2019 have not gone on.
5. The learned counsel appearing for the petitioners would vehemently contend that once loans are granted pursuant to 12 agreements and alternate remedy of approaching the Tribunal has in fact been exercised by the 2nd respondent/Bank and once having chosen the said forum, offence punishable under Section 420 IPC could not have been registered against the petitioners as it is a pure breach of agreement. Adequate security by mortgaging properties was also taken by the Bank and only after their thorough scrutiny loans were granted by the Bank. Therefore, breach of agreement cannot become a crime for the afore-quoted offence.
He would place reliance on the judgment of the Apex Court in the case of SATISHCHANDRA RATANLAL SHAH v. STATE OF GUJARAT AND ANOTHER1 and subsequent three Judge Bench decision in the case of K.VIRUPAKSHA AND ANOTHER v. STATE OF KARNATAKA AND ANOTHER2.
6. On the other hand, the learned counsel representing the 2nd respondent/Bank would vehemently refute the said submissions, contending that the Bank was induced in granting the petitioners loans and the loans were not used for the purpose for which they were granted. Therefore crime for offences punishable under 1 (2019) 9 SCC 148 2 (2020) 4 SCC 440 13 Section 420 is allegedly registered. The police after investigation have filed charge sheets and therefore, it would become a matter of trial for the petitioners to come out clean. The learned counsel would admit that properties are available with the Bank as security against the loans but no one is coming forward to buy the property and, therefore, criminal law is set into motion. He would place reliance upon the judgment rendered in CENTRUM FINANCIAL SERVICES LIMITED v. STATE OF NCT OF DELHI AND ANOTHER -2022 AIR SC 650 and in the case of RAJ KUMAR GUPTA AND OTHERS .v UNION OF INDIA AND OTHERS-
Crl.M.Nos. 1396 of 2020 etc. decided on 29-06-2021 by the High Court of Jammu and Kashmir to buttress his submission that if utilization of the amount has not happened for the purpose for which it has been granted, it would amount to cheating. Emphasis is also laid by the learned counsel on the Master Circulars on willful defaulters dated 01-07-2015 and 01-07-2016 issued by the Reserve Bank of India.
147. I have given my anxious consideration to the submissions made by the respective learned counsel and perused the material on record.
8. The afore-narrated facts with regard to grant of loans in two cases to the petitioners therein is not in dispute and the other four cases are of the guarantors is also not in dispute. The loans became sticky as the business did not come in the manner that the borrowers had thought of. The failure in business results in the loans turning in defaults; such defaults slip into non-performing assets; leading the bank to register a crime against the petitioners on 24.12.2016. The allegations against the petitioners are that, the loans that were granted were not utilised for the purpose for which it was sought and sanctioned. It is an admitted fact that the loans were granted pursuant to mortgage deeds executed in favour of the Bank of several agricultural lands belonging to the petitioners within the jurisdiction of the branch of the Bank from which the loans have been taken. The Bank after thorough assessment of records had granted loans to each of the assets in a sum of Rs.40/- lakhs within the discretion of the Manager of the Bank for execution of mortgage 15 of agricultural lands or otherwise, as observed hereinabove. It is further not in dispute that the said properties are in the possession of the Bank even as on date.
9. When the loans became sticky and accounts slipped into NPA, the Bank initiated proceedings before the Tribunal and it is also admitted that in two of the cases decrees have been granted in favour of the Bank. The contention is that buyers are not coming forward to purchase the properties and on this score criminal proceedings are sought to be initiated and continued, notwithstanding the issue between the petitioners and the Bank being one of breach of contract and the loans slipping into NPA.
The allegation that loan amounts are not utilized for the purpose of which they were granted is also at large before the Tribunal which would undoubtedly render a finding on all the contentions of the Bank. The prayer before the Tribunal was to sell the properties that were hypothecated by the petitioners for the loans and the proceedings in two of the cases by granting such permission are closed and four of the cases are pending consideration before the competent Court.
1610. The issue now would be the complainant having taken recourse to approaching the Tribunal and rightly so, whether criminal proceedings should be permitted to continue. The issue is no longer res integra. The Apex Court in the judgment rendered in the case of SATISHCHANDRA RATANLAL SHAH (supra) has held as follows:
"9. Before we analyse this case, it is to be noted that the criminal application preferred by the accused before the High Court was against the order of the trial court at the stage of framing of charges, wherein it is the duty of the court to apply its judicial mind to the material placed before it and to come to a clear conclusion that a prima facie case has been made out against the accused. An order for framing of charges is of serious concern to the accused as it affects his liberty substantially. Courts must therefore be cautious that their decision at this stage causes no irreparable harm to the accused.
10. Coming to the aspect of quashing of the charges, it is well settled that such exercise needs to be undertaken by the High Court in exceptional cases. It is also well settled that the framing of charges being initial stages in the trial process, the court therein cannot base the decision of quashing the charge on the basis of the quality or quantity of evidence rather the enquiry must be limited to a prima facie examination. (Refer to State of Bihar v. Ramesh Singh [State of Bihar v. Ramesh Singh, (1977) 4 SCC 39: 1977 SCC (Cri) 533: 1977 Cri LJ 1606].)
11. Having observed the background principles applicable herein, we need to consider the individual charges against the appellant. Turning to Section 405 read with Section 406 IPC, we observe that the dispute arises out of a loan transaction between the parties. It 17 falls from the record that Respondent 2 knew the appellant and the attendant circumstances before lending the loan. Further it is an admitted fact that in order to recover the aforesaid amount, Respondent 2 had instituted a summary civil suit which is still pending adjudication. The law clearly recognises a difference between simple payment/investment of money and entrustment of money or property. A mere breach of a promise, agreement or contract does not, ipso facto, constitute the offence of the criminal breach of trust contained in Section 405 IPC without there being a clear case of entrustment.
12. In this context, we may note that there is nothing either in the complaint or in any material before us, pointing to the fact that any property was entrusted to the appellant at all which he dishonestly converted for his own use so as to satisfy the ingredients of Section 405 punishable under Section 406 IPC. Hence the learned Magistrate committed a serious error in issuing process against the appellant for the said offence. Unfortunately, the High Court also failed to correct this manifest error.
13. Now coming to the charge under Section 415 punishable under Section 420 IPC. In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. (See Hridaya Ranjan Prasad Verma v. State of Bihar [Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168:
2000 SCC (Cri) 786].) In the case before us, admittedly the appellant was trapped in economic crisis and therefore, he had approached Respondent 2 to ameliorate the situation of crisis. Further, in order to recover the aforesaid amount, Respondent 2 had instituted a summary civil suit seeking recovery of the loan amount which is still pending adjudication. 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 the crux of the offence. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.18
14. Moreover, this Court in a number of cases has usually cautioned against criminalising civil disputes, such as breach of contractual obligations (refer to Gian Singh v. State of Punjab [Gian Singh v. State of Punjab, (2012) 10 SCC 303: (2012) 4 SCC (Civ) 1188: (2013) 1 SCC (Cri) 160: (2012) 2 SCC (L&S) 988] ). The legislature intended to criminalise only those breaches which are accompanied by fraudulent, dishonest or deceptive inducements, which resulted in involuntary and inefficient transfers, under Section 415 IPC.
15. However, the High Court appears to have been carried away by the moral element involved in the breach of promise and made certain observations. Being a policy consideration, such suggestions need to be restricted. The aforementioned observations of the High Court were not only unnecessary for the adjudication of this matter, but the same could have been understood as casting some kind of aspersions on the accused. This clearly reflected a loaded dice situation against the appellant herein."
(Emphasis supplied) A three Judge Bench of the Apex Court in a subsequent judgment in the case of K.VIRUPAKSHA (supra) has held as follows:
"7. The learned Senior Counsel for the complainant would on the other hand rely on the identical criminal petitions which had been dismissed [M. Premkumar v. State of Karnataka, 2016 SCC OnLine Kar 8781] , [Canara Bank v. State of Karnataka, 2016 SCC OnLine Kar 8780] by the High Court insofar as Accused 1 and 12 are concerned. It is contended that though the loan of Rs 2.68 crores was sanctioned, only a sum of Rs 90 lakhs was disbursed and the remaining amount was adjusted as repayment. It is further contended that the secured asset which was worth 19 more than Rs 4 crores was undervalued and ultimately sold for Rs 1.10 crores in connivance with the auction- purchaser who is arrayed as Accused 15. It is further contended that the undervaluation of the mortgage property is not the only issue but the issue with regard to the non-disbursement of the entire loan and the non- consideration of the three offers made by the complainant for one time settlement ("OTS", for short) are all aspects which are to be investigated upon. It is contended that in such circumstance, the investigation as ordered by the learned Magistrate was justified and the High Court has appropriately refrained from interfering in the matter at this stage. It is, therefore, contended that the contention as urged in the instant appeal by the appellants does not merit consideration and the appeal is liable to be rejected. The learned counsel for the State of Karnataka would contend that pursuant to the direction issued by the learned Magistrate, FIR had been registered and the investigation is in progress and therefore, the same be permitted to be taken to its logical conclusion.
8. Before adverting to the rival contentions urged on behalf of the parties, we have kept in perspective the decision of this Court in State of Haryana v. Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335: 1992 SCC (Cri) 426] placed for consideration by the learned Senior Counsel for the complainant which lays down the parameters that are to be kept in view while exercising the extraordinary power/inherent power to quash the criminal proceeding. On stating the parameters, this Court has cautioned that the power of quashing a criminal proceeding should be exercised very sparingly and with circumspection and that too in rare cases. In that background, keeping in view the nature of transaction and the manner in which the earlier proceedings were resorted to on the same subject-matter, the present situation is required to be considered.
9. As noted, the undisputed fact is that the complainant had approached Canara Bank for financial assistance, wherein the appellants herein were the officers in the circle office. The complainant had availed 20 the loan facility to the tune of Rs 2.68 crores on 16-3-
2009. Though the complainant contends that the entire amount of Rs 2.68 crores was not released, but only a sum of Rs 90 lakhs was released and the remaining amount was adjusted as repayment, the question would be as to whether that aspect and the other aspects as raised with regard to the non-consideration of OTS as also the value for which the property was sold and the manner in which it was sold could be investigated into by the police, merely, because allegations are made and certain sections of the Penal Code, 1860 are invoked when the action is resorted to and regulated under the SARFAESI Act. While taking note of the sequence of events it is noticed that the secured asset though sold in the auction conducted on 31-1-2014 and the grievances as sought to be put forth at this point in the criminal complaint was available at that juncture, it is not as if the complaint was immediately filed. On the other hand, when the auction notice dated 13-10-2013 was issued, no grievance was made out by the complainant before any judicial forum. However, the sale did not take place for want of the purchasers and a fresh auction notice dated 30-12-2013 was issued indicating the reserve price at Rs 1.10 crores.
10. At that stage, the complainant approached the High Court of Karnataka, Dharwad Bench in a writ petition filed under Articles 226 and 227 of the Constitution of India in WP No. 100382 of 2014. The auction notice dated 30-12-2013 was impugned therein. The allegation which is now sought to be put forth in the complaint filed under Section 200 CrPC wherein the appellants herein along with others have been accused of with regard to the undervaluation of the secured assets was the very contention which was urged in the said writ petition. The learned Single Judge in the said writ petition had taken note of the contention that the reserve price in respect of the secured assets was fixed at Rs 228.51 lakhs initially, thereafter, in the subsequent auction conducted the same was fixed at Rs 1.10 crores and has, thereafter, concluded as hereunder : [S.B. Valves (India) (P) Ltd. case [S.B. Valves (India) (P) Ltd. v. Canara Bank, 2014 SCC OnLine Kar 2183] , SCC OnLine Kar paras 4, 8 and 10] 21 "4. Undisputedly, the petitioner is the debtor and has suffered an order passed by jurisdictional Debts Recovery Tribunal. The Debts Recovery Tribunal, Bangalore has issued recovery certificate in favour of the respondent Bank to recover the said amount. Property mortgaged to the respondent Bank by the petitioner has been brought for sale by auction. In the event of Bank not adhering to provisions of the SARFAESI Act in conducting the sale or there being any infraction in this regard, the petitioner has an alternate remedy available under the SARFAESI Act. Hence, at the stage of auction being conducted by the respondent Bank for recovery of its legitimate dues, this Court would not interfere with said auction in the normal course.
***
8. ... In the instant case, reserve price earlier fixed at Rs 228.51 lakhs has not fetched customers and as such, the respondent Bank has fixed the reserve price at Rs 110 lakhs which would be the price with which the public auction starts and auction bidders are not permitted to give bids below the floor value or reserve price. If the petitioner is able to secure a customer or a bidder who can offer his bid for the value as proposed by the petitioner itself, it would be needless to state that secured creditor would definitely accept the said bid since earlier attempts by it to auction the property has been in vain.
***
10. In the instant case, as already noticed hereinabove, petitioner is a borrower and it had defaulted in payment of monies due to the Bank. In other words, public money due by the petitioner to the Bank has not been repaid. The petitioner's loan account having been classified as a "non-performing asset", the respondent Bank has initiated proceedings under the SARFAESI Act to recover the dues. In the earlier auctions conducted, reserve price fixed was Rs 228.51 lakhs i.e. in the auction which was to be held on 15-11- 2013 and 4-12-2013. However, in the paper publication that has been issued on 30-12-2013 Annexure C in the 22 auction proposed to be held on 31-1-2014 at 3.30 p.m. (e-auction), reserve price has been fixed at Rs 110 lakhs. The grievance of the petitioner is that value of the property is more than Rs 405.21 lakhs and as such, property in question cannot be sold for a pittance. If value of the property as contended by the petitioner is Rs 405.21 lakhs, nothing prevents the petitioner from getting a purchaser or a bidder to purchase the property for the said value and clear off the debts due by it to the respondent which even according to the petitioner is around Rs 285.71 lakhs as on 31-1-2014 (which was Rs 261 lakhs as on 11-10-2013). However, without taking said recourse, the petitioner is attempting to stall the auction proceedings which is not permissible inasmuch as the respondent Bank being a nationalised Bank which is the custodian of public money is taking steps to recover its dues by auctioning the property through e- auction and the action of the respondent Bank cannot be flawed. The respondent Bank has adopted one of the courses suggested by the Hon'ble Supreme Court in Kerala Financial Corpn. case [Kerala Financial Corpn. v. Vincent Paul, (2011) 4 SCC 171 : (2011) 2 SCC (Civ) 181] referred to supra, namely, "Public Auction" by which process there would be larger participation. If at all the auction is to be set aside for any reason whatsoever, the petitioner can take recourse to the remedy available under the SARFAESI Act and get the sale set aside. However, the petitioner cannot be permitted to stall the auction itself under extraordinary jurisdiction of this Court."
(emphasis supplied)
11. While arriving at such conclusion, the learned Single Judge [S.B. Valves (India) (P) Ltd. v. Canara Bank, 2014 SCC OnLine Kar 2183] had kept in view the provisions as contained in the SARFAESI Act, as also the decisions of this Court, more particularly in United Bank of India v. Satyawati Tondon [United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110: (2010) 3 SCC (Civ) 260]. In that view, though the learned Single Judge did not accept the contentions as put forth had also indicated that if at all the auction is to be set aside for any reason whatsoever, the complainant who was the petitioner therein can take recourse to the remedy under 23 the SARFAESI Act and get the sale set aside. In that view, the learned Single Judge [S.B. Valves (India) (P) Ltd. v. Canara Bank, 2014 SCC OnLine Kar 2183] was of the opinion that the complainant cannot be permitted to stall the auction itself through the prayer made in the writ petition. The complainant had assailed the said order in an intra-court appeal bearing WA No. 100349 of 2014. The Division Bench by its order dated 19-8-2014 [S.B. Valves (India) (P) Ltd. v. Canara Bank, 2014 SCC OnLine Kar 12883] had taken note of the consideration made by the learned Single Judge with reference to SatyawatiTondon [United Bank of India v. SatyawatiTondon, (2010) 8 SCC 110: (2010) 3 SCC (Civ) 260] and had accordingly dismissed the writ appeal.
12. Having taken note of the nature of consideration made by the High Court in the said writ proceedings and keeping in view the proceedings on hand, in order to come to a conclusion as to whether in a matter of the present nature the appellants should be exposed to the ignominy of going through the process of criminal proceedings, it is also appropriate to take note of the provisions as contained in the SARFAESI Act. The fact that the issue relates to the exercise of remedy relating to a secured asset as defined under the Act cannot be in dispute. The fact that the account of the complainant was classified as NPA is also the admitted position. In that regard when a right accrues to the secured creditor to enforce the security interest, the procedure as contemplated under Sections 13 and 14 of the SARFAESI Act is to be resorted to. Further the Security Interest (Enforcement) Rules, 2002 provides the procedure to be adopted with regard to the valuation and sale of the secured asset. If the complainant, as a borrower had any grievance with regard to any of the measures taken by the secured creditor invoking the provisions of Section 13 of the SARFAESI Act, the remedy as provided under Section 17 of the SARFAESI Act was to be availed. It is in that light the High Court in the writ proceedings had arrived at such conclusion. At that point in time, the complainant availed the remedy under the Act by filing the application under Section 17 in IR No. 3044 of 2014. Since there was delay in filing, an application in IA No. 4482 of 2015 was filed under Section 5 of the Limitation Act seeking condonation of delay. The same was rejected on the ground of 24 delay against which an appeal is said to have been filed before DRAT and it was pending though it is now stated to be dismissed. It is at that stage when it was still pending the impugned complaint in PC No. 389 of 2016 was filed, wherein through the order dated 20-5-2016 it had been referred to an investigation under Section 156(3) CrPC.
13. The learned Senior Counsel for the complainant no doubt referred to Criminal Petition No. 101162 of 2016 and Criminal Petition No. 101258 of 2016 filed by Accused 1 and 12 being dismissed [M. Premkumar v. State of Karnataka, 2016 SCC OnLine Kar 8781] , [Canara Bank v. State of Karnataka, 2016 SCC OnLine Kar 8780] by the High Court and the same not being carried further and attaining finality. Though that be the position, in the instant case, the appellants are before this Court to exercise the remedy available and as such the dismissal of the said petitions cannot prejudice their case when this Court is required to take a view on the matter though it has not been availed in the earlier cases. Further, the learned Senior Counsel has also referred to the statements of two former officers of Canara Bank, namely, Gurupadayya and Bapu which was recorded during the course of the investigation and a reference was made by the learned Senior Counsel to the detailed report regarding investigation wherein the investigating officer, namely, the Assistant Police Sub- Inspector, Sub-Urban Police Station, Hubballi had concluded that as per the investigation it is found that all the accused persons with conspiracy and in collusion with each other have cheated the complainant by releasing only Rs 90 lakhs out of the sanctioned amount of Rs 2.68 crores and by later not releasing the remaining amount had caused economic stumbling block and sold the property mortgaged to one of the accused.
14. The issue, however is, as to whether such proceedings by the police in the present facts and circumstances could be permitted. At the outset, the sanction of loan, creation of mortgage and the manner in which the sanctioned loan was to be released are all contractual matters between the parties. The complainant is an industrialist who had obtained the loan in the name of his company and the loan account 25 was maintained by Canara Bank in that regard. The loan admittedly was sanctioned on 16-3-2009. When at that stage the amount was released and if any amount was withheld, the complainant was required to take appropriate action at that point in time and avail his remedy. On the other hand, the complainant had proceeded with the transaction, maintained the loan account until the account was classified as NPA on 15-1- 2013. Initially, the issue raised was only with regard to the undervaluation of the property when it was brought to sale. On that aspect, as taken note, the writ proceedings were filed and the learned Single Judge having examined, though did not find merit had reserved liberty to raise it before DRT, which option is also availed. It is only, thereafter, the impugned complaint was filed on 20-5-2016.
15. The SARFAESI Act is a complete code in itself which provides the procedure to be followed by the secured creditor and also the remedy to the aggrieved parties including the borrower. In such circumstance, as already taken note of by the High Court in writ proceedings, if there is any discrepancy in the manner of classifying the account of the appellants as NPA or in the manner in which the property was valued or was auctioned, DRT is vested with the power to set aside such auction at the stage after the secured creditor invokes the power under Section 13 of the SARFAESI Act. This view is fortified by the decision of this Court in Indian Overseas Bank v. Ashok Saw Mill [Indian Overseas Bank v. Ashok Saw Mill, (2009) 8 SCC 366 :
(2009) 3 SCC (Civ) 403] wherein it is held as hereunder : (SCC pp. 375-76, paras 34-37) "34. The provisions of Section 13 enable the secured creditors, such as banks and financial institutions, not only to take possession of the secured assets of the borrower, but also to take over the management of the business of the borrower, including the right to transfer by way of lease, assignment or sale for realising secured assets, subject to the conditions 26 indicated in the two provisos to clause (b) of sub-section (4) of Section 13.
35. In order to prevent misuse of such wide powers and to prevent prejudice being caused to a borrower on account of an error on the part of the banks or financial institutions, certain checks and balances have been introduced in Section 17 which allow any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor, to make an application to the DRT having jurisdiction in the matter within 45 days from the date of such measures having taken for the reliefs indicated in sub-section (3) thereof.
36. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.
37. The consequences of the authority vested in the DRT under sub-section (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The legislature by including sub-section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases.
Resultantly, the submissions advanced by Mr Gopalan and Mr Altaf Ahmed that the DRT has no jurisdiction to deal with a post-Section 13(4) situation, cannot be accepted."
(emphasis supplied) 27
16. We reiterate, the action taken by the Banks under the SARFAESI Act is neither unquestionable nor treated as sacrosanct under all circumstances but if there is discrepancy in the manner the Bank has proceeded it will always be open to assail it in the forum provided. Though in the instant case, the application filed by the complainant before DRT has been dismissed and Appeal No. 523 of 2015 filed before DRAT is also stated to be dismissed the appellants ought to have availed the remedy diligently. In that direction, the further remedy by approaching the High Court to assail the order of DRT and DRAT is also available in appropriate cases. Instead the petitioner after dismissal of the application before the DRT filed the impugned complaint which appears to be an intimidatory tactic and an afterthought which is an abuse of the process of law. In the matter of present nature, if the grievance as put forth is taken note of and if the same is allowed to be agitated through a complaint filed at this point in time and if the investigation is allowed to continue it would amount to permitting the jurisdictional police to redo the process which would be in the nature of reviewing the order passed by the learned Single Judge and the Division Bench in the writ proceedings by the High Court and the orders passed by the competent court under the SARFAESI Act which is neither desirable nor permissible and the banking system cannot be allowed to be held to ransom by such intimidation. Therefore, the present case is a fit case wherein the extraordinary power is necessary to be invoked and exercised.
17. The appellants herein had also referred to the provision as contained in Section 32 of the SARFAESI Act which provides for the immunity from prosecution since protection is provided thereunder for the action taken in good faith. The learned Senior Counsel for the complainant has in that regard referred to the decision of this Court in Army Headquarters v. CBI [Army Headquarters v. CBI, (2012) 6 SCC 228 : (2012) 3 SCC (Cri) 88] to contend that the defence relating to good faith and public good are questions of fact and they are required to be proved by adducing evidence. Though 28 on the proposition of law as enunciated therein there could be no cavil, that aspect of the matter is also an aspect which can be examined in the proceedings provided under the SARFAESI Act. In a circumstance, where we have already indicated that a criminal proceeding would not be sustainable in a matter of the present nature, exposing the appellants even on that count to the proceedings before the investigating officer or the criminal court would not be justified."
(Emphasis supplied) The Apex Court in the case of K.VIRUPAKSHA was considering an identical issue where the Canara Bank had granted loan to a borrower against a property that was mortgaged as security for the loan. Loan was not repaid and the Bank took action under the SARFAESI Act and a complaint also was filed under Section 200 of the Cr.P.C. alleging that officers of the Bank had connived with the auction purchaser and had caused wrongful loss to the complainant-Canara Bank. The Apex Court declined to accept the plea of the Bank and held that the Bank having invoked the SARFAESI Act and proceedings having been taken under the SARFAESI Act to their logical end, it would not be open for criminal proceedings also to be initiated or continued on the very same subject matter. Therefore, the Apex Court clearly holds that it 29 being a breach of contract, cannot become the meat of a criminal trial.
11. The allegation against the petitioners in the case at hand is the one punishable under Section 420 being the primary allegation and Sections 114, 406, 409, 417 of the IPC added to it.
Section 406 has its ingredients in Section 405 of the IPC . Section 405 of the IPC reads as follows:
"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 be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully 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 30 to the employee for credit to the Employees' State 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."
Section 405 of the IPC mandates that there must be an entrustment of property and that property should be misappropriated with dishonest intention by the accused without the knowledge of the victim. The case at hand revolves around grant of loan between the Bank and the borrower and, therefore, there can be no entrustment of property that has been misutilised as loans had been granted on it being returned on equal monthly installments, to which interest is also charged by the Bank. These acts are all products of contract between the borrower and the Bank. Therefore, it is not a plain entrustment of property that the Bank can claim that to be criminal breach of trust.
12. The other provision is Section 420 of the IPC. Section 420 of the IPC has its ingredients in Section 415 of the IPC. Section 415 mandates that there should be inducement by the accused on the 31 victim to part with any property. Here again, there are loan agreements between the Bank and the borrowers and if agreements are in terms of a contract between the Bank and the borrowers there can be no question of inducement for grant of loan, as it is the policy of the Bank to grant loans to the borrowers. If the statement of the learned counsel for the Bank is accepted, every borrower who defaults would become liable for criminal action under Section 420 of the IPC on the ground that the borrower has induced the Bank to lend money. This can hardly be a circumstance that can be acceptable for permitting further proceedings to continue against the petitioners, particularly in the teeth of the fact that the Bank has already invoked its right under the SARFAESI Act and have approached the Tribunal and the Tribunal is completely seized of the matter.
13. The prayer that was sought by the 2nd respondent/Bank for sale of properties is also granted. The properties are put to auction by the Bank. The contention of the learned counsel appearing for the Bank is that the Bank is not getting any buyer to buy properties. This cannot be a circumstance for permitting 32 criminal trial to continue against the petitioners, that too for the offences so alleged.
14. The other offences alleged are Sections 409 and 417 of the IPC. Those two provisions also would get subsumed in the reasons rendered for not accepting the allegation under Section 420 of the IPC. Therefore, none of the grounds that the 2nd respondent/Bank seek to urge before this Court would merit acceptance.
15. Insofar as the judgment relied on by the learned counsel appearing for the 2nd respondent/Bank in the case of CENTRUM FINANCIAL SERVICES LIMITED (supra) is concerned, that was a case where the Apex Court was considering cancellation of bail.
While doing so, the bail that was granted to those accused therein was cancelled on the ground that they had indulged in such acts which would become a crime and they had misused the liberty that had been granted. Therefore, the said judgment would not become applicable to the facts of the case at hand. In the case of RAJ KUMAR GUPTA (supra), rendered by the High Court of Jammu and 33 Kashmir, the finding was that there was fraudulent inducement and willful misrepresentation by the Directors of one M/s Jhelum Industries pursuant to which revocation of bank guarantee of Rs.6.29 crores had happened. Even this judgment though has only a persuasive value, is distinguishable on the facts obtaining in the case at hand without much ado.
16. Reference being made by the learned counsel for the 2nd respondent/Bank to a Master Circular of the Reserve Bank of India to contend that criminal case will have to be registered where there is willful default on the part of the borrower and, therefore, criminal proceedings are initiated and the Bank should be permitted to continue with the proceedings is also unacceptable, as accounts of the petitioners were declared to be NPAs' and have approached the Tribunal invoking the SARFAESI Act. If the accounts of the petitioners had been declared to be a fraud in terms of the Circular, it would have been altogether different circumstance. Therefore, the consideration of contents of the Master Circular issued by the Reserve Bank of India upon which the learned counsel for the 2nd respondent seeks to place reliance is unnecessary.
3417. In the light of undisputed facts as quoted hereinabove, the judgments of the Apex Court and the 2nd respondent-Bank having mortgaged properties in their possession even as on date and the proceedings in four cases are still at large before the Tribunal under the SARFAESI Act, the criminal proceedings initiated by the Bank cannot be permitted to continue, as it would become an abuse of the process of law and result in miscarriage of justice.
18. For the aforesaid reasons, I pass the following:
ORDER
(i) The Criminal Petitions are allowed.
(ii) Impugned proceedings in C.C.Nos.688/2019, 746/2019, 770/2019, 765/2019, 764/2019 and 691/2019 pending on the file of Principal Civil Judge (Jr.Dn.) & JMFC., H.D.Kote, Mysuru shall stand quashed.
(iii) It is made clear that observations made in the course of this order are only for the purpose of considering the cases of the petitioners under Section 482 of the Cr.P.C.35
This would not bind or influence further proceedings in any other case concerning the petitioners.
Sd/-
JUDGE bkp CT:MJ