Madras High Court
R.Chellamuthu vs The Inspector Of Police on 15 November, 2019
Author: N.Anand Venkatesh
Bench: N.Anand Venkatesh
Crl.O.P.(MD)No.420 of 2022
BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT
Reserved on 09.12.2024
Delivered on 12.12.2024
CORAM
THE HON'BLE MR.JUSTICE N.ANAND VENKATESH
Crl.O.P.(MD) No.420 of 2022
and
Crl.M.P. (MD) Nos.321 and 322 of 2022
1. R.Chellamuthu
2. Palanivel
3. Gunasekaran
4. Sumathi ... Petitioners/
Accused Nos.1,2,3 & 5
Vs.
1.The Inspector of Police,
District Crime Branch, Dindigul.
Cr.No. 9 of 2020.
2. Kalimuthu ... Respondents
PRAYER : Criminal Original Petition filed under Section 482 of
Criminal Procedure Code, to call for the records pertaining to the
Impugned charge sheet in C.C.No. 540 of 2021 pending on the file of the
Learned Judicial magistrate No.II, Dindigul West and quash the same as
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illegal as against the petitioners are concerned.
For Petitioners : Mr.R.Shunmuga Sundaram
Senior Counsel
for M/s.P.Krishnasamy
For Respondents : Mr.B.Thanga Aravindh
Government Advocate (Crl. Side)
for R1
Mr.K.P.S.Palanivel Rajan
Senior Counsel
for M/s.S.C.Herold Singh for R2
ORDER
This quash petition has been filed by A1, A2, A3 and A5 against the proceedings pending in C.C.No.540 of 2021 on the file of the learned Judicial Magistrate No.II, Dindigul.
2.The second respondent gave a complaint to the first respondent police stating that the accused persons are the partners of two firms with the name and style of “Amman Finance” and “Amman Arul Finance”. The second respondent was the managing partner in both Amman Finance and Amman Arul Finance. Insofar as Amman Finance is concerned, the second respondent along with 19 sharers have contributed 2/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 a total sum of Rs.5 crores and they are doing the finance business. Insofar as the Amman Arul Finance is concerned, the second respondent along with 16 others, which also includes five partners of Amman Finance, have contributed a total sum of Rs.1,60,00,000/-. This firm was also doing finance business. The partners belonging to the two firms also were in the practice of borrowing money without furnishing any securities or documents. A1 to A5 wanted to take advantage of the situation and wanted to develop their business which was run in the name and style of “Sri Saravana Sawmill”. Accordingly, they received a sum of Rs.75,50,000/- from Amman Finance and Rs.17,95,000/- from Amman Arul Finance during the period from 12.12.2014 to 15.11.2019. That apart, the second respondent also enabled the accused persons to receive a further sum of Rs.1,51,35,000/- by borrowing the same from outsiders. Thus, total sum of Rs.2,44,80,000/- was received by the accused persons and the same was not repaid back. When the first petitioner was questioned regarding the same, he acknowledged the fact that a sum of Rs.2,44,80,000/- was taken as loan and the same will be repaid back within a period of three months. However, he went back on his promise and when the same was questioned, A1 to A5 abused the 3/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 defacto complainant in filthy language and also threatened him with dire consequences. Based on this complaint, FIR came to be registered in Crime No.9 of 2020 by the first respondent.
3.The first respondent completed the investigation and filed the police report before the learned Judicial Magistrate No.II, Dindigul against 5 accused persons for offences under Sections 294(b), 506(i), 406 and 420 of IPC. The same has been put to challenge by A1, A2, A3 and A5. A4 died and therefore the charge has been abated.
4.Heard the learned Senior Counsel appearing on behalf of the petitioners, the Government Advocate appearing on behalf of the first respondent and the learned Senior Counsel appearing on behalf of the second respondent.
5.The sum and substance of the allegation against the accused persons is that the partners in the two firms namely Amman Finance and Amman Arul Finance used to take loans without any documentation. The accused persons are said to have taken loan in their 4/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 capacity as the partners and the same was not repaid back. Even though A1 acknowledged the fact that the loan was taken and the same will be repaid back within three months, this promise was not honoured. The short issue that arises for consideration is as to whether on the materials available before the Court, any offence has been made out against the accused persons.
6.It is significant to note that the so called loan that was taken by the partners has only been spoken to by the other partners including the defacto complainant and no documents have been filed to substantiate the same. In other words, the receipt of loan by the partners is sought to be substantiated with the ipse dixit of the defacto complainant and the other partners. The accounts maintained by the partnership firm does not form part of the police report. The only document that is strongly relied upon by the prosecution is the acknowledgment that is said to have been given by A1 for receipt of a total sum of Rs.2,44,80,000/- and which was promised to be repaid back within three months.
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7.While dealing with the quash petition, this Court has to only look at the materials available and decide on the issue. Therefore, this Court will proceed further to decide the issue based on the acknowledgment of the loan by A1 through communication dated 15.11.2019.
8.The alleged offence in the present case is under Sections 406 and 420 of IPC. In order to constitute an offence of criminal breach of trust, it must be seen as to whether the property utilized by the partners of the firm will fulfill the definition under Section 403 of IPC. Useful reference can be made to the judgment of the Apex Court in Velji Raghavji Patel v. State of Maharashtra, reported in AIR 1965 SC 1433. The relevant portions are extracted hereunder:
'''5. On behalf of the appellant it is contended that even if the prosecution had succeeded in showing that the four items referred to above were realised by the appellant and that he has not accounted for them properly he will not be liable for criminal breach of trust under section 409, I.P.C. but that this liability would be only of a civil nature. In support of this contention reliance is placed upon Bhuban Mohan Rana v. 6/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 Surendra Mohan Das I.L.R. (1952) II Cal. 23. There the following question was referred for decision by the Full Bench :
"Can a charge under section 406 of the Indian Penal Code be framed against a person, who, according to the complainant, is a partner with him and is accused of the offence in respect of property belonging to both of them as partners ?". All the five Judges constituting the Full Bench answered the question in the negative. In the leading judgment which was delivered by Harris C.J., he pointed out that before criminal breach of trust is established it must be shown that the person charged has been entrusted with property or with dominion over property and that a partner does not, in the ordinary course, hold property in a fiduciary capacity. The learned Chief Justice further pointed out that there is really no distinct or defined share of a partner in any item belonging to the partnership. Upon the dissolution of the partnership and after an account is taken it may turn out that a partner who retains an asset is entitled to the whole of the asset and may be, much more. He 7/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 referred to the English view that a partner does not hold money belonging to the partnership in a fiduciary capacity and said that this view appeared to him to be correct. Referring to the decision in The Queen v. Okhoy Coomar Shaw 13 Bengal LR 307. in which a Full Bench had held that a partner who dishonestly misappropriates or converts to his own use any of the partnership property with which he is entrusted or over which he has dominion, is guilty of an offence under section 405, I.P.C., Harris C.J. observed : "The Full Bench never seems to have considered that there is really no partner's share in the property until an account (sic) and it may well bee that a partner, who retains an asset, is entitled not only to his share according to the partnership agreement in that asset, but, on taking an account, it may be found that he is entitled to the whole of the asset and considerably more. In such a case, how can it be said that he has been guilty of a breach of trust and has acted dishonestly towards his co-partners, if an accounts would show that he was entitled to everything which he had retained ?"
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6. He has referred to a number of decisions of the Indian High Courts in some of which the view taken in Okoy Coomar Shaw's case (13 Bengal Law Reports 307.) was followed. One of those cases was Jagannath Raghunathdas v. Emperor MANU/MH/0108/1931 : A.I.R. 1932 Bom. 47. where it was held that a partner may be prosecuted under section 406, I.P.C. for failure to account for partnership monies and assets. In that case the partner who was the accused was given authority by the other partners to collect monies or property and according to the Bombay High Court in these circumstances he was "entrusted" with dominion over collections made by him. The learned Judges who decided that case had, however, pointed out that the court should approach cases of this kind very carefully because it was impossible to say in many cases what the share of the accused might be, whether the accused was indebted to the firm or whether the firm was indebted to him. The High Court also pointed out that if the firm was indebted to him there might be no dishonest intention in his dealing with the partnership property. In the arguments before us, apart from these three decisions, our attention was called to a few more decisions of the High 9/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 Courts in India. But whether they take one view or the other they do not seek to add to what has been said in these three decisions. We, therefore, do not feel called upon to make any reference to these decisions.
7. It seems to us that the view taken in Bhuban Mohan Rana's case I.L.R.1962 11 Cal. 23. by the later Full Bench of the Calcutta High Court is the right one. Upon the plain reading of section 405, I.P.C. it is obvious that before a person can be said to have committed criminal breach of trust it must be established that he was either entrusted with or entrusted with dominion over property which he is said to have converted to his own use or disposed of in violation of any direction of law etc. Every partner has dominion over property by reason of the fact that he is a partner. This is a kind of dominion which every owner of property has over his property. But it is not dominion of this kind which satisfies the requirements of section 405. In order to establish "entrustment of dominion" over property to an accused person the mere existence of that person's dominion over property is not enough. It must be further shown that his dominion was the result of entrustment. Therefore, as rightly pointed out by 10/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 Harris C.J., the prosecution must establish that dominion over the assets or a particular asset of the partnership was, by a special agreement between the parties, entrusted to the accused person. If in the absence of such a special agreement a partner received money belonging to the partnership he cannot be said to have received it in a fiduciary capacity or in other words cannot be held to have been "entrusted" with dominion over partnership properties.”
9.The above Apex Court judgment was relied upon by me in the case in V.Srinivasan and another v. State Rep. by the Inspector fo Police and another, reported in (2019) 1 LW (Crl.) 934. While dealing with this issue, it was held that a partner has an undivided ownership along with all the other partners over all the assets of the partnership firm. Hence, if a partner chooses to use any of the asset for his own purposes, he may be accountable civilly to the other partners and the same will not amount to misappropriation. If there is no misappropriation, the offence under Section 406 of IPC is not made out. 11/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022
10.In the instant case, the accused persons are said to have received loan for the period from 12.12.2014 to 15.11.2019. This loan amount was not repaid back. The mere non-repayment of a loan will not constitute an offence of cheating. That apart, the offence under Section 406 and 420 of IPC cannot coexist. Useful reference can be made to the judgment of the Apex Court in Delhi Race Club (1940) Ltd and others v. State of Uttar Pradesh and another, reported in 2024 SCC Online SC 2248 and the relevant portions are extracted hereunder:
“26. Further, in both the aforesaid sections, mens rea i.e. intention to defraud or the dishonest intention must be present, and in the case of cheating it must be there from the very beginning or inception.
27. In our view, the plain reading of the complaint fails to spell out any of the aforesaid ingredients noted above. We may only say, with a view to clear a serious misconception of law in the mind of the police as well as the courts below, that if it is a case of the complainant that offence of criminal breach of trust as defined under Section 405 of IPC, punishable under Section 406 of IPC, is committed by the accused, then in the same breath it cannot be said that the accused has also 12/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 committed the offence of cheating as defined and explained in Section 415 of the IPC, punishable under Section 420 of the IPC.
28. Every act of breach of trust may not result in a penal offence of criminal breach of trust unless there is evidence of manipulating act of fraudulent misappropriation.
An act of breach of trust involves a civil wrong in respect of which the person may seek his remedy for damages in civil courts but, any breach of trust with a mens rea, gives rise to a criminal prosecution as well. It has been held in Hari Prasad Chamaria v. Bishun Kumar Surekha, reported in (1973) 2 SCC 823 as under:
“4. We have heard Mr. Maheshwari on behalf of the appellant and are of the opinion that no case has been made out against the respondents under Section 420 Penal Code, 1860. For the purpose of the present appeal, we would assume that the various allegations of fact which have been made in the complaint by the appellant are correct. Even after making that allowance, we find that the complaint does not disclose the commission of any offence on the part of the respondents under Section 420 Penal Code, 1860. There is nothing in the 13/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 complaint to show that the respondents had dishonest or fraudulent intention at the time the appellant parted with Rs. 35.000/- There is also nothing to indicate that the respondents induced the appellant to pay them Rs. 35,000/- by deceiving him. It is further not the case of the appellant that a representation was made, the respondents knew the same to be false. The fact that the respondents subsequently did not abide by their commitment that they would show the appellant to be the proprietor of Drang Transport Corporation and would also render accounts to him in the month of December might create civil liability on the respondents for the offence of cheating.”
29. To put it in other words, the case of cheating and dishonest intention starts with the very inception of the transaction. But in the case of criminal breach of trust, a person who comes into possession of the movable property and receives it legally, but illegally retains it or converts it to his own use against the terms of the contract, then the question is, in a case like this, whether the retention is with dishonest intention or not, whether the retention involves criminal breach of trust or only a civil liability would depend upon the 14/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 facts of each case.
30. The distinction between mere breach of contract and the offence of criminal breach of trust and cheating is a fine one. In case of cheating, the intention of the accused at the time of inducement should be looked into which may be judged by a subsequent conduct, but for this, the subsequent conduct is not the sole test. Mere breach of contract cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the transaction i.e. the time when the offence is said to have been committed. Therefore, it is this intention, which is the gist of the offence. Whereas, for the criminal breach of trust, the property must have been entrusted to the accused or he must have dominion over it. The property in respect of which the offence of breach of trust has been committed must be either the property of some person other than the accused or the beneficial interest in or ownership’ of it must be of some other person. The accused must hold that property on trust of such other person. Although the offence, i.e. the offence of breach of trust and cheating involve dishonest intention, yet they are mutually exclusive and different in basic concept. There is a 15/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 distinction between criminal breach of trust and cheating. For cheating, criminal intention is necessary at the time of making a false or misleading representation i.e., since inception. In criminal breach of trust, mere proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriated the same. Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver any property. In such a situation, both the offences cannot co-exist simultaneously.”
11.In the considered view of this Court, the other offences under Section 294(b) and 506(i) of IPC are also not made out since vague and general allegations have been made.
12.In fine, this Court holds that an issue which is purely civil in nature has been given a criminal colour and hence, the same requires the interference of this Court. This is apart from the fact that no offence has been made out against the petitioners. In the result, the proceedings in C.C.No. 540 of 2021 on the file of the learned Judicial 16/18 https://www.mhc.tn.gov.in/judis Crl.O.P.(MD)No.420 of 2022 Magistrate No.II, Dindigul, is hereby quashed and this Criminal Original Petition stands allowed. Consequently, connected miscellaneous petitions are closed.
12.12.2024
NCC : Yes
Index : Yes
Internet : Yes
PKN
To
1.The Inspector of Police,
District Crime Branch, Dindigul.
2.The Additional Public Prosecutor,
Madurai Bench of Madras High Court,
Madurai.
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Crl.O.P.(MD)No.420 of 2022
N.ANAND VENKATESH,J.
PKN
Crl.O.P.(MD)No.420 of 2022
Dated: 12.12.2024
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