Sunday 13 January 2013

For proceedings under Section 156(3) of the Code, the complaint must disclose relevant material ingredients of Sections 405, 406, 420 read with Section 34 IPC.


 The  principles  enunciated  from  the  above-quoted
decisions  clearly  show  that  for  proceedings  under  Section
156(3)  of  the  Code,  the  complaint  must  disclose  relevant
material  ingredients  of  Sections  405,  406,  420  read  with
Section 34 IPC.  If there is a flavour of civil nature, the same
cannot be agitated in the form of criminal proceeding.  If there
is huge delay and in order to avoid the period of limitation, it
cannot be resorted to a criminal proceeding.

It  is  settled  law  that  the  essential  ingredients  for  an
offence under Section 420, which we have already extracted, is
that there has to be dishonest intention to deceive another
person.  We have already quoted the relevant allegations in the
complaint and perusal of the same clearly shows that no such
dishonest intention can be seen or even inferred inasmuch as
the entire dispute pertains to contractual obligations between
the parties.  Since the very ingredients of Section 420 are not
attracted, the prosecution initiated is wholly untenable.  Even
if we admit that allegations in the complaint do make out a
dispute, still it ought to be considered that the same is merely
a breach of contract and the same cannot give rise to criminal
prosecution  for  cheating  unless  fraudulent  or  dishonest
intention is shown right from the beginning of the transaction.

REPORTABLE
     
IN THE SUPREME COURT OF INDIA
 CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.  1868   OF 2011
(Arising out of SLP (Crl.) No. 590 of 2008
M/s Thermax Ltd. & Ors.    .... Appellant(s)
Versus
K.M. Johny & Ors.                 .... Respondent(s)
J U D G M E N T
P. Sathasivam, J.

1)   Leave granted.
2) This appeal is directed against the final judgment and
order  dated  11.01.2008  passed  by  the  High  Court  of
Judicature at Bombay in Criminal Writ Petition No. 1622 of
2007 wherein the Division Bench of the High Court dismissed
the  writ  petition  filed  by  the  appellants  herein  as
misconceived.
13) Brief Facts:
(a) M/s Thermax Ltd.–the appellant-Company, is a Public
Limited Company having its registered office at Chinchwad,
Pune and is engaged in the field of energy and environment
management.   Mr.  K.M.  Johny-the  original  complainant,
Respondent  No.  1  herein,  is  the  proprietor  of  M/s  Rini
Engineers and M/s Sherly Engineers, which are small-scale
industries undertaking fabrication job work for the appellant
Company for the past several years.
(b) On  26.05.1995,  the  appellant-Company  placed  three
Purchase Orders on Respondent No.1 being Order No. 260062
for designing and manufacturing two numbers of stationary
L.P.G. Storage Tanks and  Order Nos. 260063 and 260064
were for the supply of consumables and other accessories to
the  said Tanks.   On 01.06.1995,  M/s Unique  Engineering
Services, the Consultants of the appellant Company addressed
a letter specifying that they had assessed the companies of the
Respondent No. 1 and in their opinion even though they have
not made any static bullets and have made quite a few mobile
2L.P.G. Tanks, however, they were capable of manufacturing
the same, but needed design help.
(c) On  20.06.1995,  Respondent  No.  1  informed  the
appellant-Company  their  inability  to  procure  the  material
(steel) and requested to supply the same and to deduct the
material  cost  from  the  final  bill.   On  04.08.1995,  the
Respondent No. 1 was provided with the necessary steel of the
technical specification.  On 06.08.1995, an Engineer of the
appellant-Company visited the company of the Respondent No.
1 and submitted a report stating that Respondent No. 1 had
carried out certain work using the material purchased from
the appellant-Company.  It was also pointed out in the report
that  Respondent  No.  1  agreed  that  they  would  send  the
material to M/s Bureau Veritas for checking.  The report also
stated that Respondent No. 1 had not ordered for consumables
and no rectification and drawings had been carried out.
(d) By letter dated 10.08.1995, the Consultants informed the
appellant-Company that there was no progress in the work
status  for  the  last  45  days  and  it  was  observed  that
Respondent  No.  1  was  not  interested  in  executing  the
3assignment.    In pursuance of the same, a meeting was held
between  the  officials  of  both  the  Companies  and  the
Respondent No. 1 agreed to complete the job by all means by
22.09.1995.  Since Respondent No. 1 failed to carry out the
work as per the Schedule, the appellant-Company, vide letter
dated 13.09.1995 cancelled the order placed and it was made
effective from 26.05.1995 i.e., from the date when the order
was placed.
(e) On 06.05.2000, Respondent No. 1 filed a complaint with
the Crime Branch, Pune alleging that they had carried out
several fabrication job works for the appellant-Company and
huge amount  of Rs. 91,95,054/- was outstanding  till date
despite several requests.  In the said complaint, it was further
alleged  that  the  appellant-Company  also  placed  Purchase
Order being No. 240307 dated 22.03.1993 for Rs. 8,00,000/-
for fabrication and erection of Tower Support Structural etc.,
for the Mehasana District Taluka Sanstha (Gujarat) Project
and also represented that they will hire the machinery of the
Respondent No. 1 for the said job at the rate of Rs. 2,400/- per
day and believing the same the Respondent No. 1 allegedly
4purchased  brand  new  machinery  worth  Rs.  5,80,000/-
specially for the said project and dispatched the same to the
Mehasana  site.  Respondent  No. 1 completed the  said job
according to schedule and to the satisfaction of the appellantCompany and also carried out additional work at the site as
per their request.  It was alleged that balance outstanding for
the said work of Rs.2,47,570/- was still receivable from the
appellant-Company.  An amount of Rs.58,32,000/- towards
hiring charges for the machinery is yet to  be paid by the
appellant-Company.  Therefore, a total sum of Rs.68,79,750/-
became due from the appellant-Company to respondent No.1
and the same was not paid till date.  Since the Crime Branch
did not take any cognizance, the said complaint was filed in
the Court of Judicial Magistrate, First Class, Pimpri being RCC
No. 12 of 2002 and by order dated 30.05.2002, the Judicial
Magistrate issued a direction under Section 156(3) of the Code
of Criminal Procedure, 1973 (in short ‘the Code’) and referred
the same to Crime Branch, Pune, Respondent No. 2 herein, for
investigation.   Pursuant  to  the  same,  Respondent  No.  2
5registered an offence being C.R. No. 91/2002 and initiated
proceedings thereunder against the appellant-Company.
(f) Aggrieved by the said order, the appellant-Company filed
two separate Criminal Writ Petitions being Nos. 209 and 443
of  2003  before  the  Bombay  High  Court  for  quashing  and
setting  aside  the  order  dated  30.05.2002  passed  by  the
Judicial Magistrate, First Class, Pimpri.   Vide order dated
10.06.2003,  the  High  Court  set  aside  the  order  dated
30.05.2002  and  remitted  the  matter  back  to  the  Judicial
Magistrate for reconsideration  of the entire prayer and to
decide the case afresh, after giving adequate opportunity of
hearing to both the sides.  Pursuant to the same, the appellant
Company preferred an  application  dated  16.07.2003 under
Section 91 of the Code before the Judicial Magistrate praying
that  the  Assistant  Commissioner  of  Police,  Crime  Branch,
Pune  City  be  directed  to  produce  all  the  records  and
proceedings of the complaint dated 06.05.2000.  After hearing
the  respective  parties,  the  Judicial  Magistrate,  vide  order
dated 11.08.2003 rejected the said application.
6(g) Aggrieved by the same, the appellant-Company preferred
Criminal Application No. 3666 of 2003 before the High Court.
The High Court, vide order dated 18.10.2006, issued rule and
interim  relief  by  directing  the  Assistant  Commissioner  of
Police, Crime Branch-II, Pune city to produce the documents
within six weeks in the Court of Judicial Magistrate, Pimpri.
Pursuant to the said direction, Shri S.B Oahal, Inspector of
Police, submitted a reply dated 12.03.2007 stating that the
records and proceedings in respect of Crime Register No. 11 of
2000 were destroyed.    Pursuant to the same, the Judicial
Magistrate, vide order dated 20.08.2007, called for a report
under Section 156(3) of the Code from the Respondent No. 2.  
(h) Being  aggrieved,  the  appellant-Company  preferred
Criminal Writ Petition being No. 1622 of 2007 before the High
Court.   The  High  Court,  vide  order  dated  11.01.2008,
dismissed the writ petition as misconceived on the ground that
the Magistrate has adhered to the directions and has given
reasons for coming to his conclusion.  Aggrieved by the said
decision,  the  appellant-Company  has  preferred  this  appeal
before this Court by way of special leave petition.
74) Heard  Dr.  A.M.  Singhvi  and  Mr.  C.S.  Vaidyanathan,
learned senior  counsel for  the  appellant-Company and Mr.
K.T.S. Tulsi, learned senior counsel for the respondent No.1.
Contentions:
5) Dr.  A.M.  Singhvi,  learned  senior  counsel  for  the
appellant/accused,  after  taking  us  through  all  the  earlier
complaints  including  the  last  complaint  and  earlier  orders
closing those complaints, the order of the Judicial Magistrate,
First Class, Pimpri dated 20.08.2007 in Criminal Case No. 12
of 2002 and  the  impugned order of the  High  Court  dated
11.01.2008, at the outset, submitted that the courts below
ought  to  have  considered  that  the  dispute  arose  out  of  a
contract and a constituted remedy is only before a civil court.
He further contended that similar claim on earlier occasions
were  indeed investigated  and  finally  categorized  as  civil  in
nature,  while  such  is  the  position,  the  direction  of  the
Magistrate calling for a report under Section 156(3) of the
Code from the Crime Branch, Pune is not sustainable.  He
further  submitted  that  the  High  Court  ought  to  have
intervened and quashed the  same.  According to him, the
8complaint and the allegations made therein do not disclose
any offence and, therefore, the direction under Section 156(3)
of the Code is untenable.  He further pointed out that the
essential ingredients for an offence under Sections 405 and
420 of the Indian Penal Code, 1860 (in short ‘IPC’) have not
been made out, no such dishonest intention can be seen or
even  inferred  inasmuch  as  the  entire  dispute  pertains  to
contractual obligations between the parties.  In any event,
according to him, in view of long delay, namely, filing of the
complaint  in  the  year  2002  with  reference  to  the  alleged
disputes which pertain to the period from 1993-1995, that is,
after nine years, cannot be maintained as it amounts to abuse
of  process  of  law.   He  finally  submitted  that  roping  in  of
appellant  Nos.  2-8  in  the  alleged  offence  on  the  hidden
principle  of  vicarious  liability  is  untenable.   Mr.  C.S.
Vaidyanathan, learned senior counsel for the appellant also
reiterated the same contentions.  
6) On  the  other  hand,  Mr.  K.T.S.  Tulsi,  learned  senior
counsel for the Respondent No. 1/complainant submitted that
interference by the court at the stage of passing orders under
9Section 156 (3) of the Code is not warranted.  He further
pointed out that the accused has no right to address at this
stage and the High Court is right in refusing to entertain the
petition filed under Section 482 of the Code.
Discussion:
7) In order to understand the rival contentions, it is useful
to  refer  the  complaint  of  the  Respondent  No.  1  dated
30.05.2002 which was made before the Judicial Magistrate,
First Class, Pimpri in Regular Criminal Case No. 12 of 2002.
Respondent  No.  1  herein  is  the  complainant  and  all  the
appellants herein have been shown  as accused.  The said
criminal complaint was made for the offences under Sections
420, 406 read with 34 IPC.  The  complaint  proceeds that
complainant is the Proprietor of M/s Rini Engineers and M/s
Sherly  Engineers  which  are  small-scale  industries  doing
fabrication job work for various industries, namely, TELCO,
Ion  Exchange  Ltd.,  etc.   The  following  averments  in  the
complaint are relevant for our consideration:
“a) The complainant has been doing the said business in
Maharashtra since last more than 27 years. The accused No.
1 is a company and accused No. 2 is the Chairperson of the
Accused No. 1. Accused No. 3 was the Managing Director
1and the Accused Nos. 4 to 15 was doing service as Manager
of Accused No. 1 at the relevant time. The Accused No. 1 has
its office at the above address. The Accused Nos. 2 to 15
were looking after the management and business of Accused
No. 1.
b) The complainant was doing fabrication job work for the
Accused  for  several  years.  The  accused  placed  purchase
order No. 260062 dated 24.04.1995 of Rs. 3,20,000/- for
designing and manufacturing two numbers stationary LPG
Storage  Tanks.  The  complainant  has  been  granted  the
necessary  licenses  by  the  Explosives  Department  for
manufacturing  LPG  Storage  Tanks  and  LPG  Storage
Tankers. The said job is a specialized job and requires Best
quality material as it involves high risks. At the relevant
time, the required material was not available in the market.
Therefore, the complainant requested the Accused for the
supply  of  material  for  the  said  order  and  to  debit  the
material cost from the final bill. The accused initially agreed
for the same. However, subsequently insisted for payment
before delivery of material. Therefore, complainant paid Rs.
1,14,098/-  by pay order dated 31.07.1995 drawn on the
Sadguru Jangli Maharaj Bank, Chinchwad. The Company
issued material after receipt of pay order, vide excise gate
Pass  No.  1328  and  175713  dated  04.08.1995.  The
complainant received the material and was surprised to see
that  the  accused  had  supplied  scrap  material  for  the
manufacturing of LPG Storage Tanks and same was useless
for  the  job.  The  complainant  immediately  contacted  the
accused  and  informed  about  the  same.  The  complainant
requested the accused to take the scrap material back and
issue genuine material. However, accused refused to do so,
the complaint has spent the amount of Rs. 60,000/- for
drawing and approval etc. and Rs. 1,14,098/- by pay order
for  the material to the accused.  Thus,  the  accused have
cheated the complainant and there by caused wrongful loss
to the complainant.
c) The accused placed Purchase Order No. 240307 dated
22.03.1993  for  Rs.  8,00,000/-  for  the  fabrication  and
erection of Tower Support Structural etc. for the Mehasana
(Gujarat) Project. The accused also represented that they will
hire the machinery of the complainant for the said job at the
rate  of  Rs.  2,400/-  per  day.  Believing  the  same,  the
complainant  purchased  brand  new  machinery  of  Rs.
5,80,000/- specially for the said project and dispatched the
1same to Mehasana site. The complainant has completed the
said job according to schedule and to the satisfaction of the
accused. The complainant also carried out additional work
at the site as per the request of the accused. The balance
outstanding for the said work is Rs. 2,47,570/- and is still
receivable from the accused. The amount towards the hiring
charges for the machinery is Rs. 58,32,000/- is yet to be
paid by the accused. The accused have not returned the
machinery of the complainant till the date and have been
using the same for their other jobs also. Thus the accused
owe the complainant Rs. 68,79,750/- and the same is not
paid till the date.
d) The complainant states that he has carried out several
fabrication  job  for  the  accused  and  huge  amount  of  Rs.
91,95,054 is outstanding from the accused till the date.  In
spite  of  several  requests  of  the  complainant,  since  the
accused are very influential, no body has taken cognizance
of the complaints of the complainant. The complainant has
also  filed  complaint  dated  15.09.1998  with  Pimpri  Police
Station against the accused but all in vain.
e)  Thereafter  the  complainant  filed  complaint  dated
06.05.2000 with Crime Branch, Pune against the accused,
however, till the date police have not taken any cognizance of
the  same  in  spite  of  the  positive  opinion  of  the  police
prosecutor attached to the Officer Commissioner of Police,
Pune. The accused are very influential and the complainant
has no other option but to file the present complaint in
Hon’ble Court.
f)  The  complainant  is  filing  herewith  all  the  relevant
documents in support of this complaint and submits that
the  present  case  warrants  detailed  investigation  under
Section 156(3) of Cr.P.C. There is a separate cell of economic
offences at Crime Branch, Pune and it is necessary to send
the  present  complaint  to  Crime  Branch,  Pune  for
investigation  under  Section  156(3)  of  Cr.P.C  The
complainant therefore prays that:-
i)The  complaint  be  sent  to  Crime  Branch,  Pune  for
investigation u/s 156(3) of Cr.P.C. and;
ii) After receipt of the report of investigation, the accused be
dealt with severally according to law and punished as per
provision of law.”
18) For our purpose, we are concerned with Sections 405,
406, 420 and 34 IPC which read thus:
“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”.
406.  Punishment  for  criminal  breach  of  trust.- Whoever
commits criminal breach of trust shall be punished with
imprisonment of either description for a term which may
extend to three years, or with fine, or with both.
420.  Cheating  and  dishonestly  inducing  delivery  of
property.- Whoever cheats and thereby dishonestly induces
the person deceived to deliver any property to any person, or
to make, alter or destroy the whole or any part of a valuable
security, or anything which is signed or sealed, and which is
capable of being converted into a valuable security, shall be
punished with imprisonment of either description for a term
which may extend to seven years, and shall also be liable to
fine.”
34.  Acts  done  by  several  persons  in  furtherance  of
common intention.- When a criminal act is done by several
persons in furtherance of the common intention of all, each
of such persons is liable for that act in the same manner as
if it were done by him alone.
9) Now,  we  have  to  find  out  whether  the  ingredients  of
Sections 405, 420 read with Section 34 have been made out
from the complaint and whether the Magistrate is justified in
calling for a report under Section 156(3) of the Code from the
1Crime Branch, Pune.  Simultaneously, we have to see whether
the High Court is justified in confirming the action of the
Magistrate and failed to exercise its power and jurisdiction
under Section 482 of the Code.
10) Before  considering  the  validity  or  acceptability  of  the
complaint and the consequential action taken by the Judicial
Magistrate under Section 156(3) of the Code, let us advert to
various  decisions  on  this  aspect.   In  Suresh  vs.
Mahadevappa Shivappa Danannava & Anr., (2005) 3 SCC
670, this Court, on the ground of delay/laches in filing the
complaint  and  the  dispute  relates  to  civil  nature  finding
absence of ingredients of alleged offence of cheating under
Section 420 IPC, set aside the order of the Magistrate and that
of the High Court.  In that case, the alleged agreement to sell
was executed on 25.12.1988.  A legal notice was issued to the
appellant therein on 11.07.1996 calling upon him to execute
the sale deed in respect of the premises in question. Thus, the
complaint was submitted after a gap of 7½ years of splendid
silence  from  the  date  of  the  alleged  agreement  to  sell  i.e.
25.12.1988.  The  appellant  therein  responded  to  the  legal
1notice  dated  11.07.1996  by  his  reply  dated  18.07.1996
through his lawyer specifically denying the alleged agreement
and the payment of Rs 1,25,000/- as advance. Nothing was
heard thereafter and the complainant after keeping quiet for
nearly 3 years filed private complaint under Section 200 of the
Code  before  the  IVth  Additional  CMM,  Bangalore  on
17.05.1999. The Magistrate, on the same date, directed his
office to register the case as PCR and referred the same to the
local police for investigation and to submit a report as per
Section  156(3)  of  the  Code.  A  charge-sheet  was  filed  on
04.08.2000 by the police against the appellant-Accused No. 1
only for offence under Section 420 IPC. The Magistrate took
cognizance of the alleged offence under Section 190(1)(b) of the
Code and issued summons to the accused-appellant therein.
Aggrieved by the aforesaid process order dated 04.08.2000
passed by the Magistrate, the appellant-accused preferred the
criminal revision which was dismissed by the High Court.  The
order of the High Court was under challenge in that appeal.  It
was contended that as per the averments in the complaint,
even as per the police report, no offence is made out against
1Accused Nos. 2-4 therein. Despite this, the Magistrate issued
process against Accused Nos. 2-4 as well which clearly shows
the non-application of mind by the Magistrate.  It was further
pointed out that a perusal of the complaint would only reveal
that the allegations as contained in the complaint are of civil
nature and do not prima facie disclose commission of alleged
criminal offence under Section 420 IPC.  After finding that
inasmuch as the police has given a clean chit to Accused Nos.
2-4, this Court concluded that the Magistrate ought not to
have taken cognizance of the alleged offence against Accused
No.1 and that the complaint has been made to harass him to
come to terms by resorting to criminal process.  Regarding the
delay, this Court pointed out that the complaint was filed on
17.05.1999, after a lapse of 10½ years and, therefore, the
private complaint filed by respondent No.1 therein is not at all
maintainable at this distance of time.  It was further observed
that it is also not clearly proved that to hold a person guilty of
cheating, it is necessary to show that he had a fraudulent or
dishonest intention at the time of making the promise and
finding that the order of the Magistrate and of the High Court
1requiring Accused No.1/appellant therein to face trial would
not be in the interest of justice, set aside the order of the High
Court  and  of  the  Magistrate.   It  is  clear  that  in  view  of
inordinate delay and laches on the part of the complainant
and  of  the  fact  that  the  complaint  does  not  disclose  any
ingredients of Section 420 IPC and also of the fact that at the
most it is the dispute of civil nature, this Court quashed the
orders of the Magistrate and the High Court.
11) In  Madhavrao  Jiwajirao  Scindia  &  Ors.  vs.
Sambhajirao Chandrojirao Angre & Ors. (1988) 1 SCC 692,
this  Court,  after  pointing  out  the  grounds  on  which  the
criminal proceedings be quashed under Section 482 of the
Code at preliminary stage by the High Court highlighted that a
case of  breach of trust is both a civil wrong and a criminal
offence.  While elaborating the same, this Court further held
that  there  would  be  certain  situations  where  it  would
predominantly be a civil wrong and may or may not amount to
criminal offence.  Based on the materials in that case, the
Court concluded that the case is one of that type where, if at
1all, the facts may constitute a civil wrong and the ingredients
of the criminal offences are wanting.
12) In Alpic Finance Ltd. vs. P. Sadasivan & Anr.  (2001)
3  SCC  513,  this  Court  highlighted  the  grounds  on  which
criminal proceedings are to be quashed under Section 482 of
the Code and noted the ingredients of Section 420 IPC.  In that
case, the appellant was a registered company having its head
office at Mumbai.  It was a non-banking financial institution
functioning under the regulations of Reserve Bank of India.  It
was  carrying  on  business,  inter  alia,  of  leasing  and  hire
purchase.  The first respondent therein was the Chairman and
founder-trustee of a trust by name “Visveswaraya Education
Trust”.   The  second  respondent  was  wife  of  the  first
respondent, and was also a Trustee.  The Trust runs a dental
college  by  name  Rajiv  Gandhi  Dental  College.   The
respondents  therein  entered  into  an  agreement  with  the
appellant-Company therein whereby the appellant agreed to
finance  the  purchase  of  100  hydraulically-operated  dental
chairs.   The  total  cost  of  the  chairs  was  around
Rs.92,50,000/-.  The appellant-Company agreed to finance the
1respondents for the purchase of these chairs through a lease
agreement and as per the agreement, the respondents were
liable to pay rentals quarterly. The respondents agreed to pay
quarterly  a  sum  of  Rs  7,50,000/-  for  the  first  year;  Rs
12,50,000/- for the second year; Rs 8,00,000/- for the third
year  and  Rs  6,25,000/-  for  the  fourth  year.  As  per  the
agreement, the appellant-Company, the lessors would have
sole and exclusive right, title and interest in the dental chairs
supplied till the entire hire-purchase amount  was paid. In
accordance with the agreement, the appellant made payments
to M/s United Medico Dental Equipments and they delivered
the dental chairs to the respondents. The appellant-Company
alleged that the respondents were not regular in making the
payments  and  committed  default  in  payment  of  the
instalments  and  that  the  bank  had  dishonoured  certain
cheques issued by the respondents. The appellant-Company
also alleged that on physical verification, certain chairs were
found missing from the premises of the respondents and thus
they have committed cheating and caused misappropriation of
the  property  belonging  to  the  appellant.  The  appellant-
1Company filed a private complaint under Section 200 of the
Code  before  the  Chief  Metropolitan  Magistrate,  Bangalore
alleging that the respondents had committed offences under
Sections 420, 406 and 423 read with Section 120-B IPC. In
that proceeding, the appellant-Company moved an application
under Section 93 of the Code to issue a search warrant to
seize the property in dispute and also to hand over these items
to  the  complainant.  The  Magistrate  took  cognizance  of the
alleged complaint and issued summons to the respondents
and passed an order on the application filed under Section 93
of  the  Code  to  have  a  search  at  the  premises  of  the
respondents and to take possession of the properties involved
in  the  case.  These  proceedings  were  challenged  by  the
respondents under Section 482 of the Code before the learned
Single Judge of the Karnataka High Court at Bangalore. The
learned  Single  Judge  was  pleased  to  quash  the  entire
proceedings and directed the appellant-Company to return all
the properties seized by the police pursuant to the warrant
issued by the Magistrate. Thus, the order of the Magistrate
taking cognizance and issuing process to the respondents as
2well as the order of search and the direction for restoration of
the  property  to  the  appellant  Company  were  set  aside.
Aggrieved  by  the  same,  the  appellant-Company  preferred
appeal before this Court.  It was contended on behalf of the
appellant that the learned Single Judge has seriously erred in
quashing the proceedings under Section 482 of the Code.  It
was further contended that the allegations in the complaint
clearly made out offences punishable under Sections 420, 406,
423, 424 read with  Section  120-B  IPC.  On  behalf of the
respondents, it was contended that the complaint was filed
only to harass the respondents and it was motivated by mala
fide  intention.   It  was  further  argued  that  the  entire
transaction was of civil nature and that the respondents have
made  a  substantial  payment  as  per  the  hire-purchase
agreement and the default, if any, was not wilful and there
was  no  element  of  misappropriation  or  cheating.   The
respondents also denied having removed any of the items of
the disputed property clandestinely to defeat the interest of the
appellant.  After considering the power under Section 482 of
the  Code  and  adverting  to  series  of  decisions  including
2Nagawwa vs. Veeranna Shivalingappa Konjalgi , (1976) 3
SCC 736 and State of Haryana vs. Bhajan Lal, 1992 Supp
(1) SCC 335, this Court concluded thus:
“7. In a few cases, the question arose whether a criminal
prosecution could be permitted when the dispute between
the  parties  is  of  predominantly  civil  nature  and  the
appropriate  remedy  would  be  a  civil  suit.  In  one  case
reported  in  Madhavrao  Jiwajirao  Scindia v.  Sambhajirao
Chandrojirao Angre this Court held that if the allegations in
the  complaint  are  both  of  a  civil  wrong  and  a  criminal
offence, there would be certain situations where it would
predominantly be a civil wrong and may or may not amount
to a criminal offence. That was a case relating to a trust.
There were three trustees including the settlor. A large house
constituted part of the trust property. The respondent and
the complainant were acting as Secretary and Manager of
the Trust and the house owned by the Trust was in the
possession of a tenant. The tenant vacated the building and
the allegation in the complaint was that two officers of the
Trust, in conspiracy with one of the trustees and his wife,
created documents showing tenancy in respect of that house
in favour of the wife of the trustee. Another trustee filed a
criminal complaint alleging that there was commission of the
offence under Sections 406, 467 read with Sections 34 and
120-B  of  the  Indian  Penal  Code.  The  accused  persons
challenged  the  proceedings  before  the  High  Court  under
Section 482 of the Code of Criminal Procedure and the High
Court  quashed  the  proceedings  in  respect  of  two  of  the
accused persons. It was under those circumstances that this
Court observed: (SCC Headnote)
“Though a case of breach of trust may be both a
civil  wrong  and  a  criminal  offence  but  there
would  be  certain  situations  where  it  would
predominantly be a civil wrong and may or may
not amount to a criminal offence. The present
case is one of that type where, if at all, the facts
may constitute a civil wrong and the ingredients
of  the  criminal  offences  are  wanting.  Having
regard to the relevant documents including the
trust deed as also the correspondence following
the  creation  of  the  tenancy,  the  submissions
advanced on behalf of the parties, the natural
2relationship between the settlor and the trustee
as  mother  and  son  and  the  fall  out  in  their
relationship and the fact that the wife of the cotrustee was no more interested in the tenancy, it
must be held that the criminal case should not
be continued.”
10…….. The injury alleged may form the basis of civil claim
and  may  also  constitute  the  ingredients  of  some  crime
punishable  under  criminal  law.  When  there  is  dispute
between the parties arising out of a transaction involving
passing of valuable properties between them, the aggrieved
person may have a right to sue for damages or compensation
and at the same time, law permits the victim to proceed
against the wrongdoer for having committed an offence of
criminal breach of trust or cheating. Here the main offence
alleged by the appellant is that the respondents committed
the  offence  under  Section  420  IPC  and  the  case  of  the
appellant  is  that  the  respondents  have  cheated  him  and
thereby  dishonestly  induced  him  to  deliver  property.  To
deceive is to induce a man to believe that a thing is true
which is false and which the person practising the deceit
knows or believes to be false. It must also be shown that
there existed a fraudulent and dishonest intention at the
time of commission of the offence. There is no allegation that
the respondents made any wilful misrepresentation. Even
according to the appellant, the parties entered into a valid
lease agreement and the grievance of the appellant is that
the  respondents  failed  to  discharge  their  contractual
obligations.  In  the  complaint,  there  is  no  allegation  that
there was fraud or dishonest inducement on the part of the
respondents and thereby the respondents parted with the
property. It is trite law and common sense that an honest
man entering into a contract is deemed to represent that he
has the present intention of carrying it out but if, having
accepted  the  pecuniary  advantage  involved  in  the
transaction, he fails to pay his debt, he does not necessarily
evade the debt by deception.”
After finding so, this Court concluded that the learned Judge
of  the  High  Court  was  perfectly  justified  in  quashing  the
2proceedings  and  disinclined  to  interfere  in  such  matters
dismissed the appeal.
13) In Anil  Mahajan  vs.  Bhor  Industries  Ltd.  &  Anr.  ,
(2005) 10 SCC 228,  again, a three-Judge Bench of this Court
considered the  issuance of process by a Magistrate for an
offence under Sections 415, 418 and 420 IPC.  This Court also
analysed  the  difference  between  breach  of  contract  and
cheating.   The  appellant  therein  was  the  accused  in  a
complaint filed against him by the respondent-Company for
offence under Sections 415, 418 and 420 IPC.  Based on the
averments in the complaint, the Magistrate, by order dated
25.06.2001,  issued  the  process  against  the  accused.   The
order of the Magistrate notices that the complainant has filed
the documents on record in which the accused promised to
pay the amount but has not paid with the intent to deceive the
complainant and, therefore, the complainant has made out a
case to issue process against the accused under Sections 415,
418  and  420  IPC.   The  said  order  of  the  Magistrate  was
challenged  before  the  Court  of  Sessions.   The  learned
Additional Sessions Judge, Pune by order dated 19.10.2001,
2set aside the order of the Magistrate issuing process.  The
order of the learned Additional Sessions Judge was set aside
by the High Court.  This Court, in paragraphs 8 & 9 of the
judgment, observed as under:
“8. The substance of the complaint is to be seen. Mere use of
the  expression  “cheating”  in  the  complaint  is  of  no
consequence.  Except  mention  of  the  words  “deceive”  and
“cheat”  in  the  complaint  filed  before  the  Magistrate  and
“cheating” in the complaint filed before the police, there is no
averment about the deceit, cheating or fraudulent intention
of the accused at the time of entering into MOU wherefrom it
can be inferred that the accused had the intention to deceive
the complainant to pay………………….”
“9. In Alpic Finance Ltd. v. P. Sadasivan, (2001) 3 SCC 513,
this Court was considering a case where the complainant
had alleged that  the accused was not regular  in making
payment and committed default in payment of instalments
and the  bank had dishonoured certain cheques issued by
him.  Further  allegation  of  the  complainant  was  that  on
physical verification certain chairs were found missing from
the premises of the accused and thus it was alleged that the
accused committed cheating and caused misappropriation of
the  property  belonging  to  the  complainant.  Noticing  the
decision in the case of Nagawwa v. Veeranna Shivalingappa
Konjalgi,  (1976) 3 SCC 736, wherein it was held that the
Magistrate while issuing process should satisfy himself as to
whether the allegations in the complaint, if proved, would
ultimately end in the conviction  of the accused, and the
circumstances  under  which  the  process  issued  by  the
Magistrate could be quashed, the contours of the powers of
the High Court under Section 482 CrPC were laid down and
it was held: (SCC p. 520, paras 10-11)
 “10. The facts in the present case have to be
appreciated in the light of the various decisions of
this Court. When somebody suffers injury to his
person,  property  or  reputation,  he  may  have
remedies both under civil and criminal law. The
injury alleged may form the basis of civil claim
2and may also constitute the ingredients of some
crime punishable under criminal law. When there
is dispute between the parties arising out of a
transaction  involving  passing  of  valuable
properties  between  them,  the  aggrieved  person
may  have  a  right  to  sue  for  damages  or
compensation and at the same time, law permits
the victim to proceed against the wrongdoer for
having committed an offence of criminal breach of
trust or cheating. Here the main offence alleged by
the  appellant  is  that  the  respondents  committed
the offence under Section 420 IPC and the case of
the appellant is that the respondents have cheated
him and thereby dishonestly induced him to deliver
property. To deceive is to induce a man to believe
that a thing is true which is false and which the
person practising the deceit knows or believes to
be false. It must also be shown that there existed a
fraudulent and dishonest intention at the time of
commission of the offence. There is no allegation
that  the  respondents  made  any  wilful
misrepresentation.  Even  according  to  the
appellant, the parties entered into a valid lease
agreement and the grievance of the appellant is
that  the  respondents  failed  to  discharge  their
contractual obligations.  In the complaint, there is
no  allegation  that  there  was  fraud  or  dishonest
inducement  on  the  part  of  the  respondents  and
thereby the respondents parted with the property.
It is trite law and common sense that an honest
man  entering  into  a  contract  is  deemed  to
represent  that  he  has  the  present  intention  of
carrying  it  out  but  if,  having  accepted  the
pecuniary advantage involved in the transaction,
he fails to pay his debt, he does not necessarily
evade the debt by deception.
11. Moreover, the appellant has no case that the
respondents obtained the article by any fraudulent
inducement or by wilful misrepresentation. We are
told  that  the  respondents,  though  committed
default  in  paying  some  instalments,  have  paid
substantial amount towards the consideration.”
       (Emphasis supplied)
2By applying the above principles, this Court examined the
complaint and concluded that it is clear from its substance
that present is a simple case of civil disputes between the
parties.  This Court further held that the requisite averments
so as to make out a case of cheating are absolutely absent.  It
further held that the principles laid down in  Alpic  Finance
Ltd.’s  case (supra)  were  rightly  applied  by  the  learned
Additional Sessions Judge and it cannot be said that the ratio
of  the  said  decision  was  wrongly  applied  and  on  due
consideration,  the  learned  Additional  Sessions  Judge  had
rightly set aside the order of the Magistrate issuing process to
the  appellant.   After  holding  so,  this  Court  set  aside  the
impugned judgment of the High Court and restored that of the
Additional Sessions Judge.
14) In  S.K.  Alagh  vs.  State  of  Uttar  Pradesh  &  Ors.,
(2008) 5 SCC 662, this Court considered the ingredients of
Sections  405 and 406 IPC - Criminal breach of trust and
vicarious liability.  In the said decision, after finding that the
complaint petition did not disclose necessary ingredients of
criminal breach of trust as mentioned in Section 405 IPC and
2also pointing out the ingredients of offence under Section 406
IPC, interfered with the order passed by the High Court.
15) In  Maharashtra  State  Electricity  Distribution
Company Limited & Anr. vs. Datar Switchgear Limited &
Ors.,  (2010)  10  SCC  479,  after  perusal  of  the  complaint,
allegations therein, role of the directors mentioned therein and
applicability of Section 34 IPC, this Court in paragraph 35
concluded as under:
“35. It is manifest that common intention refers to a prior
concert or meeting of minds, and though it is not necessary
that the existence of a distinct previous plan must be proved,
as such common intention may develop on the spur of the
moment,  yet  the  meeting of minds  must  be  prior  to the
commission  of  offence  suggesting  the  existence  of  a
prearranged plan. Therefore, in order to attract Section 34
IPC, the complaint must, prima facie, reflect a common prior
concert or planning amongst all the accused.”
After saying so, verifying the complaint, this Court concluded
that  the  complaint  does  not  indicate  the  existence  of  any
prearranged plan whereby Appellant No. 2 had, in collusion
with the other accused decided to fabricate the document in
question  and  adduce  it  in  evidence  before  the  Arbitral
Tribunal.  This Court further concluded that there is not even
a  whisper  in  the  complaint  indicating  any  participation  of
2Appellant No.2 in the acts constituting the offence, and that
being the case, concluded that Section 34 IPC is not attracted.
After saying so, allowed the appeal in relation to Appellant
No.2  and  quashed  the  order  of  the  Magistrate  taking
cognizance against appellant No.2 in Complaint No. 476 of
2004.      
16) The  principles  enunciated  from  the  above-quoted
decisions  clearly  show  that  for  proceedings  under  Section
156(3)  of  the  Code,  the  complaint  must  disclose  relevant
material  ingredients  of  Sections  405,  406,  420  read  with
Section 34 IPC.  If there is a flavour of civil nature, the same
cannot be agitated in the form of criminal proceeding.  If there
is huge delay and in order to avoid the period of limitation, it
cannot be resorted to a criminal proceeding.
17) Dr.  A.M.  Singhvi,  learned  senior  counsel  for  the
appellant/accused contended that not only material facts were
suppressed  from  the  Magistrate  but  the  previous  three
complaints  to  various  police  authorities  and  their  closure
reports were kept away from the Magistrate so as to mislead
the Court.  It is seen from the materials placed that three
2complaints  containing  similar  allegations  have  been
investigated previously and all were closed as the alleged claim
was found to be of civil nature.  In those circumstances, it did
not lie for Respondent No.1-the complainant to approach the
Magistrate with the same subject Complaint.  Inasmuch as the
dispute arose out of a contract and a constituted remedy is
only  before  a  Civil  Court,  the  Magistrate  ought  to  have
appreciated that Respondent No.1 was attempting to use the
machinery of the criminal courts for private gains and for
exerting  unjust,  undue  and  unwarranted  pressure  on  the
appellants in order to fulfill his illegal demands and extract
undeserving monetary gains from them.
18) The Courts below failed to appreciate that Ex. 61 is a
reply filed by the Crime Branch-II and Ex. 63 is the statement
of  Shri  V.B.  Kadam,  which  categorically  stated  that  the
complaint preferred by Respondent No.1 registered at Crime
Register No. 11/2000 was filed as being civil in nature.  Even
if  we  accept  that  the  records  were  destroyed  and
notwithstanding such destruction, it was a matter of record
that the complaint preferred by Respondent No.1 was indeed
3investigated and categorized as civil in nature.  This aspect
has not been considered either by the Magistrate or by the
High Court.
19) It  is  settled  law  that  the  essential  ingredients  for  an
offence under Section 420, which we have already extracted, is
that there has to be dishonest intention to deceive another
person.  We have already quoted the relevant allegations in the
complaint and perusal of the same clearly shows that no such
dishonest intention can be seen or even inferred inasmuch as
the entire dispute pertains to contractual obligations between
the parties.  Since the very ingredients of Section 420 are not
attracted, the prosecution initiated is wholly untenable.  Even
if we admit that allegations in the complaint do make out a
dispute, still it ought to be considered that the same is merely
a breach of contract and the same cannot give rise to criminal
prosecution  for  cheating  unless  fraudulent  or  dishonest
intention is shown right from the beginning of the transaction.
Inasmuch as there are number of documents to show that
appellant-Company had acted in terms of the agreement and
3in a  bona fide manner, it cannot be said that the act of the
appellant-Company amounts to a breach of contract.
20) Though Respondent No.1 has roped all the appellants in
a criminal case without their specific role or participation in
the alleged offence with the sole purpose of settling his dispute
with  appellant-Company  by  initiating  the  criminal
prosecution, it is pointed out that appellant Nos. 2 to 8 are the
Ex-Chairperson,  Ex-Directors  and  Senior  Managerial
Personnel of appellant No.1-Company, who do not have any
personal  role  in  the  allegations  and  claims  of  Respondent
No.1.  There is also no specific allegation with regard to their
role.
21) Apart from the fact that the complaint lacks necessary
ingredients of Sections 405, 406, 420 read with Section 34
IPC, it is to be noted that the concept of ‘vicarious liability’ is
unknown to criminal law.  As observed earlier, there is no
specific allegation made against any person but the members
of the Board and senior executives are joined as the persons
looking after the management and business of the appellantCompany.
322) It is  useful  to  demonstrate  certain  examples,  namely,
Section 141 of the Negotiable Instruments Act, 1881 which
specifically provides that if the person committing an offence
under Section 138 is a company, every person who, at the
time the offence was committed, was in charge of, and was
responsible to, the company for the conduct of the business of
the company, as well as the company, shall be deemed to be
guilty of the offence and shall be liable to be proceeded against
and  punished  accordingly.   Likewise,  Section  32  of  the
Industrial Disputes Act, 1947 provides that where a person
committing an offence under this Act is a company, or other
body corporate, or an association of persons, every director,
manager, secretary, agent or other officer or person concerned
with the management thereof shall, unless he proves that the
offence was committed without his knowledge or consent, be
deemed to be guilty of such offence.  We have already noted
that  the  offence  alleged in  the  criminal  complaint  filed by
respondent  No.1  is  under  Sections  405  and  420  IPC
whereunder no specific liability is imposed on the officers of
the company, if the alleged offence is by the Company.  In the
3absence of specific details about the same, no person other
than appellant No.1-Company can be prosecuted under the
alleged complaint.
23) The  Courts  below  failed  to  appreciate  an  important
aspect that the complaint came to be filed in the year 2002
when the alleged disputes pertain to the period from 1993-
1995.  As rightly pointed out, the Courts below ought to have
appreciated that respondent No.1 was trying to circumvent the
jurisdiction  of  the  Civil  Courts  which  estopped  him  from
proceeding on account of the law of limitation.
24) We have already pointed out that respondent No.1 had
previously filed three complaints which were concluded after
exhaustive enquiry with the respective police authorities.  The
first complaint was on 06.05.2000 being Javak No. 974/2000
with the Crime Branch-II, Pune which registered the same in
its  Criminal  Register  No.  11/2000.   Pursuant  thereto,  the
appellants  were  summoned  and  exhaustive  enquiry  was
conducted by  the  Crime Branch-II  and  after  recording  the
statements and perusal of documents and after undertaking
an  extensive  interrogation,  the  Crime  Branch-II  closed  the
3case.  The said closure of the case was informed to respondent
No.1 by the police authorities by their letter dated 28.07.2000.
25) The materials placed further show that notwithstanding
the  complaint  dated  06.05.2000  which  was  closed  by  the
Crime Branch-II, another complaint on the same facts, was
filed by respondent No.1 at the Bhosari Police Station being
Javak No. 3142/2001.  It is pointed out that the appellant and
its officers attended the Bhosari Police Station, thereafter the
said complaint was also closed after the facts were placed
before the officers of the Bhosari Police Station.
26) Apart from these complaints, respondent No.1 once again
filed a third complaint at the Commissioner’s Office, Crime
Branch,  Pune  being  Javak  No.  100/2001.   The  officers  of
appellant-Company appeared before the Crime Branch, who
after perusing the documents and the written statements of
appellant No.1, informed the appellants that the matter was
closed.
327) It  is  the  grievance  of  the  appellants  that  without
disclosing these material facts and suppressing the fact that
the complainant had previously filed three different complaints
to various police authorities and that the said complaints were
closed on being classified as civil disputes, the complainant
had  filed  the  aforesaid  criminal  complaint  before  the
Magistrate being RCC No. 12 of 2002.
28) Mr. K.T.S. Tulsi, learned senior counsel for respondent
No.1 has pointed out that at this stage, namely, issuance of
direction to the police for submission of report under Section
156(3) of the Code, the accused has no role and need not be
heard.  The said contention is undoubtedly in consonance
with the procedure prescribed.  However, in view of specific
direction of the Division Bench of the High Court by a common
order dated 10.06.2003, disposing off the cases by remitting
the matter back to the Magistrate for reconsideration of the
entire prayer as made by the complainant and to pass fresh
orders, after giving adequate opportunity of hearing to both
the sides, and decide afresh the application seeking direction
under Section 156(3) by giving cogent reasons for coming to
3such  conclusion,  the  procedure  adopted  by  the  Magistrate
cannot  be  faulted  with.   Though  the  appellant
Company/accused has no right to be heard at this stage in
view of the direction of the High Court, no exception be taken
to the order of the Magistrate hearing the Complainant and
the appellant Company/accused even at the stage of calling
for a report under Section 156(3) of the Code.
29) The entire analysis of the complaints with reference to
the  principles  enunciated  above  and  the  ingredients  of
Sections 405, 406, 420 read with Section 34 IPC clearly show
that  there  was inordinate  delay and  laches, the  complaint
itself  is  inherently  improbable  contains  the  flavour  of  civil
nature  and  taking  note  of  the  closure  of  earlier  three
complaints that too after thorough investigation by the police,
we are of the view that the Magistrate committed a grave error
in calling for a report under Section 156(3) of the Code from
the Crime Branch, Pune.  In view of those infirmities and in
the light of Section 482 of the Code, the High Court ought to
have quashed those proceedings to safeguard the rights of the
appellants.   For  these  reasons,  the  order  passed  by  the
3Judicial Magistrate First Class, Pimpri in CC No. 12 of 2002
on  20.08.2007 and the judgment of the  High  Court dated
11.01.2008 in Criminal Writ Petition No. 1622 of 2007 are set
aside.   The  complaint  filed  by  Respondent  No.1  herein  is
quashed.
30) For the reasons stated above, the appeal is allowed.
          ...…………….
…………………………J.
        (P. SATHASIVAM)                                
.……....…………………………………J.
 (DR. B.S. CHAUHAN)
NEW DELHI;
SEPTEMBER 27, 2011.
3


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