The petitioners herein, who are accused in C.C.No.17397 of 2003 on the file of the Chief Metropolitan Magistrate, Egmore, Chennai, and who are facing trial for an alleged offence under Sections 420 read with 34 of the Indian Penal Code, have filed the above Criminal Original Petition seeking to quash all further proceedings therein.
2. The brief facts which are necessary for the disposal of the above Criminal Original Petition is set out below:-
The defacto complainant / the second respondent herein and his father were carrying on business in textiles under different trade names at Pallipalayam, Erode. It is alleged that accused 1 and 2 approached the complainant and represented that they are doing export business and fabrics and wanted the complainant to supply the goods. The complainant supplied fabrics to the accused and they were very prompt in their dealings in the beginning and thus made the complainant and his father to take them into confidence. After making the complainant to part with goods, for which the accused made few payments, the accused came with a version that they had secured an order for export fabrics of the value of Rs.1.50 crores and they would be getting another order of the value of Rs.5 crores on completion of the supply to the value of Rs.1.50 crores. The complainant, on believing the representation to be true and on the faith that the accused would make payment as hitherto been done by them for the earlier purchases of export fabrics, started supplying the materials and by the month of June 1996, the accused had taken delivery of materials worth Rs.1,41,91,408/- at their business premises at Door Nos.38 and 39, Whites Road, Royapettah, Chennai 14 under invoices made in different firm names run by them such as Misty Apparels Private Limited, Kiron Fashions Private Limited and Kiron Creations Private Limited.
3. While so, the complainant came to know that the accused on the same modus operandi had obtained fabrics from different traders for the value of several crores and when the complainant contacted the accused, he promised payment as soon as the goods were delivered to the foreign buyers. But as payments were delayed and on enquiry the complainant came to know that the accused had sold the materials obtained by them in the local market for lesser value and no export was made, the complainant warned the accused with penal consequences if they fail to make the payments and the accused requested the complainant for time by stating that they will sell their properties and settle the amounts due to them, but they failed to keep up their promise. At the end of the year 2000, the complainant and his father approached the accused in their house and demanded payments, but, at that time, the accused directed their watchman to push the complainant and his father out of the house and untied the ferocious dog. It is further alleged that the second accused threatened the complainant with the revolver.
4. On the basis of the aforesaid complaint, a case in Crime No.11 of 2001 was registered for the alleged offence under
Sections 420 read with 34 IPC. After completing investigation, a charge sheet has been filed for the aforesaid offence. Being aggrieved by that the above Criminal Original Petition has been filed by the accused seeking to quash all further proceedings therein.
5. Heard the learned counsel on either side.
6. Learned counsel for the petitioners submitted that the second respondent, P.Manoharan, had filed a counter affidavit in the above Criminal Original Petition on behalf of the second and third respondents stating that they have meet the second and third petitioners and amicably settled their disputes and have entered into a compromise by which they have received a sum of Rs.10,00,000/- by a demand draft and all the dispute between them have been put an end to. In the same counter affidavit, he has also stated that in view of the said settlement reached, the attachment of the immovable property belonging to the second and third petitioners at No.20, Anderson Road, Thousand Lights, Chennai 600 004, as per G.O.Ms.No.316 Home (Courts II-A) Department, dated 08.04.2003, may be raised and appropriate orders may be passed in the above Criminal Original Petition No.10765 of 2004, so that the learned Chief Metropolitan Magistrate, Egmore, can also allow the compounding of the offence. But, at the time of hearing, the second respondent, P.Manoharan, denied the very contents of the counter affidavit and he has filed an affidavit sworn on 07.09.2009 stating as follows:-
"7. I submit that we also agreed for receipt of Rs.1.10 crore as full and final satisfaction because at that time we were in a position to settle our dues due to our creditors, hence except no other way we accepted that proposal which was offered by the petitioners. I further submit that initially they paid Rs.10 lakhs by way of two demand drafts one is in favour of my father and another in my favour and the petitioners promised us to settle the remaining amount within three months and believing their words we accepted those two demand drafts but the petitioners insisted us to sign in blank stamp papers and other blank papers, and on enquiry they told us that to withdraw the case they wanted out signatures in blank papers but initially we refused to sign in blank papers but the petitioners refused to handover those two demand drafts hence no other way we signed in blank papers stated above and received those two demand drafts. I further submit that after receiving the said Rs.10 lakhs from petitioners we settled the same to our creditors.
8. I submit that according to the settlement talk my father and myself approached the petitioners several times for balance amount of Rs. One crore but the petitioner prolonged the period without any proper response and the stipulated period of three months also over but the petitioners activities changed day by day. I further submit that the act of cheating of the petitioners and their illtreat activities, my father expired on 05.02.2006 due to heart syndrome and thereafter I am very much struggling to lead my day to day life as well as manage the business. Thereafter I approached the petitioners several times in person for the settlement of balance amount of Rs. One Crore. But the petitioners refused to see me that too they treated me badly and finally told that they had already settled entire dues which are liable to pay to me.
9. I hope that I can get proper and appropriate relief before the court of law since the complaint in C.C.No.17397 of 2004 was pending before the Chief Metropolitan Magistrate, Egmore, Chennai, and hence I am not taking any further course of actions against the petitioners for all these days.
10. I submit that while being so the petitioners used to signed papers, which is obtained from me and my father at the time of settlement, and some how other managed and filed the counter affidavit and memo as if we prayed before this Honourable Court to raise the attachment which is made against the petitioners' properties. I further submit that I do admit that the affidavit found in the counter affidavit is mine but the contention of the affidavit is not prepared by me. It is pertinent to note that in the alleged counter affidavit it is clearly stated that I signed before some of the advocate, but I deny the same and I did not sign before any advocate on 27.05.2005."
7. Since the second respondent is disputing the settlement said to have been arrived at between him and the petitioners and he is also disputing the contents in the counter affidavit filed before this Court, the same cannot be gone into in these proceedings. It is for the petitioners to proceed separately against the second respondent in the manner known to law. Therefore, the above Criminal Original Petition has to be disposed of on merits.
8. Learned counsel for the petitioners submitted that pending the above Criminal Original Petition, the first petitioner has expired. According to the learned counsel, none of the allegations contained in the complaint disclose any offence under
Section 420 read with 34 IPC. He further submitted that the transactions in respect of which the offence alleged are business transactions or commercial transactions and any breach of contract may lead only to a civil liability but not to any criminal action. According to the learned counsel for the petitioners, none of the allegations contained in the complaint or in the statement of witnesses recorded during the course of investigation reveal the ingredients of the offence under
Section 420 IPC. He further submitted that in the complaint itself the defacto complainant has stated that the petitioners were very prompt in their dealings in the beginning and therefore submitted that admittedly the petitioners had no intention at the beginning of the transaction to cheat the complainant and his father and the very allegations in the complaint reveal that the petitioners had running account with the defacto complainant and they had purchased stock worth crores of rupees and they have paid huge amounts towards the purchases made by them, therefore, the learned counsel submitted that any subsequent failure to pay the value of the goods purchased by them will not amount to cheating and therefore submitted that the charge sheet filed against them is liable to be quashed. Learned counsel for the petitioners relied upon the following decisions:-
(i) (1988) 1 Supreme Court Cases 692 (MADHAVRAO J.SCINDIA v. SAMBHAJIRAO C. ANGRE). In the said decision, in paragraph 7, it is laid down as under:-
"7. The legal position is well settled that when a prosecution at the initial stage is asked to be quashed, the test to be applied by the court is as to whether the uncontroverted allegations as made prima facie establish the offence. It is also for the court to take into consideration any special features which appear in a particular case to consider whether it is expedient and in the interest of justice to permit a prosecution to continue. This is so on the basis that the court cannot be utilised for any oblique purpose and where in the opinion of the court chances of an ultimate conviction is bleak and, therefore, no useful purpose is likely to be served by allowing a criminal prosecution to continue, the court may while taking into consideration the special facts of a case also quash the proceeding even though it may be a preliminary stage."
(ii) AIR 2001 SUPREME COURT 2960 (S.N.Palanitkar v. State of Bihar). In the said decision, in paragraph 21, it is observed as under:-
"21. It is clear from the allegations made in the complaint and the sworn statements that the appellant No.1 company entered into an agreement with the respondent No.2 on certain terms and conditions. It is alleged that the appellant No.7 went to Patna and contacted respondent No.2 and induced him to enter into an agreement assuring him of huge profit. At the time of arriving at such an agreement, none of the other appellant either met the respondent No.2 or induced him to enter into any agreement with a view to cheat him. The agreement was further renewed for a period of one year. It is not the case that there was no supply of goods at all as it has come on record that there was supply of 400 ton of fertilizer, may be it was far less than the required quantity. The allegations made against the appellants other than the appellant No.7 are very vague and bald. From the material that was placed before the Magistrate, even prima facie, it cannot be said that there was conspiracy of connivance between the other appellants and the appellant No.7. If the appellants have committed breach of agreement, it is open to respondent No.2 to seek redressal in a competent Court or forum to recover damages, if permissible in law in case he had sustained any loss. In order to constitute an offence of cheating, the intention to decive should be in existence at the time when the inducement was made. It is necessary to show that a person had fradulent or dishonest intention at the time of making the promise, to say that he committed an act of cheating. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating."
(iii) (2006) 6 Supreme Court Cases 736 (INDIAN OIL CORPN. v. NEPC INDIA LTD.). In the said decision, in paragraphs 13 and 14, it is laid down as under:-
"13. While on this issue, it is necessary to take notice of a growing tendency in business circles to convert purely civil disputes into criminal cases. This is obviously on account of a prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders / creditors. Such a tendency is seen in several family disputes also, leading to irretrievable breakdown of marriages / families. There is also an impression that if a person could somehow be entangled in a criminal prosecution, there is a likelihood of imminent settlement. Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged. In G.Sagar Suri v. State of U.P. (2000) 2 SCC 636 : 2000 SCC (Cri) 513 this Court observed: (SCC p. 643, para 8) "It is to be seen if a matter, which is essentially of a civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal court has to exercise a great deal of caution. For the accused it is a serious matter. This Court has laid certain principles on the basis of which the High Court is to exercise its jurisdiction under
Section 482 of the Code. Jurisdiction under this Section has to be exercised to prevent abuse of the process of any court or otherwise to secure the ends of justice"
14. While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, in accordance with law. One positive step that can be taken by the courts, to curb unnecessary prosecutions and harassment of innocent parties, is to exercise their power under
Section 250 CrPC more frequently, where they discern malice or frivolousness or ulterior motives on the part of the complainant. Be that as it may."
9. (2007) 7 Supreme Court Cases 373 (VIR PRAKASH SHARMA v. ANIL KUMAR AGARWAL). In the said decision, the Apex Court has referred to a decision reported in (2000) 4 SCC 168 : 2000 SCC (Cri) 786 (Hridaya Ranjan Prasad Verma v. State of Bihar) and has observed as under:-
"12. In (2000) 4 SCC 168 (referred to supra) this Court held (SCC pp.176-77, paras 14-15) "14. On a reading of the section it is manifest that in the definition there are set forth two separate classes of acts which the person deceived may be induced to do. In the first place he may be induced fradulently or dishonestly to deliver any property to any person. The second class of acts set forth in the section is the doing or omitting to do anything which the person deceived would not do or omit to do if he were not so deceived. In the first class of cases the inducing must be fradulent or dishonest. In the second class of acts, the including must be intention but not fradulent or dishonest.
15. In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is, the time when the offence is said to have been committed. Therefore it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed". (See also Indian Oil Corpn. v. NEPC India Ltd. (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188.
13. The ingredients of
Section 420 of the Penal Code are as follows:
(i) Deception of any persons;
(ii) Fradulently or dishonestly inducing any person to delivery any property; or
(iii) To consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit.
No act of inducement on the part of the appellant has been alleged by the respondent. No allegation has been made that he had an intention to cheat the respondent from the very inception."
Learned counsel for the petitioners submitted that no act of inducement on the part of the petitioners have been alleged by the respondent and no allegation has been made that the petitioners had an intention to cheat the respondent from the very inception.
10. Countering the said submissions, the learned counsel for the second and third respondents / the defacto complainant and his father, submitted that though the charge sheet has been filed for the offence under
Section 420 read with 34 IPC, the allegations contained in the complaint do reveal the commission of offence under
Section 406 IPC also. He further submitted that though the petitioners were prompt in making payments at the beginning of the transaction, subsequently they made a representation that they got an export order worth Rs.1.50 crores and once the sale proceeds are realised, the same will be paid to the defacto complainant and believing such representation to be true, the defacto complainant supplied the goods and on that account a sum of Rs.1,41,91,408/- is due from the petitioners, but contrary to the promise the petitioners had not exported the fabrics supplied by the defacto complainant but had sold the same in the local market which according to the second respondent amounts to not only cheating but also to criminal breach of trust. In support of the said contention, the learned counsel for the second respondent relied upon a decision of the Apex Court reported in 2009 (1) Crimes 370 (SC) (State of Punjab v. Pritam Chand and Ors.). In the said decision, in paragraph 4, it is observed as under:-
"4.
Section 406 IPC deals with punishment for criminal breach of trust. In a case under
Section 406 the prosecution is required to prove that the accused was entrusted with property or he had dominion over the property and that the accused misappropriated or converted the property to his own use or used or disposed of the property or willfully suffered any person to dispose of the property dishonestly or in violation of any direction of law prescribing the mode in which the entrusted property should be dealt with or any legal contract express or implied which he had entered into relating to carrying out of the trust".
In the aforesaid decision, the Apex Court has referred to a decision reported in (1999) 3 Supreme Case Cases 259 (Rajesh Bajaj v. State of NCT of Delhi). In the said decision, the Apex Court has observed as under:-
"It is not necessary that a complainant should verbatim reproduce in the body of his Complaint all the ingredients of the offence he is alleging. Nor is it necessary that the complainant should state in so many words that the intention of the accused was dishonest or fraudulent..... The crux of the prostulate is the intention of the person who induces the victim of his representation and not the nature of the transaction which would become decisive in discerning whether there was commission of offence or not. The complainant has stated in the body of the Complaint that he was induced to believe that respondent would honour payment on receipt of invoices, and that the complainant realised later that the intentions of the respondent were not clear. He also mentioned that respondent after receiving the goods have sold them to others and still he did not pay the money. Such averments would prima facie make out a case for investigation by the authorities."
11. I have considered the aforesaid submissions made by the learned counsel on either side and perused the materials available on record.
12. A reading of the allegations contained in the complaint and in the statement of L.W.1 and L.W.2 recorded during the course of investigation do not reveal the ingredients of the offence under
Section 406 IPC. Nowhere in the complaint or in the statement of witnesses it has been stated that the petitioners with a dishonest intention misappropriated the goods entrusted to them. A reading of the allegations contained in the complaint and the statement of L.W.1 and L.W.2 clearly show that the petitioners herein had a running account with the defacto complainant / the second respondent herein and admittedly the petitioners were prompt in making payments at the beginning of the transaction. Thus, it could be seen that at the beginning of the transaction it could not be said that the petitioners had any dishonest intention to deceive the defacto complainant which is the main ingredient of the offence (under
Section 420 IPC) of cheating as defined under
Section 415 IPC.
13. A careful reading of the allegations contained in the complaint as well as in the statement of witnesses only show that in the course of commercial transaction the defacto complainant had supplied fabrics on several occasions and the petitioners were also making payments towards such purchases made by them and ultimately the petitioners paid certain amounts to the defacto complainant, which amounts were not paid, according to the defacto complainant. It is also alleged in the complaint that at one stage the petitioners had represented to the defacto complainant that they had got an export order worth Rs.1.50 crores and if the fabrics are supplied by the defacto complainant the sale price will be settled on realisation of the value of the export of the goods. The further allegation is that contrary to the said representation the petitioners are said to have sold the goods supplied by the defacto complainant in the local market instead of exporting them which according to the defacto complainant amounts to cheating.
14. L.W.1 in his statement has stated as under:-
"fpuz;Fkhh; Yy;yh. kndh$; Fkhh; Yy;yh. ,uhzp Fkhh; Yy;yh K:tUk; xd;W nrh;e;J Kjypy; ek;gpf;if Vw;gLk;go tpahghuk; bra;J jpl;l kpl;L bfh";rk; bfh";rkhf gzghf;fp itj;J Vwj;jhH U:/1/5 nfho kjpg;g[s;s Jzpfis Vw;Wkjp bra;tjhf Vkhw;wp v';fsplk; th';fpa Jzpfis cs;Sh; khh;f;bfl;oy; tpw;W j';fs; Rayhgj;ij njor; bfhz;L v';fis nkhro bra;Js;sdh;/////"
15. L.W.2 in his statement has stated as under:-
"fpuz;Fkhh; Yy;yh. kndh$; Fkhh; Yy;yh. ,uhzp Fkhh; Yy;yh K:tUk; jpl;l kpl;L Kjypy; ey;ygoahf tpahghuk; bra;J ey;y tpahghhp vd;W v';fis ek;g itj;J. gog;goahf rhp tu gzk; bfhLf;fhky; U:/1/5 nfho tiu Jzpfis th';fp bfhz;L v';fis. Vkhw;wp nkhro bra;J tpl;llhh;fs;/////"
16. The aforesaid statements of L.W.1 and L.W.2 reveal that during the course of the commercial transaction between the petitioners and the defacto complainant, the defacto complainant had supplied fabrics and the petitioners were making certain payments and ultimately a huge amount was due from the petitioners to the defacto complainant. Whether the above said failure on the part of the petitioners to pay the amounts towards the purchases of fabrics in the course of commercial transaction will amount to cheating or criminal breach of trust has to be considered in the light of the law laid down by the Apex Court in the various decisions relied upon by the learned counsel for the petitioners.
17. As laid down in the decision reported in AIR 2001 SUPREME COURT 2960 (referred to supra) in order to constitute an offence of cheating, the intention to deceive should be in existence at the time when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise to say that he committed an act of cheating. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating. If, in the light of the above said legal principle laid down by the Apex Court, the allegations contained in the complaint and in the statement of witnesses L.W.1 and L.W.2 are considered, it could be seen that admittedly even as per the allegations contained, the petitioners were prompt in making payments for the purchases made by them at the beginning and they have committed default in making the payment for the purchases made by them only during the course of commercial transaction between them. Thus, it is clear that there is an amount due between the petitioners and the defacto complainant, the second respondent herein. If, during the course of commercial transaction, there is any default on the part of the petitioners in making the payment of the price of the fabrics supplied by the defacto complainant, it cannot be said that they have committed an offence of cheating. The allegations contained in the complaint and in the statement of witnesses, L.W.1 and L.W.2, do not disclose that the petitioners had an intention to deceive at the time when the commercial transaction commenced. At best, it could be seen that there was a failure on the part of the petitioners to keep up the promise subsequently and that cannot be presumed to be an act leading to cheating.
18. In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is, the time when the offence is said to have been committed. Therefore, it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed. Therefore, when there are no allegations either in the complaint or in the statement of L.W.1 and L.W.2 to show that the petitioners had fraudulent or dishonest intention at the time of making the promise, it has to be held that the ingredients of the offence under
Section 420 IPC are not made out. Therefore, the said contention of the learned counsel for the petitioners has to be accepted.
19. As far as the contention of the learned counsel for the defacto complainant / the second respondent herein that the allegations contained in the complaint do reveal the ingredients of the offence under
Section 406 IPC is concerned, it has to be pointed out that nowhere in the complaint or in their statements, the defacto complainant has stated that the petitioners committed breach of trust.
20. It has to be pointed out that once the goods namely the fabrics are sold by the defacto complainant to the petitioners, then, the title of the goods passes to the petitioners and therefore it cannot be said that the title or dominion over the fabrics supplied by the defacto complainant confirmed to vest with the defacto complainant. Therefore, the question of entrustment or misappropriation does not arise in a sale transaction. The facts of the case relied upon by the learned counsel for the second respondent are totally different from the facts of the case on hand. Therefore, the contention of the learned counsel for the second respondent cannot be countenanced.
21. For the aforesaid reasons, the above Criminal Original Petition is allowed and all further proceedings in C.C.No.17397 of 2003 on the file of the Chief Metropolitan Magistrate, Egmore, Chennai, is hereby quashed. Consequently, the connected Crl.M.Ps are closed.
17.09.2009 Index : Yes / No Web : Yes / No srk To
1.The Inspector of Police, E.O.W.II, Chennai 2
2.The Chief Metropolitan Magistrate, Egmore, Chennai K.MOHAN RAM, J., srk Crl.O.P.No.10765 of 2004 and Crl.M.P.Nos.3649 and 3650 of 2004 17.09.2009