IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF FEBRUARY 2019 BEFORE THE HON’BLE MR. JUSTICE JOHN MICHAEL CUNHA CRIMINAL PETITION NO.7069 OF 2016 C/W CRIMINAL PETITION NO.7334 OF 2016 IN CRIMINAL PETITION NO.7069 OF 2016 BETWEEN:
1. MR. RAVI KANNAN SON OF K.N.KANNAN AGED ABOUT 57 YEARS, RESIDING AT FLAT NO.604, 6TH FLOOR, G BLOCK, SPRUCE, RAHEJA RESIDENCY, KORAMANGALA, BANGALORE-560034 2. MR. PRASHANTH DESHPANDE SON OF VYANKATESH DESHPANDE, AGED ABOUT 48 YEARS, RESIDING AT PLOT NO.11, FLAT NO.308, ASHOKA HEIGHTS APARTMENT, SREEKANTEERVA NAGAR, MAHALAKSHMI LAYOUT, BANGALORE-560 006 ... PETITIONERS (BY SRINIVASA RAGHAVAN SENIOR COUNSEL A/W MS VARSHA HITHIHALLI, ADVOCATE) AND 1. STATE OF KARNATAKA REPRESENTED BY STATION HOUSE OFFICER, AVALAHALLI POLICE, HOSKOTE CIRCLE, BANGALORE DISTRICT 2. V. SRINIVASULA REDDY SON OF V.A.SESHA REDDY, AGED ABOUT 54 YEARS, GATEWAY RAIL FREIGHT LIMITED., NO.207, SOUTHERN PARK, SAKET DISTRICT CENTRE, NEW DELHI-110017 (BY SRI: NASRULLA KHAN, HCGP FOR R1 ... RESPONDENTS SRI: ARAVIND KAMATH, SENIOR COUNSEL FOR R2) THIS CRIMINAL PETITION IS FILED U/S.482 CR.P.C PRAYING TO QUASH THE FIR BEARING NO.164/2016 REGISTERED BY THE AVALAHALLI POLICE, HOSKOTE CIRCLE, BANGALORE DISTRICT AT ANNEXURE-A AND ALL PROCEEDINGS IN FURTHERANCE THEREOF.
IN CRIMINAL PETITION NO.7334 OF 2016 BETWEEN:
SRI ASHOK BIDIYASAR A S SON OF DHANNA RAM AGED ABOUT 55 YEARS PROPRIETOR M/S BALAJI INTERIORS RESIDING AT NO 927, SAI GREEN APARTMENT ROAD, B S PALYA, KALYAN NAGAR, BANASWADI RING ROAD, BANGALORE - 560043 ... PETITIONER (BY SRI: R. KIRAN, ADVOCATE) AND 1. STATE OF KARNATAKA REPRESENTED BY AVALAHALLI POLICE HOSKOTE CIRCLE BANGALORE DIST 2. V SRINIVASULA REDDY SON OF V A SESHA REDDY AGED ABOUT 54 YEARS GATEWAY RAIL FREIGHT LIMITED 207, SOUTHERN PARK , SAKET DISTRICT CENTER NEW DELHI - 110017 ... RESPONDENTS (BY NASRULLA KHAN, HCGP FOR R1 SRI: ARAVIND KAMATH, SENIOR COUNSEL FOR R2) THIS CRIMINAL PETITION IS FILED U/S.482 CR.P.C PRAYING TO QUASH THE FIR NO.164/2016 REGISTERED BY AVALAHALLI POLICE, HOSAKOTE CIRCLE, BANGALORE DIST. AND BEFORE THE A.C.J.M., BANGALORE RURAL DIST. (AS PER ANNEXURE-A) THESE CRIMINAL PETITIONS COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING:-
O R D E R Petitioners are accused Nos.1, 2 and 3 in Cr.No.164/2016 registered for the offences punishable under sections 120B, 418, 406, 417, 420 and 409 IPC.
2. A complaint was lodged by one V. Srinivasulu Reddy on behalf of M/s.Snowman Logistics Limited, a Public Listed company on 27.05.2016. The material allegations made in the complaint are that, accused No.1 was the Chief Executive Officer & Time Director of the said company, petitioner No.2 was the Assistant General Manager of Projects and accused No.3 was supplying furniture to the company and was an Interior Decorator by Profession.
3. According to the complainant, in the year 2015, the company intended to set up a Warehouse in Jaipur. Accused No.1 attended to the said work. It is alleged that accused No.1 entered into clandestine dealing with accused No.3 and obtained a Letter of Intent, whereunder accused No.3 agreed to lease out the premises for establishment of a warehouse. In terms of this Letter of Intent, a sum of Rs.3.00 crores was paid by way of refundable security deposit to accused No.3. A lease deed was executed on 26.06.2015. However, subsequently, it transpired that as on the date of Letter of Intent as well as at the time of payment of refundable security deposit of Rs.3.00 crores, accused No.3 had not acquired any title to the said property. By receiving the money from accused No.1, accused No.3 purchased the properties in his name and the very same properties were leased out to the company thereby accused No.1 being the CEO of the company failed to protect the interest of the company and in the process cheated the company and caused huge loss to the company. It is also alleged that accused No.1 being the CEO and a whole time Director failed to verify the land records and other important records to know whether accused No.3 owned land or not, instead, he made payment to accused No.3 of Rs.3.00 crores and thereby breached the trust reposed in him.
4(i) Learned counsel appearing for accused Nos.1 and 2 has taken me through the Letter of Intent as well as the contents of the complaint and would submit that prior to embarking upon the above venture, the Board of Directors of M/s. Snowman Logistics Limited had passed a resolution, authorizing the CEO to acquire suitable land on lease basis to build up a warehouse. Accordingly, Letter of Intent was entered into with accused No.3. Under the said Letter of Intent, the mode of payment and other terms were stipulated. Neither accused No.3 nor accused No.1 suppressed any fact even with regard to title to the land in question. In the Letter of Intent, it was specifically stated that accused No.3 shall complete the registration of land referred above in his name and submit the documents before execution of the lease deed. Therefore, there was neither any suppression of facts by accused Nos.1 and 2 nor any criminal intent to cheat or deceive the company. On the other hand, the said land was leased out to the company in terms and conditions mutually agreed to by the company. Therefore, there was absolutely no element of deception or cheating whatsoever in the entire transaction.
(ii) Learned counsel further submitted that subsequently, the company itself defaulted in payment of the rent and in this regard, accused No.3 had to invoke the arbitration clause contained in the lease agreement and an Arbitrator was appointed to decide the dispute between the parties. It is at that stage, a complaint has been lodged solely to create a ground to wriggle out of failure of the company to comply with the obligations taken up by it under the lease agreement. Further, learned counsel would submit that even before the Arbitrator, the complainant has set up a plea of fraud and cheating and the Arbitrator entered into reference on the said issue and has given a finding against the company holding that there was no element of any cheating or fraud in the entire transaction. Further he submits that as per the lease agreement, the Warehouse was also set up and it is only after the resignation of accused Nos.1 and 2 from the company, the instant complaint has been lodged against them with ulterior motives, on account of business rivalry, since accused No.1 and 2 have set up independent companies and are carrying on similar business as that of the complainant. Hence the complaint is malafide and vexatious.
5. Learned counsel appearing for accused No.3 (petitioner in Cr.P.No.7334/2016) has also argued in line with the learned counsel for the petitioners in Crl.P.No.7069/2016 and would submit that accused No.3 had procured the land on the request of accused No.1 and there was no element of cheating whatsoever in the transaction in question. Accused No.3 has received refundable security deposit in the form of premium. The said amount was required to be refunded to the petitioners on termination of the lease agreement. Therefore, the question of accused No.3 making any unlawful gain in the instant transaction does not arise at all. Further, he submits that with regard to the title, accused No.1 knew about the ownership of the land and therefore, there was no element of cheating either at the inception of the contract or at any stage of execution of the lease agreement and hence to dismiss the petition.
6. Learned counsel appearing for respondent No.2/ complainant submits that the entire transaction has been carried on by the accused persons clandestinely and in the bargain, accused No.1 being the CEO has failed to protect the interest of the company. The material on record clearly indicate that accused No.3 was not the owner of the land as on the date of Letter of Intent. A huge amount of Rs.3.00 crores was released to accused No.3 without there being prior sanction of the Board of Directors of Snowman Logistics Limited. Out of the said amount, accused No.3 purchased the properties and leased out the same land to the company at an exorbitant rent of Rs.2.75 paise per sq.ft. Accused No.1 was very well aware of cost of land, which was less than the advance amount paid to accused No.3. If accused No.1 had protected the interest of the company, the company itself would have purchased the said properties rather than going for lease of the said properties. Referring to section 418 of IPC, learned counsel has emphasized that on account of act of accused No.1, not only wrongful loss has been caused to the company, but accused No.1 being the CEO having occupied a fiduciary position has failed to protect the interest of the company and thereby committed the offence under section 418 punishable under Section 420 of Indian Penal Code and allied offences.
7. Considered the rival submissions and perused the documents.
8. It is not in dispute that accused No.1 was the CEO of the complainant company at the relevant point of time. Even though it is alleged that accused No.1 had caused wrongful loss to the company and has cheated the company by entering into a shoddy transaction with accused No.3, in appreciating the allegations levelled against the petitioners, it is pertinent to note that accused No.1 got into action only after the Board of Directors passed a resolution to set up a warehouse in Jaipur. The minutes of the Board of meeting of Directors of Snowman Company Limited is dated 28.01.2015. In the said Board meeting, a resolution was taken by the Board of Directors to set up a Warehouse in Jaipur on acquiring suitable land on lease basis. There is nothing in the said resolution to indicate that the company intended to purchase any properties for the purpose of establishment of a warehouse. Therefore the question of accused No.1 acquiring the properties on outright purchase does not arise at all. Records reveal that Accused No.1 entered into lease transaction with accused No.3 in terms of the resolution passed by the Board of Directors. Therefore no motives could be ascribed to the deal entered into by Accused No.1.
9. Undeniably, accused No.3 was not an employee of the company. He has entered into a contract with the CEO namely accused No.1 in his individual capacity representing himself to be owner of the property which he has agreed to lease out to the company. Under the Letter of Intent, accused No.3 has agreed to provide 1 hectare of land bearing Sy.Nos.421, 422, 423 and 425 of Salarwas Village, Amber Thesil, Jaipur Distrit for a period of 20 years. Clause (a) of the said Letter of Intent clearly indicates that as on the date of Letter of Intent, accused No.3 was not the owner of the said properties. In the said Letter of Intent, accused No.3 has specifically agreed that he would complete registration of the land referred above in his name and submit the documents prior to execution of the lease deed. It is not in dispute that a lease deed was executed on 26.06.2015. By then, accused No.3 has obtained ownership over the said lands as evidenced in the registered sale deed dated 22.05.2015. It may be that accused No.3 has purchased the above properties for Rs.2.80 crores out of the advance paid by accused No.1, but whatever advance received by Accused No.3 under the Letter of Intent is refundable on termination of the lease agreement, it cannot be said that out of the money paid by the Company he has purchased the said property. When the company had resolved only to set up its factory in leased premises, there is no reason to impute any criminal intent either against accused Nos.1 and 2 or accused No.3 with regard to the alleged transaction. As already stated above, the company never intended to purchase the property at any point of time. The resolution passed by the Board required the CEO to enter into only a lease agreement not a sale transaction. If for any reason, accused No.3 has acquired the said property out of the advance received from accused No.1, the same cannot be construed as ‘cheating’ within the meaning of Section 415 of IPC or ‘wrongful loss’ within the meaning of Section 418 of IPC. There is nothing on record to show that accused No.1 has derived any profit or benefit for himself. On the other hand the case of the prosecution is that the advance amount was paid to accused No.3. Therefore there is no cheating by accused No.1. It is only on hindsight the company having found out that the sale consideration reflected in the sale deed is less than the amount paid by them, the allegation of cheating appears to have been leveled against accused Nos. 1 and 3; but respondent No.2 appears to have lost sight of the fact that the amount paid to accused No.3 was a refundable security deposit. Company therefore has not sustained any loss. This is evident from the fact that even though it is alleged that the transaction was intended to cheat the company and to cause loss to the company, there is nothing on record to indicate that even after coming to know about the alleged transaction, the company has terminated the agreement, instead, the records disclose that in terms of the lease agreement, the company had set up a warehouse in the property in question. This indicates that at the time of execution of the lease agreement as well as at the time of setting up the business, the company had no grouse whatsoever either against accused Nos.1 and 2 or against accused No.3, for the simple reason that the company never intended to purchase the properties. There are no allegations that accused No.2 has acted in violation of the resolution passed by the company. On the other hand, the company itself having approved the said lease deed and having set up the business, on the basis of subsequent allegation made against the petitioners, that too, after a lapse of more than one year of the lease deed, the charges cannot be sustained. In order to constitute an offence under Section 420 of IPC, element of ‘deception’ must be present at the time of commencement of the offence.
10. In this context, it is apt to refer to the decision of the Hon’ble Supreme Court in HRIDAYA RANJAN PRASAD VERMA vs. STATE OF BIHAR (2000)4 SCC 168, wherein it is held as under:
“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.”
11. As held by the Hon’ble Supreme Court in the above case, elements of deception, cheating and fraudulent intention should be shown to be existing right at the beginning of the transaction i.e., at the time when the offence is said to have been committed. In the instant case, there is nothing on record to show that the accused were actuated with any criminal intent at the time of entering into the said transaction. Therefore, taking into consideration all the above facts and circumstances, in my view, the prosecution of the petitioners for the above offences is legally untenable and is liable to be quashed.
Accordingly, the petitions are allowed. The impugned FIR registered in Cr.No.164/2016 against the petitioners pending on the file of Addl. Chief Judicial Magistrate, Bengaluru Rural District for the offences punishable under sections 120B, 418, 406, 417, 420 and 409 of Indian Penal Code is quashed.
In view of disposal of the petitions, I.A.No.2/2016 filed in Crl.P.No.7069/2016 and I.A.No.3/2016 filed in Crl.P.No.7334/2016 do not survive for consideration and they are also disposed of.
*mn/-
Sd/- JUDGE