::1::

HIGH COURT OF ANDHRA PRADESH AT AMARAVATI

Crl.P.No.9794 of 2022

Between:

Argus Cosmetics Limited, and Others ...PETITIONER/ACCUSED(S)

AND

The State Of Andhra Pradesh and

Others

...RESPONDENT/COMPLAINANT(S)

DATE OF JUDGMENT PRONOUNCED: 25.10.2024

SUBMITTED FOR APPROVAL:

HON’BLE SMT JUSTICE VENKATA JYOTHIRMAI PRATAPA

1. Whether Reporters of Local newspapers Yes/No

may be allowed to see the Judgments?

2. Whether the copies of judgment may be Yes/No

marked to Law Reporters/Journals?

3. Whether Their Ladyship/Lordship wish to Yes/No

see the fair copy of the Judgment?

__________________________________________

SMT JUSTICE VENKATA JYOTHIRMAI PRATAPA

::2::

HON’BLE SMT JUSTICE VENKATA JYOTHIRMAI PRATAPA

+ Crl.P.No.9794 of 2022

%25.10.2024

# Argus Cosmetics Limited, and Others

.. Petitioners

Vs.

$ The State Of Andhra Pradesh and Others.

.. Respondents

<GIST:

>HEAD NOTE:

! Counsel for petitioner: Sri T V P SAI VIHARI.

Counsel for respondents: 1) Sri ANCHA PANDURANGA RAO

2) PUBLIC PROSECUTOR (AP )

? CASES REFERRED:

1. LL 2021 SC 211

2. 1992 Supp (1) SCC 335

3. (1988) 1 SCC 692.

4. (2021) 2 SCC 427

5. 2023 (1) INSC 683

6. 2023 SCC OnLine SC 603

7. 2009 (8) SCC 751

8. 2024 SCC Online SC 2248

9. (2007) 14 SCC 768

10. 1986 AIR 2045

::3::

APHC010667652022

IN THE HIGH COURT OF ANDHRA

PRADESH

AT AMARAVATI

(Special Original Jurisdiction)

[3396]

FRIDAY ,THE TWENTY FIFTH DAY OF OCTOBER

TWO THOUSAND AND TWENTY FOUR

PRESENT

THE HONOURABLE SMT JUSTICE VENKATA JYOTHIRMAI PRATAPA

CRIMINAL PETITION NO: 9794/2022

Between:

Argus Cosmetics Limited, and Others ...PETITIONER/ACCUSED(S)

AND

The State Of Andhra Pradesh and

Others

...RESPONDENT/COMPLAINANT(S)

Counsel for the Petitioner/accused(S):

1. T V P SAI VIHARI

Counsel for the Respondent/complainant(S):

1. ANCHA PANDURANGA RAO

2. PUBLIC PROSECUTOR (AP)

The Court made the following

ORDER:

1. The instant Criminal Petition under Section 482 of the Code of

Criminal Procedure, 1973

1

has been filed by Petitioners/Accused Nos.1,

2, 3 & 5, seeking to quash the C.C.No.1555/2022 on the file of I

1

for short „Cr.P.C‟

::4::

Additional Metropolitan Magistrate at Vijayawada, Krishna District

registered for the offences Under Sections 409, 384, 506, 420 r/w 120A

and 34 of IPC.

2. Heard Sri K.S. Murthy, learned Senior Counsel representing Sri

T.V. Sai Vihari, learned counsel for the Petitioners, Sri T. Ramesh Babu,

learned counsel representing Sri A. Pandu Ranga Rao, learned counsel

for the Respondent No.2 and Ms. Lakshmi Priyanka, learned Assistant

Public Prosecutor, representing the State.

3. The brief contents of the complaint which was filed by

Respondent No.2, are thus:

a. It is stated that Respondent No.2 is doing business in cosmetics

since 2004 and is a stockist/distributor of various cosmetic brands. A1 is

a manufacturing company. On 01.12.2016, Respondent No.2 deposited

Rs.1.25 crores with A1 for business of mega stockist on assurance of 3%

margin/discount per month irrespective of sales as per the agreement.

b. Just after few months of such agreement with the Company they

did not pay the monthly interest/margin and it is accumulated to a huge

value.Respondent No.2 is raising monthly debit notes and communicating

to the Company by e-mails regularly. The Company failed to supply

stocks from August, 2017 to December, 2017. In December, 2017 they

have asked for extra finance to manufacture stocks with assurance of

25% to 30% of extra supply to clear the accumulated amount slowly, else

::5::

they threatened that they will supply stocks to others who come with cash

and that Respondent No.2 yielded to their blackmailing demand and it

was carried on till August, 2020 by falling and rising.

c. Accused sent accounts statements dated 09.08.2017 and

19.02.2018 admitting the arrears of Rs.14 lakhs and Rs.44 lakhs

respectively. Thereafter, in spite of several requests made by Respondent

No.2 through mails Accused is not sending account statements. In

August, 2020 again they stopped supplies and Respondent No.2 sent an

e-mail requesting to restore the supply or return the deposit altogether

Rs.1.64 crores but there is no response from the Company.

d. Respondent No.2 gave a complaint to the Commissioner of Police

on 12.08.2020 which was forwarded to Suryaraopeta Police Station and

that after few calls to the accused Company by police they have restored

the supplies on 29.08.2020 that an e-mail with clear assurance to review

the system within three months by then. The business ran-up to

December, 2020. In December, 2020 while Respondent No.2 asked the

accused Company to review the system, they totally stopped the supplies

from 01.01.2021. As there is no other go, Respondent No.2 approached

the police. A6 and A7 came to the police station along with their counsel

on 28.01.2021 and the counsel by name M. Vasu Venkat, who came from

Chennai accepted that stoppage of supply by the accused is wrong.

Accused Company requested the police for negotiations. On their

::6::

request, Respondent No.2 has sent statement of account through e-mail

for reconciliation. The Advocate for accused Company replied showing

his inability to settle the issue. The accused are supplying the stocks

directly to the super stockist in utter violation of the terms of the

agreement highhandedly. The Respondent No.2 received a notice from

Telangana Sales Tax Department on 22.01.2021 asking to pay Rs.11.72

crores which was fallen due from M/s Argus Cosmetics Limited since

2006-07 to 2017-18 financial years. Respondent No.2 also received

similar notice from Chennai GST office for Rs.3.72 Crores in June, 2018

by registered post.

e. The financial statements of accused Company reveal remarks of

their auditors that all the directors took interest free loans violating the

Section 185 of Companies Act and are increasing year by year. It is

mentioned in the financial statement of 2018-19 that a director filed a

complaint against the Company and other three directors before National

Company Law Tribunal

2

, Chennai for oppression of minority interest. As

per the terms of the agreement, accused Company have to keep the

stocks worth deposit in Complainant‟s premises which never took place

since the inception. The accused Company never disbursed the monthly

margin either by stock or by cash. Respondent No.2 has taken loan from

DCB Bank to the tune of Rs.1.98 crores by mortgaging her property and

facing hardship to pay EMIs besides meeting other expenses comes to

2

for short “NCLT”

::7::

Rs. 4 lakhs per month. Respondent No.2 was forced to withdraw the

amount invested in other banks to meet the EMIs to the bank and family

expenses.

f. Respondent No.2 was forced to yield to the highhanded demand of

advance amounts to each and every invoice of supply for the

blackmailing of accused Company that she will forego not only supply but

also offer of 25% to 30% extra stock to reduce the accumulated amounts.

Violation of terms of agreement by the accused company attracts the

offences U/s 409 of IPC. Demanding advance payments by threatening to

sell the stocks to others attracts the provisions of Section 384 and 506 of

IPC. Failure to pay monthly margin and return account dues after

stoppage of supplies in spite of demands by e-mails attract the offences

U/s 420 IPC. All the actions of the accused are with the connivance of

one another. Hence the provision of Sections 120 A and 34 IPC applied

to the accused.

4. Grounds Sought for Quashment:

a. Respondent No.2 filed petition u/s 9 of Insolvency and Bankruptcy

Code, 2016

3

before NCLT, Chennai vide C.P./IP/90 (CHE)/2021 and the

same was dismissed and on which an appeal was preferred by the

Respondent No.2 before NCLAT vide Appeal (AT)(Ch)(Ins) No.317 of

2022 was dismissed by confirming the judgment of NCLT, Chennai. The

Respondent No.2 suppressed the same in the complaint.

3

for short “IBC”

::8::

b. The allegations made against the accused if are taken to be true,

they constitute, at best a breach of agreement. There are no allegations

in the complaint that from the inception of super stockist agreement itself

the elements of mensrea of cheating etc., were there.

c. The transactions between the accused and the complainant are

purely business oriented and they cannot be dubbed into the offence of

cheating since there was neither any promise nor any kind of inducement.

If at all if there is any grievance to recover the alleged dues, the remedy is

only to approach the competent civil Court but not filing a complaint by

invoking the criminal provisions and it is filed only with an intention to arm

twist the accused. It is purely abuse of process of law. Even assuming

that the allegations in the complaint are tested, no cognizable offences is

made out against the accused. It is purely a legitimate business

operation and no criminal offence has been committed. The Complainant

is attempting to cause prejudice to the accused by making them to go

through their rigor of a criminal trial that too at a distant place from their

ordinary place of business for no fault of theirs.

5. The key averments made by the Respondent No.2 in counter

of the vacate stay petition:

a. On the complaint filed by Respondent No.2, the Court took

cognizance for the offence punishable U/s 409, 384, 506, 420 r/w 120-A

and 34 IPC in CC No.1555/2022.

::9::

b. The question of suppression of material facts does not arise in this

case, since the private complaint has been filed prior to filing of a

Company petition before NCLT and appeal thereafter before NCLAT.

Non-return of deposit, non-payment of interest and deposit and arrears,

stoppage of supply to Respondent No.2 and subsequent supplies to other

super stockists of Andhra Pradesh in violation of agreement concretely

prove the existence of elements of mens rea and cheating.

c. The complaint is not filed for recovery of money. Therefore, the

Complainant is at liberty and legally entitled to redress her grievance

under the provisions of IPC and there is no prohibition in that regard.

Mere pendency of Company Petition No.26/2023 before NCLT, Chennai

for recovery of the due amount does not dissolve or relieve the accused

from their criminal liability. Malafide intention of the accused is the visible

by their acts, deeds, omissions and commissions.

d. The Complainant‟s case was not dismissed on merits by NCLT and

NCLAT. The statements of Respondent No.2 are supported by concerned

e-mails. Accused are aware of pendency of Company Petition

No.26/2023 before NCLT, Chennai since notice served on them which

was suppressed in the criminal petition. The Complainant has also made

a report to the Registrar of Companies, Chennai against the accused

through mail on 01.03.2021, in turn, initiated enquiry which is pending for

::10::

consideration. But the accused suppressed and concealed this fact which

reveals malafides on their part.

e. The Complainant has also made a complaint to CBI through mail

on 27.02.2021 and also to Ministry of Corporate Affairs against accused,

who suggested the Complainant to approach the appropriate police

authority, judicial forum for her grievance since the matter relates to

breach of trust, mens rea and cheating.

f. The accused herein are the habitual offenders and indebted to a

supplier of cartons i.e., M/s Manipal Technologies Limited in the year

2014 itself, who filed a liquidation petition in the year 2014 and the status

of accused Company was converted by Registrar of Companies, Chennai

as “Under Liquidation”.

6. The brief contents of the rejoinder filed by the accused in

brief:

a. The parties are in a business contractual relationship. If amounts

are due under the contract the same cannot be worked out in a criminal

complaint. Respondent No.2 himself is admitting that certain credit notes

were issued and certain supplies were made and admittedly the accounts

between the parties are to be reconciled and without reconciliation of the

accounts the Complainant cannot claim any amounts.

b. The Complainant has failed to demonstrate the culpability of the

Petitioners/accused. Certain payments made by the accused were not

::11::

properly deducted. Complainant without approaching the civil Court filed

the present complaint which demonstrates the intention to harass the

petitioners/accused. Complainant has not entrusted any property to the

Petitioners/accused and accused never dishonestly appropriated the

property of the complainant. Supply of stocks to others, even if it is true,

would constitute a breach of agreement and does not attract Section 409

IPC.

c. The entire transaction between the parties were in the course of

legitimate business dealings. There is no threat of injury and there are no

averments in the complaint that the Petitioners/accused intimidated the

Complainant with criminal intention to do what is illegal or to avoid doing

what is legal. Hence no offences U/s 384, 506 IPC are made out.

d. No specific overt act against each of the petitioners/accused have

been mentioned to make out criminal conspiracy or common intention.

e. Initially, the husband of the Respondent No.2 filed the complaint on

06.04.2021 and after several returns by the Court finally neat copy of the

complaint has been filed by changing the cause title and also carried out

many corrections on 28.05.2022, whereas the application Under Section

9 of IPC was filed before NCLT on 06.04.2021.

f. Even in the sworn statement the Complainant did not choose to

reveal the fact of filing a Company Petition before NCLT, Chennai. The

alleged non-return of deposit, non-payment of interest, stoppage of

::12::

supplies, and alleged supplies to other super stockiest in violation of

agreement are all civil in nature without any mens rea at the time of

inception of the contract.

g. The averments of the private complaint fully speak about the

recovery of money. It is an arm-twisting exercise by the Complainant to

recover moneys that are not due to her under the threat of criminal

prosecution.

h. The observations made by NCLAT and the Hon‟ble Supreme Court

in the nature of giving liberty for recovery of money before a competent

civil forum. When such is the position stating that criminal Court and Civil

Court will have coordinate jurisdiction is baseless. Owing an operational

debt which defined under Chapter-V of the Companies Act, 2013 would

not fasten any criminal liability on the petitioners.

i. It is the consistent case of accused that in the course of business

they have supplied goods more than the money received by them from

the Complainant. It is for the Complainant to plead the contrary by

approaching a competent civil forum to settle accounts. Dragging the

Petitioners/Accused to a criminal court could amount to pressurizing them

to settle the alleged dues without any adjudication.

j. Respondent No.2 failed to raise a plea of malafideand that which is

not pleaded cannot be proved. The order of the Hon‟ble Supreme Court

in Civil Appeal No.31/2022, dated 11.11.2022 would show there exists

::13::

mere civil disputes between the parties. It does not disclose unethical

and dishonest intention on the part of the accused as alleged. Accused

filed present petition in December, 2022, whereas the company petition

No.26/2023 was filed by the Respondent No.2 on 17.03.2023. Hence the

question of suppression of such fact in the criminal petition does not

arise.

k. The reply which was given by the Ministry of Corporate Affairs

Secretary Mrs. S. Padma Roy does not vest the Respondent No.2 with

any right to move the criminal Court, on the set of averments set out for

the private complaint. No criminal complaint is maintainable.

Arguments Advanced at the Bar

7. Learned Senior counsel for the Petitioners/ accused would submit

that Respondent No.2 entered an agreement with accused company on

01.12.2016 and the stocks were supplied till January, 2021 before filing

the present private complaint. Respondent No.2 has approached NCLT,

Chennai and the said petition was dismissed. Assailing its order,

Respondent No.2 filed an appeal before NCLAT which was dismissed.

Being aggrieved by such order, has also preferred a civil appeal before

the Hon‟ble Supreme Court of India, which was dismissed. It is stated by

the learned Senior Counsel that the Complainant did not choose to

mention the history of this litigation in the private complaint. Learned

Senior Counsel further would submit that though the private complaint

::14::

has been filed in the name of the husband of the Respondent No.2 which

was returned and several times adjourned for hearing. At last, the

complaint was again re-submitted by changing the cause title and by

adding the further information but deliberately they have suppressed the

litigation between the parties and the orders passed therein. Learned

Senior Counsel further would submit that as per the terms of the

agreement it is alleged that the accused failed to pay monthly

margin/discount as was offered and failed to supply stocks. Learned

Senior Counsel further would submit that the accused has stopped

sending supplies as on 01.01.2021.

8. Learned Senior Counsel further would submit that even if all the

allegations made against the accused in the complaint are taken into

consideration ontheir face value as true, they do not attract any offence

under the provisions of 409, 420, 384 and 506 IPC.Learned Senior

Counsel further would submit that the utmost it is a matter of breach of

terms of the contract which would amount to cheating only in case of any

deception played by the accused since the very inception. In the present

case, the supplies were made, since 01.01.2021 and the agreement is of

the year 2016 which would demonstrate that there was no deception from

the inception.

9. Learned Senior Counsel further would submit that the complaint

has been filed suppressing the facts of filing of a petition before NCLT

::15::

and NCLAT. Learned Senior Counsel further would submit that as of now

the company petition No.26/2023 is pending before NCLT, Chennai for

recovery of amount apart from the enquiry before Registrar of

Companies, Chennai. Learned Senior Counsel finally submits that unless

there is a rendition of account statements of both parties, the due

amount, if any, cannot be ascertained. In the present case the

Complainant wanted to punish the accused even without adjudication of

such due amount, if any. Learned Senior Counsel further submits that

even if operational debt is payable to the Complainant, it does not attract

any criminal offences. In that view, continuing the criminal proceedings

against the Petitioners/accused is mere abuse of process of law.

10. Per contra, learned counsel for Respondent No.2 would submit that

the private complaint has been filed on 06.04.2021. Hence filing a petition

before NCLT and appeal before NCLAT are subsequent events, then the

question on suppression of such facts in the complaint does not arise.

Learned counsel further would submit that the accused put the de-facto

complainant in fear and blackmail her to pay the amounts in advance in

each and every invoice though the deposit amount is lying with them and

without returning the margin amount and arrears the complainant was put

in fear of injury to her business by supplying stocks to super stockiest in

violation of the terms of the agreement. Learned counsel further would

submit that the cases preferred before NCLT and NCLAT were not

::16::

dismissed on merits. The complaint is very clear about the deception

played by the accused since the inception. Learned counsel in support of

their arguments placed reliance on Neeharika Infrastructure Pvt Ltd. V.

State of Maharashtra

4

.

Point for Determination

11. Having heard submissions on both sides, now the point that would

emerge for determination is

Whether there are any justifiable grounds for quashment of the

case against the petitioners for the offences punishable u/s

409, 506, 384, 420, r/w 34 and 120B of IPC?

Determination by the Court

12. Before going to discuss the point in issue the undisputed facts of

the case are that;

a. There is no dispute of the existence of Mega Stockiest Agreement

between the petitioners and Respondent No.2 on 01.12.2016.

b. It is also admitted fact that there is stoppage of supply of stock to

Respondent No.2 since January, 2021.

c. It is also not in dispute that the Respondent No.2 made a deposit of

Rs.1.25 Crores with accused Company, which is initial deposit.

4

LL 2021 SC 211

::17::

d. Complainant has approached NCLT by filing a petition u/s 9 IBC,

which was dismissed, thereafter preferred an appeal before NCLAT which

was also dismissed by confirming the order of the Tribunal.

e. Aggrieved by the order, the Complainant preferred civil appeal

seeking special leave in Civil Appeal No.31 of 2022 before Hon‟ble

Supreme Court of India which was dismissed.

f. As of now,Company Petition No.26/2023 is pending before the

NCLT, Chennai for recovery of the due amount

g. Enquiry is pending before the Registrar of Companies, Chennai on

the complaint made by the Respondent No.2

h. There was exchange of mails between the parties, subject to proof

of its contents.

13. A perusal of Section 482 makes it clear that the Code

envisages that inherent powers of the High Court are not limited or

affected so as to make orders as may be necessary; (i) to give effect to

any order under the Code or, (ii) to prevent abuse of the process of any

Court or, otherwise (iii) to secure ends of justice. A court while sitting in

Section 482Cr.P.C. jurisdiction is not functioning as a trial court, court of

appeal or a court of revision. It must exercise its powers to do real and

substantial justice, depending on the facts and circumstances of the case.

These powers must be invoked for compelling reasons of abuse of

::18::

process of law or glaring injustice, which are against sound principles of

criminal jurisprudence.

14. Specific circumstances warranting the invocation of the

provision must be present. To identify these specific circumstances, it is

essential to discuss some precedents. The decision rendered by the

Hon'ble Apex Court in State of Haryana v. Bhajanlal

5

is considered as

the guiding torch in the application of Section 482. At paras 102 and 103,

the circumstances are spelt out as follows;

“102. In the backdrop of the interpretation of the various

relevant provisions of the Code under Chapter XIV and of the

principles of law enunciated by this Court in a series of

decisions relating to the exercise of the extraordinary power

under Article 226 or the inherent powers under Section

482 of the Code which we have extracted and reproduced

above, we give the following categories of cases by way of

illustration wherein such power could be exercised either to

prevent abuse of the process of any court or otherwise to

secure the ends of justice, though it may not be possible to

lay down any precise, clearly defined and sufficiently

channelised and inflexible guidelines or rigid formulae and to

give an exhaustive list of myriad kinds of cases wherein such

power should be exercised.

(1) Where the allegations made in the first information report or

the complaint, even if they are taken at their face value and

accepted in their entirety do not prima facie constitute any

offence or make out a case against the accused.

(2) Where the allegations in the first information report and other

materials, if any, accompanying the FIR do not disclose a

cognizable offence, justifying an investigation by police

5

1992 Supp (1) SCC 335

::19::

officers under Section 156(1) of the Code except under an

order of a Magistrate within the purview of Section 155(2) of

the Code.

(3) Where the uncontroverted allegations made in the FIR or

complaint and the evidence collected in support of the same

do not disclose the commission of any offence and make out

a case against the accused.

(4) Where, the allegations in the FIR do not constitute a

cognizable offence but constitute only a non-cognizable

offence, no investigation is permitted by a police officer

without an order of a Magistrate as contemplated under

Section 155(2) of the Code.

(5) Where the allegations made in the FIR or complaint are so

absurd and inherently improbable on the basis of which no

prudent person can ever reach a just conclusion that there is

sufficient ground for proceeding against the accused.

(6) Where there is an express legal bar engrafted in any of the

provisions of the Code or the concerned Act (under which a

criminal proceeding is instituted) to the institution and

continuance of the proceedings and/or where there is a

specific provision in the Code or the concerned Act, providing

efficacious redress for the grievance of the aggrieved party.

(7) Where a criminal proceeding is manifestly attended with

mala fide and/or where the proceeding is maliciously

instituted with an ulterior motive for wreaking vengeance on

the accused and with a view to spite him due to private and

personal grudge.

103. We also give a note of caution to the effect that the

power of quashing a criminal proceeding should be exercised

very sparingly and with circumspection and that too in the

rarest of rare cases; that the court will not be justified in

embarking upon an enquiry as to the reliability or genuineness

or otherwise of the allegations made in the FIR or the

complaint and that the extraordinary or inherent powers do not

::20::

confer an arbitrary jurisdiction on the court to act according to

its whim or caprice”

(emphasis supplied)

15. A three-Judge Bench of the Hon'ble Supreme Court in

MadhavraoJiwajiraoScindia v. SambhajiraoChandrojiraoAngre

6

held

as follows;

“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 are 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 at a preliminary stage.”

(emphasis supplied)

16. In Arnab Goswami v. State of Maharashtra

7

, the Supreme

Court opined that while adjudicating a quash petition, the High Court is

duty-bound to undertake a prima facie evaluation of whether the

ingredients of the alleged offence have been established in the FIR.

6

(1988) 1 SCC 692.

7

(2021) 2 SCC 427

::21::

17. A three-Judge Bench of the Hon'ble Supreme Court

in Neeharika Infrastructure Pvt.Ltd.v. State of Maharashtra,(referred

supra) summarized the law for invocation on inherent powers in the

following terms;

“57. From the aforesaid decisions of this Court, right from the

decision of the Privy Council in the case of Khawaja Nazir

Ahmad (supra), the following principles of law emerge:

i) Police has the statutory right and duty under the relevant

provisions of the Code of Criminal Procedure contained in

Chapter XIV of the Code to investigate into cognizable

offences;

ii) Courts would not thwart any investigation into the cognizable

offences;

iii) However, in cases where no cognizable offence or offence of

any kind is disclosed in the first information report the Court

will not permit an investigation to go on;

iv) The power of quashing should be exercised sparingly with

circumspection, in the „rarest of rare cases‟. (The rarest of

rare cases standard in its applica-tion for quashing under

Section 482 Cr. P.C. is not to be confused with the norm

which has been formulated in the context of the death

penalty, as explained previously by this Court);

v) While examining an FIR/complaint, quashing of which is

sought, the court cannot embark upon an enquiry as to the

reliability or genuineness or otherwise of the allegations

made in the FIR/complaint;

vi) Criminal proceedings ought not to be scuttled at the initial

stage;

vii) Quashing of a complaint/FIR should be an exception and a

rarity than an ordinary rule;

::22::

viii) Ordinarily, the courts are barred from usurping the

jurisdiction of the police, since the two organs of the State

operate in two specific spheres of activities. The inherent

power of the court is, however, recognised to secure the

ends of justice or prevent the above of the process by

Section 482 Cr. P.C.

ix) The functions of the judiciary and the police are

complementary, not overlapping;

x) Save in exceptional cases where non-interference would

result in miscarriage of justice, the Court and the judicial

process should not interfere at the stage of investigation of

offences;

xi) Extraordinary and inherent powers of the Court do not confer

an arbitrary jurisdiction on the Court to act according to its

whims or caprice;

xii) The first information report is not an encyclopaedia which

must disclose all facts and details relating to the offence

reported. Therefore, when the investigation by the police is in

progress, the court should not go into the merits of the

allegations in the FIR. Police must be permitted to complete

the investigation. It would be premature to pronounce the

conclusion based on hazy facts that the complaint/FIR does

not deserve to be investigated or that it amounts to abuse of

process of law. During or after investigation, if the

investigating officer finds that there is no substance in the

application made by the complainant, the investigating officer

may file an appropriate report/summary before the learned

Magistrate which may be considered by the learned

Magistrate in accordance with the known procedure;

xiii) The power under Section 482 Cr. P.C. is very wide, but

conferment of wide power requires the court to be cautious. It

casts an onerous and more diligent duty on the court;

xiv) However, at the same time, the court, if it thinks fit, regard

being had to the parameters of quashing and the self-

restraint imposed by law, more particularly the parameters

::23::

laid down by this Court in the cases of R.P. Ka-pur (supra)

and Bhajan Lal (supra), has the jurisdiction to quash the

FIR/complaint;

xv) When a prayer for quashing the FIR is made by the alleged

accused, the court when it exercises the power under Section

482 Cr. P.C., only has to consider whether or not the

allegations in the FIR disclose the commission of a

cognizable offence and is not required to consider on merits

whether the allegations make out a cognizable offence or not

and the court has to permit the investigating agency/police to

investigate the allegations in the FIR.”

(emphasis supplied)

18. In Mohammad Wajid v. State of U.P.

8

, the Hon'ble Apex

Court while reiterating the position held in Bhajanlal (supra), made a

comprehensive analysis on the application of the Section. The Apex

Court stressed on the necessity to arrive at a balance between the law

enforcement power of the State and the protection of citizens from unjust

criminal proceedings. It was observed that the right not to be disturbed

without sufficient grounds is one of the mandates under Art 21 of

the Constitution of India. It was held in the following terms;

“34. At this stage, we would like to observe something

important. Whenever an accused comes before the Court

invoking either the inherent powers under Section 482 of

the Code of Criminal Procedure (CrPC) or extraordinary

jurisdiction under Article 226 of the Constitution to get the FIR

or the criminal proceedings quashed essentially on the

ground that such proceedings are manifestly frivolous or

vexatious or instituted with the ulterior motive for wreaking

vengeance, then in such circumstances the Court owes a

8

2023 (1) INSC 683

::24::

duty to look into the FIR with care and a little more closely.

We say so because once the complainant decides to proceed

against the accused with an ulterior motive for wreaking

personal vengeance, etc., then he would ensure that the

FIR/complaint is very well drafted with all the necessary

pleadings. The complainant would ensure that the averments

made in the FIR/complaint are such that they disclose the

necessary ingredients to constitute the alleged

offence. Therefore, it will not be just enough for the Court

to look into the averments made in the FIR/complaint

alone for the purpose of ascertaining whether the

necessary ingredients to constitute the alleged offence

are disclosed or not. In frivolous or vexatious

proceedings, the Court owes a duty to look into many

other attending circumstances emerging from the record

of the case over and above the averments and, if need

be, with due care and circumspection try to read in

between the lines. The Court while exercising its jurisdiction

under Section 482 of the Cr.P.C. or

Article 226 ofthe Constitution need not restrict itself only to

the stage of a case but is empowered to take into account the

overall circumstances leading to the initiation/registration of

the case as well as the materials collected in the course of

investigation. Take for instance the case on hand. Multiple

FIRs have been registered over a period of time. It is in the

background of such circumstances the registration of multiple

FIRs assumes importance, thereby attracting the issue of

wreaking vengeance out of private or personal grudge as

alleged.”

(emphasis supplied)

19. In Gulam Mustafa v. State of Karnataka

9

the Hon'ble

Supreme Court having expounded the law on the jurisdiction under

Section 482, held thus;

9

2023 SCC OnLine SC 603

::25::

“36. What is evincible from the extant case-law is that this

Court has been consistent in interfering in such matters where

purely civil disputes, more often than not, relating to land

and/or money are given the colour of criminality, only for the

purposes of exerting extra-judicial pressure on the party

concerned, which, we reiterate, is nothing but abuse of the

process of the court.…”

(emphasis supplied)

20. In Mohammad Ibrahim and others v. State of Bihar and

another

10

,the Hon‟ble Apex Court has held as under:

“This Court has time and again drawn attention to the

growing tendency of complainants attempting to give the

cloak of a criminal offence to matters which are essentially

and purely civil in nature, obviously either to apply

pressure on the accused, or out of enmity towards the

accused, or to subject the accused to harassment.

Criminal courts should ensure that proceedings before it

are not used for settling scores or to pressurise parties to

settle civil disputes……….”

(emphasis supplied)

21. To sum up, when a prosecution is sought to be intervened by

quashment, the test to be applied by the Court is to see whether the

uncontroverted allegations as made in the FIR/complaintprima facie

establish the offence alleged or not. An FIR/complaint may not be

quashed, merely because the allegations of criminality have a civil

element. But when the civil dispute is the overwhelming flavour of criminal

accusation, the Courts can intervene to quash the same.

10

2009 (8) SCC 751

::26::

22. In the context of the present case, it is apt to mention the

settled legal position thata mere breach of contract does not give raise to

criminal prosecution for cheating, unless it is shown that accused with

fraudulent or dishonest intention, acted since the inception of the

transaction.The intention of the accused at the time of inducement, plays

a vital role in determining if any offence has been committed. The

intention in certain cases, can be culled-out from the subsequent

conduct.Moreover, merefailure to keep up a promise is not sufficientto

initiate criminal proceedings for cheating.

23. In Delhi Race Club (1940) Ltd v. State of Uttar Pradesh

11

the Hon‟ble Supreme Court distinguished the offences of criminal breach

of trust as contained in Section 406 IPC and cheating as provided under

Section 420 as follows;

“25. What can be discerned from the above is that the

offences of criminal breach of trust (Section 406 IPC) and

cheating (Section 420 IPC) have specific ingredients. In order

to constitute a criminal breach of trust (Section 406 IPC): -

1) There must be entrustment with person for property or

dominion over the property, and

2) The person entrusted: -

a) dishonestly misappropriated or converted property to

his own use, or

b) dishonestly used or disposed of the property or

wilfully suffers any other person so to do in violation of:

i. any direction of law prescribing the method in

which the trust is discharged; or

ii. legal contract touching the discharge of trust.

11

2024 SCC Online SC 2248

::27::

Similarly, in respect of an offence under Section 420 IPC, the

essential ingredients are: -

1) deception of any person, either by making a false or

misleading representation or by other action or by omission;

2) fraudulently or dishonestly inducing any person to deliver

any property, or

3) the consent that any persons shall retain any property and

finally intentionally inducing that person to do or omit to do

anything which he would not do or omit (Harmanpreet Singh

Ahluwalia v. State of Punjab, (2009) 7 SCC 712 : (2009)

Cr.L.J. 3462 (SC)”

26. Further, in both the aforesaid sections, mens rea i.e.

intention to defraud or the dishonest intention must be present,

and in the case of cheating it must be there from the very

beginning or inception.

(emphasis supplied)

24. The Hon‟ble Supreme Court in Delhi Race Club (1940) Ltd

(supra 11) further elaborated stating that every act of breach of trust

would not result in a penal offence of criminal breach of trust unless there

is evidence of manipulating act of fraudulent misappropriation.It was also

observed by the Court that there is a thin line of distinction between a

mere breach of contract and the offences of criminal breach of trust and

cheating. It was also noted by the Court that the offences of criminal

breach of trust and cheating, though involve dishonest intention as an

element, are mutually exclusive and cannot co-exist simultaneously. In

case of criminal breach of trust, the offender must be lawfully entrusted

with a property, and hemust have dishonestly misappropriated the same.

On the other hand, in case of cheating, the offender fraudulently or

dishonestly induces a person by deceiving him to deliver any property.

::28::

Further, the Hon‟ble Supreme CourtinDelhi Race Club (1940) Ltd.

(Supra 11) opined as follows;

36. “From the aforesaid, there is no manner of any

doubt whatsoever that in case of sale of goods, the

property passes to the purchaser from the seller when

the goods are delivered. Once the property in the

goods passes to the purchaser, it cannot be said that

the purchaser was entrusted with the property of the

seller. Without entrustment of property, there cannot be

any criminal breach of trust. Thus, prosecution of cases

on charge of criminal breach of trust, for failure to pay

the consideration amount in case of sale of goods is

flawed to the core. There can be civil remedy for the

non-payment of the consideration amount, but no

criminal case will be maintainable for it. [See : Lalit

Chaturvedi and Others v. State of Uttar Pradesh and

Another : 2024 SCC OnLine SC 171 &Mideast

Integrated Steels Ltd. (MESCO Steel Ltd.) and Others

v. State of Jharkhand and Another : 2023 SCC

OnLineJhar 301]”

(emphasis supplied)

25. It is imperative to extract the following observation made by

the Hon‟ble Apex Court in the light of the offences under Section 409 and

420 of IPC, at para 42 and 43;

42. When dealing with a private complaint, the law

enjoins upon the magistrate a duty to meticulously examine

the contents of the complaint so as to determine whether

the offence of cheating or criminal breach of trust as the

case may be is made out from the averments made in the

complaint. The magistrate must carefully apply its mind to

ascertain whether the allegations, as stated, genuinely

constitute these specific offences. In contrast, when a case

arises from a FIR, this responsibility is of the police – to

thoroughly ascertain whether the allegations levelled by the

::29::

informant indeed falls under the category of cheating or

criminal breach of trust. Unfortunately, it has become a

common practice for the police officers to routinely and

mechanically proceed to register an FIR for both the

offences i.e. criminal breach of trust and cheating on a mere

allegation of some dishonesty or fraud, without any proper

application of mind.

43. It is high time that the police officers across the

country are imparted proper training in law so as to

understand the fine distinction between the offence of

cheating viz-a-viz criminal breach of trust. Both offences

are independent and distinct. The two offences cannot

coexist simultaneously in the same set of facts. They are

antithetical to each other. The two provisions of the IPC

(now BNS, 2023) are not twins that they cannot survive

without each other.

(emphasis supplied)

26. Coming to the facts of the present case, the learned

Magistrate took cognizance for the offences punishable under Sections

420 IPC as well as 409 IPC, which stands quite contra to the judgment in

Delhi Race Club (1940) Ltd. referred supra.

27. The record shows that the Petitioner No.1 is a limited

company. It is the case of Respondent No.2 that there is an outstanding

due amount which is payable by the Petitioner Company.The case of the

Complainant is that they have deposited Rs.1.25 crores with the

Petitioner No.1for the business of Mega Stockist in 2016. The Petitioner

No.1assured a discount of 3% per month as per the agreement

irrespective of sales shown by Complainant. After a few months of Mega

Stockist Agreement, it is alleged that the Petitioner No.1 stopped giving

monthly discounts. Thereafter, the Company approached theComplainant

::30::

for additional financial assurance of giving 25% to 30% extra supply to

compensate for the earlier default. It was done in December 2017. It is

further alleged that,in August 2020,the Company again stopped the

supply of the material to Complainant and not responded to the request

made by the Complainant through e-mails. The complainant then

approachedlocal police station. Due to intervention of the police, they

have supplied the stock for 3 months and then completely stopped supply

from 01.01.2021. On the other hand, the company stay states that the

Complainant suppressed the supply of value of goods during the period

from the date of the agreement till December 2020 and the company

disputed the due amount saying that they have supplied stock more than

the worth of amount received from the Complainant. Admittedly petition

has been filed before the NCLT under Section 9 of IBC 2016 and it was

dismissed by observing as follows:

“12. Thus, for a person to qualify as an Operational Creditor

he must have supplied the goods or rendered service to the

Corporate Debtor, which is not the proposition in the

present case and on the other, as per the agreement dated

01.12.2016 in page 20 of the typed set filed by the

Applicant, it is the Corporate Debtor who is required to

supply the goods to the Applicant, claiming to be

Operational Creditor. Further, the default in the present

case has arisen since the Corporate Debtor had failed to

repay the deposit which is made by the Applicant. Thus,

the failure to repay the deposit amount would not fall within

the meaning of “operational debt” as stipulated under

Section 5(21) of IBC, 2016 and as a consequent thereto,

the Petitoiner does not qualify to be an Operational Creditor

as defined under Section 5(20) of IBC, 2016 in respect of

the Corporate Debtor.

::31::

13.Thus, in view of the discussions made supra, the instant

Application filed by the Applicant under Section 9 of IBC,

2016 is not maintainable a nd accordingly stands

dismissed. No costs.”

28. It is also not in dispute that Complainant preferred appeal

impugning the order before NCLAT which was also dismissed, wherein

the learned Authority extracted the terms of Clauses 1 to 8 in Mega

Stockist Agreement as follows:

“ It is not out of place for this Tribunal to make a pertinent

mention that the „Mega Stockists Agreement‟, entered into

between the „Respondent‟/ Argus Cosmetics Limited‟, Chennai

– 600018 („Company‟) and the „Appellant‟ M/s. Sri Durga

Department Store, Vijayawada – 520002 („Mega Stockists‟),

the covenants of Clause Nos.1 to 8, reads as under:

1. “An amount of Rs.1,25,00,000/- (Rupees One Crore

Twenty Five Lacs Only) has been paid by M/s Sri

Durga Department Store by RTGS on 01.12.2016.

2. This investment of Rs.1,25,00,000/- (Rupees One

Crore Twenty Five Lacs Only) is eligible for a return of

3% per month as trade discount.

3. This 3% per month on the Investment of

Rs.1,25,00,000/- (Rupees One Crore Twenty Five

Lacs Only) will be paid by way of “Trade Margin” on

the supply of company‟s products of „Z‟ Talcum

Powder, „Z‟ Deodorant and „Z‟ Soap and other

products launched by Argus Cosmetics Limited.

4. The supplies will be made for the amount equivalent to

the Investment of Rs. Rs.1,25,00,000/- (Rupees One

Crore Twenty Five Lacs Only).

5. The Super Stockist will give their orders and advance

payment to the Mega Stockist M/s Sri Durga

Department Store.

6. The Mega Stockist will pass on the orders of the

Super Stockist and the amount IMMEDIATELY to

ARGUS by RTGS. In case the amount is not

transferred immediately, then it will be treated as

violation of this agreement.

::32::

7. ARGUS will supply stocks to the Mega Stockist on the

basis of orders and payments received.

8. If the billing exceeds Rs.1,25,00,000/- (Rupees One

Crore Twenty Five Lacs Only) in a particular month,

the Mega Stockist will be given an option of investing

additional amount, as required by ACL. In case the

Mega Stockist is unable to invest additional amount as

required, the supplies will be made DIRECTLY to

anyone or more Super Stockist/s”

29. Para 19 of the order indicates that is some amounts which

were paid were not deducted by the appellant. As can be seen from the

clause in the Mega Stockist Agreement, dated 01.12.2016,

theComplainant will pass on orders of the Super Stockist and the amount

immediately to the company. Then, the company supplies stocks to the

Complainant on the basis of Orders and payments received. The recitals

of the agreement would clearly demonstrate that by virtue of the

agreement dated 01.12.2016, the Petitioner No.1 is required to supply the

goods to the Complainant. In the present case there were some disputes

between the company and the complainant regarding the payment of the

amount and supply of the stocks. It is not out of place to mention that the

appeal was dismissed by NCLAT by observing as under:

“In fine, the instant Comp. App (AT) (CH) (Ins) No.317/2022

is dismissed. No costs. The connected I.A.No.675/2022 is

closed.

Before parting with this case, it is abundantly made quite

clear, by this „Tribunal‟, that the dismissal of the instant

Comp. App (AT) (CH) (Ins) No.317/2022, will not preclude

the „Appellant‟ / „Petitioner‟ / „Operational Creditor‟ to

approach the „Competent Civil Forum‟, for redressal of its

::33::

grievances, of course, in the manner known to „Law‟ and in

accordance with „Law‟, if it so desires / advised.”

30. It is pertinent to mention that the Complainant preferred aCivil

appeal impugning the order of NCLAT before Hon‟ble Supreme Court. It

is beneficial to extract the judgment of Hon‟ble Supreme Court in Civil

Appeal No.7631 of 2022:

“We see no reason to entertain this appeal considering that

both the National Company Law Tribunal (NCLT) and

National Company Law Appellate Tribunal (NCLAT) have

examined the matter in detail.

The Appeal is, accordingly, dismissed.

However, the appellant would avail the other remedies

available to them in law, to recover the amount.”

31. Coming to Section 383 of IPC, it deals with the offence of extortion

and the following are the essential ingredients necessary to make a case

as held in various judgments including Dhananjay v. State of Bihar

12

,

are;

a. The accused must put any person in fear of any injury to that

person, or to any other person;

b. The putting of such a person in such fear must be intentional;

c. The accused must thereby induce the person so put in fear

to deliver to any person any property or valuable security, or

anything signed or sealed which may be converted into a

valuable security

12

(2007) 14 SCC 768

::34::

d. Such inducement must be done dishonestly.

32. At this stage, in the context of the present case, it is apt to

refer to the decision rendered in R.S. Nayak v. A.R. Antulay

13

where it

has been held by Hon‟ble Supreme Court as under:

“Before a person can be said to put any person to fear of

any injury to that person, it must appear that he has held out

some threat to do or omit to do what he is legally bound to

do in future. If all that a man does is to promise to do a thing

which he is not legally bound to do and says that if money is

not paid to him he would not do that thing, such act would

not amount to an offence of extortion. We agree with this

view which has been indicated in Habibul Razak v. King

Emperor, A.I.R. 1924 All 197. There is no evidence at all in

this case that the managements of the sugar co- operatives

had been put in any fear and the contributions had been

paid in response to threats. Merely because the respondent

was Chief Minister at the relevant time and the sugar co-

operatives had some of their grievances pending

consideration before the Government and pressure was

brought about to make the donations promising

consideration of such grievances, possibly by way of

reciprocity, we do not think the appellant is justified in his

contention that the ingredients of the offence of extortion

have been made out. The evidence led by the prosecution

falls short of the requirements of law in regard to the alleged

offence of extortion. We see, therefore, no justification in the

claim of Mr. Jethmalani that a charge for the offence of

extortion should have been framed.”

(emphasis supplied)

33. Coming to the facts of the present case, as can be seen from the

contents of the complaint, it is the case of the complainant that the

accused company threatened to supply the stock directly to the super

stockist, unless they advance the money for supply of stock and it

13

1986 AIR 2045

::35::

amountsto extortion. In the backdrop of the legal position referred supra,

that cannotfall under the purview of the offences of extortion.

34. Admittedly,this is a case arising out of failure on the part of the

Company to honour the terms of the agreement. The company as well as

the complainant entered Mega stockist agreement on01.12.2016. The

complaint would show that initially for few months company honoured the

terms of the contract. After that, they started committing default of the

terms of the agreement. It is also on record that the complainant has

obeyed the proposal for investing additional amount for giving 25% to

30% extra supply and then again, the default committed in supplying the

stock in the 2018 for 3 months. Thereafter it was restored after some

time. In August, 2020 again there was a discussion and dispute and it

was reviewed due to intervention of police till December, 2020. The

record finally shows that since 01.01.2021 the company stopped the

supply finally. The series of events as described in the complaint would

show that from 01.12.2016 till 01.01.2021, there was a supply of the stock

and payments made by the Complainant. A dmittedly, the matter is

pending before the Tribunal, since company petition for the recovery of

due amount is pending. It is the case of the company that theyhave

supplied the stock for the worth more than the amount received from the

complainant. That adjudication on this disputed question of fact is

pending before the proper authority.

::36::

35. As referred supra, in Civil Appeal preferred, the Hon‟ble Supreme

Court made it clear that the complainant can approach a competent civil

Court for recovery of the due amount. Such being the case initially a

complaint was filed by the husband of Respondent No.2 in his name and

later after several objections were taken, the complaint was filed in the

name of the firm representing by Respondent No.2 through GPA, who is

her husband. In the light of the aforesaid mentioned premises, it does not

appear to be a case of cheating. There is no dishonest or fraudulent

intention to cheat the Complainant as per the averments. As such, it is not

tenable to continue proceedings for the offences under Section 420 and

406 IPC, when it is a clear case of breach of promise of the contract,

against which the Complainant already approached the proper authority

for adjudication of the matter. That apart, there cannot be any vicarious

liability under criminal law. In the light of aforesaid mentioned discussion,

proceeding with the criminal case is a mere abuse of process of law. The

power vested under Section 482 on this Court has to be exercised in

quashing criminal proceedings that are clothed with a predominant or

sole civil flavour.

36. In the result, the Criminal petition is allowed. The criminal

proceedings in C.C.No.1555/2022 on the file of I Additional Metropolitan

Magistrate at Vijayawada, Krishna District registered for the offences

::37::

under Sections 409, 384, 506, 420 r/w 120A and 34 of IPC are quashed

against Petitioners/Accused Nos.1, 2, 3 & 5.

Pending applications, if any, shall stand closed.

______________________________________

JUSTICE VENKATA JYOTHIRMAI PRATAPA

Date:25.10.2024

krk

::38::

HON’BLE SMT. JUSTICE VENKATA JYOTHIRMAI PRATAPA

Crl.P.No.9794 of 2022

Dt.25.10.2024

krk