Page 1 REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 2285 OF 2011

K. Sitaram & Anr. .... Appellant(s)

Versus

CFL Capital Financial Service Ltd. & Anr. .... Respondent(s)

J U D G M E N T

R.K. Agrawal, J.

1)This appeal has been filed against the judgment and

order dated 07.01.2011 passed by the High Court of

Judicature at Bombay in Criminal Writ Petition No. 1279 of

2010 whereby learned single Judge of the High Court

dismissed the writ petition filed by the appellants herein.

2)Brief facts:

(a)The complainant-respondent Company borrowed a sum

of Rs. 900 lakhs comprising Rs. 180 lakhs through cash

credits from the consortium of Banks (of which the State Bank

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Page 2 of Travancore was the lead bank) and a sum of Rs. 720 lakhs

being working capital demand Loan. Due to non-payment of

the loan amount, the account became Non-Performing Asset.

In order to recover the amount against the borrower, the State

Bank of Travancore filed OA No. 96 of 2003 before the Debts

Recovery Tribunal (DRT), Mumbai. On 22.07.2005, the DRT

passed a partial decree awarding a sum of Rs. 812.26 lakhs

with 12 per cent interest.

(b) On 29.03.2006, the State Bank of Travancore assigned

the debts due from the complainant-Company to the Kotak

Mahindra Bank together with all the securities through an

Assignment Deed. On 11.01.2007, the borrower-the

respondent Company assigned to Kotak Mahindra Bank the

debt due towards it from one Ravishankar Industries Pvt. Ltd.

of more than Rs. 32 crores with an agreement that any excess

recovery over and above Rs. 90 lakhs from Ravishankar

Industries Pvt. Ltd. would be shared equally between the

Kotak Mahindra Bank and the complainant-Company. It is

pertinent to mention here that the fact of the alleged

Assignment Deed came to the notice of the

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Page 3 complainant-Company only on 17.01.2007 when the Kotak

Mahindra Bank handed over a copy of the application for

substituting themselves in place of State Bank of Travancore

to the respondent-Company.

(c)The Kotak Mahindra Bank initiated process for

substituting its name in place of the assignor-State Bank of

Travancore in the recovery application and also withdraws two

criminal complaints filed by the respondent-Company against

Ravishankar Industries Pvt. Ltd. without any information to

the respondent-Company. On 28.04.2007, the Kotak

Mahindra Bank moved an application before the Recovery

Officer-I for appropriating Rs. 67.5 lakhs due towards the

complainant-Company, being 50 per cent of the amount of Rs.

135 lakhs received in excess of Rs. 90 lakhs from the

Ravishankar Industries Pvt. Ltd., against the claim towards

the State Bank of Travancore.

(d) On 16.05.2007, the complainant-respondent Company

filed a complaint against the Kotak Mahindra Bank and its

officers being No. 18/SW/07 before the Metropolitan

Magistrate, Bandra, Mumbai under Sections 409, 418, read

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Page 4 with 120-B of the Indian Penal Code, 1860 (in short ‘the IPC’).

On 25.06.2007, the Additional Chief Metropolitan Magistrate,

Bandra, Mumbai issued process against all the accused in the

complaint dated 16.05.2007. The accused therein preferred

Criminal Revision Applications being Nos. 1024-1026 of 2007

before the Court of Sessions for Greater Bombay. Learned

Additional Sessions Judge, vide order dated 03/05.04.2008,

allowed the revision applications while setting aside the order

of issue of process dated 25.06.2007.

(e)A fresh complaint being No. 0800009/SW/08 was filed

by the complainant-the respondent Company before the

Additional Chief Metropolitan Magistrate, 8

th

Court,

Esplanade, Mumbai under Sections 409, 418, 423 and 425

read with Section 120-B of the IPC against the State Bank of

Travancore, Kotak Mahindra Bank Limited and its officers.

The Metropolitan Magistrate, I/C ACMM, 8

th

Court, Esplanade,

Mumbai, vide order dated 25.01.2008, issued process against

the officers of the State Bank of Travancore and Kotak

Mahindra Bank Limited. On 11.05.2008, learned Magistrate

excluded the officers of the Kotak Mahindra Bank Limited in

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Page 5 view of an application filed by the respondent-Company to

withdraw the complaint against them.

(f)Being aggrieved, the appellants herein preferred a

Criminal Writ Petition being No. 1279 of 2010 before the High

Court. On 07.01.2011, learned single Judge of the High Court,

dismissed the writ petition filed by the appellants herein for

setting aside the order of issue of process by learned

Magistrate dated 25.01.2008 against the appellants.

(g)Aggrieved by the order dated 07.01.2011, the appellants

have preferred this appeal by way of special leave.

3) Heard the arguments advanced by Mr. T.R.

Andhyarujina, learned senior counsel for the appellants and

Mr. Aniruddha P. Mayee, learned counsel for the State and

perused the records.

Point for consideration:

4)The only point for consideration before this Court is

whether Criminal Case No. 0800009/SW/08, pending in the

Court of Additional Chief Metropolitan Magistrate, 8

th

Court,

Esplanade, Mumbai, is liable to be quashed or not?

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Page 6 Rival contentions:

5)Learned senior counsel for the appellants vehemently

contended that the appellants were not the employees of the

State Bank of Travancore when the alleged Deed of

Assignment was entered into between the State Bank of

Travancore and the Kotak Mahindra Bank. He further

contended that the Deed of Assignment dated 29.03.2006 is a

valid and equitable assignment. The decision in respect of

execution of the assignment is taken by the Executive

Committee of the State Bank of Travancore and the same is

not the individual decision of the appellants herein. Learned

senior counsel further contended that since the State Bank of

Travancore had no knowledge about the transactions between

the respondent-Company and the Kotak Mahindra Bank, the

State Bank of Travancore cannot be said to have any intention

to defraud anyone. There is no wrongful gain to the appellants

or the State Bank of Travancore and the accusation that they

acted in collusion and connivance with the officers of the

Kotak Mahindra Bank to commit the criminal breach of trust,

cheating and dishonest/fraudulent execution of deeds of

6

Page 7 transfer is baseless. He further submitted that as the

complainant-respondent Company had withdrawn the

complaint against the co-accused, i.e., the officers of the Kotak

Mahindra Bank Ltd., the complaint made against the

appellants herein cannot proceed and is liable to be quashed

as the allegations against them are also same. The

complainant-respondent Company cannot be allowed to blow

hot and cold in the same breath. Learned senior counsel for

the appellants finally contended that the appellants are in no

way related to the said transaction and the complaint also has

not specifically set out any offence against them.

6)On the other hand, learned counsel for the State

submitted that the appellant No. 1 herein was the Managing

Director of the State Bank of Travancore at the relevant time

and was responsible for the business and day to day affairs of

the Bank. Similarly, appellant No. 2 herein was the Deputy

General Manager and Principal Officer, who had signed the

alleged Assignment Deed dated 29.03.2006 on behalf of the

State Bank of Travancore. He further submitted that in such a

scenario, the appellants herein, being the principal

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Page 8 perpetrators, actively connived and colluded with the Kotak

Mahindra Bank and its officers with a common intention to

deceive the respondent-Company in order to make wrongful

gains. Learned counsel further submitted that the active

collusion and conspiracy between both the Banks hatched

together deliberately with a view to deceive the

respondent-Company is also evident from the fact that in the

alleged assignment deed dated 29.03.2006, there was a clear

undertaking under Clause 2.3 that simultaneously with the

execution of the said deed, the State Bank of Travancore must

send a notice addressed to the respondent-Company herein

informing it of the assignment of the alleged debts and the

financial instruments to the Kotak Mahindra Bank.

7)Learned counsel for the State further submitted that the

State Bank of Travancore was duty bound to protect the

interest of the respondent-Company as the Bank was

entrusted with certain properties of the respondent-Company.

By entering into such alleged assignment with deliberate

suppression and concealment of material facts with dishonest

intention, the appellants herein, who were responsible for the

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Page 9 day to day affairs of the Bank, have committed the offence of

criminal breach of trust and cheating. Learned counsel for the

State finally submitted that the order dated 25.01.2008

passed by the Metropolitan Magistrate for issue of process as

well as the order dated 07.01.2011, passed by the learned

single Judge of the High Court, dismissing the writ petition

filed by the appellants herein for setting aside the order of

issue of process dated 25.01.2008 against the appellants are

justified and do not call for any interference.

Discussion:

8)The present appeal has been filed for quashing of

Criminal Case No. 0800009/SW/08 pending in the Court of

Additional Chief Metropolitan Magistrate, 8

th

Court,

Esplanade, Mumbai and for setting aside the order dated 25

th

January 2008, by which process was issued against all the

persons accused in the complaint. Appellant No. 1 herein was

working as Managing Director with the State Bank of

Travancore during the period 11

th

May 2006 to 30

th

June

2007. Appellant No. 2 herein worked with the Bank as the

9

Page 10 Deputy General Manager during the period from January 2005

to November 2006.

9)The respondent-Company filed a complaint alleging

offence punishable under Sections 409, 418, 423 and 425

read with Section 120-B of the IPC against the appellants

herein. The Bank had in December 1995 sanctioned loan of

Rs. 180 lakhs by way of cash credit facility and Rs. 720 lakhs

by way of working capital demand loan, totaling to Rs. 900/-

lakhs and the complainant-Company executed various

documents in favour of the Bank. As the

respondent-Company was unable to pay its dues to the Bank,

the Bank had filed recovery proceedings before the Tribunal

wherein a partial decree for a sum of Rs.812.26 lakhs had

been passed.

10)In the said proceedings, Kotak Mahindra Bank Limited

filed an application for substituting its name in place of State

Bank of Travancore claiming all the dues and charge on the

immovable properties mortgaged in favour of State Bank of

Travancore vide an Assignment Deed dated 29.03.2006. The

respondent-Company claimed that no notice of the alleged

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Page 11 assignment dated 29.03.2006 had been given to it. On

11.01.2007, the respondent–Company entered into a Deed of

Assignment with the Kotak Mahindra Bank Limited, wherein

all the dues of Ravishankar Industries Pvt. Ltd. of more than

Rs. 32 crores were assigned to the Kotak Mahindra Bank.

Under the agreement, it was agreed that any amount received

over and above Rs. 90 lakhs from the Company would be

shared equally between the respondent–Company and Kotak

Mahindra Bank. The Kotak Mahindra Bank withdrew the

proceedings filed by the respondent–Company under Section

138 of the Negotiable Instruments Act against the Ravishankar

Industries Pvt. Ltd and also settled an amount of Rs. 225

lakhs without giving any information to it as to the terms of

settlement and the mode of payment. It is the allegation of the

complainant that if the complainant was informed about the

alleged Assignment Deed dated 29.03.2006, it would not have

entered into the assignment agreement on 11.01.2007 with

the Kotak Mahindra Bank. It is alleged that the suppression of

facts and surreptitious execution of the deed of assignment

dated 29.03.2006 was deliberately done with a dishonest

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Page 12 intention to induce the complainant-Company and to make

wrongful losses and to deceive it.

11)Learned senior counsel for the appellants contended that

the allegations against the appellants in their personal

capacity are vague. He further contended that Appellant No. 1

herein joined the State Bank of Travancore on 11.05.2006 i.e.

subsequent to the Assignment Deed dated 29.03.2006. He

was, however, admittedly working with the Bank on

11.01.2007, when the complainant Company entered into the

Deed of Assignment with the Kotak Mahindra Bank. As

regards Appellant No. 2 herein, though he was signatory to the

Deed of Assignment dated 29.03.2006, he submitted that he

was not in service of State Bank of Travancore on the date on

which Deed of Assignment dated 11.01.2007, was executed

between the complainant-Company and the Kotak Mahindra

Bank and hence he claims to have no connection whatsoever

with the offence alleged. He further contended that the IPC

does not contain any provision for attaching vicarious liability

on the part of the Chairman and General Managers of the

Company when the accused is the Company. When the

12

Page 13 Company is the offender, vicarious liability of the directors

cannot be imputed automatically, in the absence of any

statutory provisions to this effect.

12)In support of his claim, learned senior counsel for the

appellant cited a decision of this Court in Maksud Saiyed vs.

State of Gujarat and Others (2008) 5 SCC 668 wherein it

was held as under:-

“13. Where a jurisdiction is exercised on a complaint petition

filed in terms of Section 156(3) or Section 200 of the Code of

Criminal Procedure, the Magistrate is required to apply his

mind. The Penal Code does not contain any provision for

attaching vicarious liability on the part of the Managing

Director or the Directors of the Company when the accused

is the Company. The learned Magistrate failed to pose unto

himself the correct question viz. as to whether the complaint

petition, even if given face value and taken to be correct in

its entirety, would lead to the conclusion that the

respondents herein were personally liable for any offence.

The Bank is a body corporate. Vicarious liability of the

Managing Director and Director would arise provided any

provision exists in that behalf in the statute. Statutes

indisputably must contain provision fixing such vicarious

liabilities. Even for the said purpose, it is obligatory on the

part of the complainant to make requisite allegations which

would attract the provisions constituting vicarious liability.”

13)In support of his claim that the transactions between the

complainant and the State Bank of Travancore were purely

civil in nature and criminal court has nothing to do with it,

learned senior counsel for the appellants further relied upon a

13

Page 14 decision of this Court in Sardar Trilok Singh and Others vs.

Satya Deo Tripathi (1979) 4 SCC 396 wherein it was held as

under:-

“5…..The question as to what were the terms of the settlement

and whether they were duly incorporated in the printed

agreement or not were all questions which could be properly

and adequately decided in a civil court. Obtaining signature of a

person on blank sheet of papers by itself is not an offence of

forgery or the like. It becomes an offence when the paper is

fabricated into a document of the kind which attracts the

relevant provisions of the Penal Code making it an offence or

when such a document is used as a genuine document. Even

assuming that the appellants either by themselves or in the

Company of some others went and seized the truck on July 30,

1973 from the house of the respondent they could and did

claim to have done so in exercise of their bona fide right of

seizing the truck on the respondent’s failure to pay the third

monthly installment in time. It was, therefore, a bona fide civil

dispute which led to the seizure of the truck. On the face of the

complaint petition itself the highly exaggerated version given by

the respondent, the appellants went to his house with a mob

armed with deadly weapons and committed the offence of

dacoity in taking away the truck was so very unnatural and

untrustworthy that it could take the matter out of the realm of

civil dispute. Nobody on the side of the respondent was hurt.

Even a scratch was not given to anybody.

6. In our opinion on the facts and in the circumstances of

this case criminal prosecution deserves to be quashed. On

behalf of the respondent it was argued that the appellants’ filing

a petition in the High Court for quashing the proceeding before

issuance of the summons was premature and the High Court

could not have quashed it. In our opinion the point is so wholly

without substance that it has been stated merely to be rejected.

Since the parties during the course of the hearing in this appeal

showed their inclination to settle up and end all their disputes

and quarrels in relation to the matter in question after we

indicated our view that we are going to allow the appeal and

quash the proceedings, we have not thought it necessary to

elaborately give other reasons in support of our order”.

14

Page 15 14)Learned senior counsel for the appellants further relied

upon Sunil Bharti Mittal vs. Central Bureau of

Investigation 2015 (1) SCALE 140 wherein it was held that a

corporate entity is an artificial person which acts through its

officers, directors, managing director, chairman etc. If such a

Company commits an offence involving mens rea, it would

normally be the intent and action of that individual who would

act on behalf of the Company. It would be more so, when the

criminal act is that of conspiracy. However, at the same time,

it is a cardinal principle of criminal jurisprudence that there is

no vicarious liability unless the statute specifically provides

so.

15)As the appellants herein have challenged the legality of

the order of issue of process, it would be worthwhile to

recapitulate the law regarding issue of process. The relevant

point that arises for consideration at this stage is whether the

material available is sufficient enough to constitute a prima

facie case against the accused.

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Page 16 16)When a person files a complaint and supports it on oath,

rendering himself liable to prosecution and imprisonment if it

is false, he is entitled to be believed unless there is some

apparent reason for disbelieving him; and he is entitled to

have the persons, against whom he complains, brought before

the court and tried. The only condition requisite for the issue

of process is that the complainant’s deposition must show

some sufficient ground for proceeding. Unless the Magistrate

is satisfied that there is sufficient ground for proceeding with

the complaint or sufficient material to justify the issue of

process, he should not pass the order of issue of process.

Where the complainant, who instituted the prosecution, has

no personal knowledge of the allegations made in the

complaint, the magistrate should satisfy himself upon proper

materials that a case is made out for the issue of process.

Though under the law, a wide discretion is given to magistrate

with respect to grant or refusal of process, however, this

discretion should be exercised with proper care and caution.

16

Page 17 17)The respondent-Company came to know about the

Assignment Deed dated 29.03.2006 only on 17.01.2007 when

the Kotak Mahindra Bank moved an application for

substituting themselves in place of State Bank of Travancore

on the basis of that alleged document i.e. Assignment Deed

dated 29.03.2006. It is also pertinent to mention here that

neither the State Bank of Travancore nor the Kotak Mahindra

Bank informed the respondent-Company regarding the alleged

Assignment Deed either before or after the alleged assignment.

It is also on record that vide agreement dated 01.10.1999, the

Kotak Mahindra Bank, which was earlier a financial services

Company, entered into an agreement with the

respondent-Company to act as an advisor and to provide

necessary assistance for the successful restructuring of the

respondent-Company and to provide follow up and support

services to the complainant-Company in recovery from its

various defaulters.

18)Under the above terms and conditions, when the Kotak

Mahindra Bank was already in an agreement with the

respondent-Company in order to safeguard its interest, the

17

Page 18 fact of the Assignment Deed between the State Bank of

Travancore and the Kotal Mahindra Bank with regard to

alleged rights of the State Bank of Travancore pertaining to the

immovable properties allegedly mortgaged in its favour, must

be communicated by the State Bank of Travancore to the

respondent-Company. More so, the fact of such assignment

deed must also be brought to the notice by the Kotak

Mahindra Bank to the respondent-Company when it was

responsible to provide necessary assistance to the

respondent-Company.

19)In view of the above, it is pertinent to mention here

Clause 2.3 of the Assignment Deed dated 29.03.2006, which

reads as under:

“Simultaneously with the execution of this Deed, the

Assignor shall send a notice addressed by the Assignor to

the clients and other related persons at their last known

addresses informing them of the assignments of Debts and

the Financial Instruments to the Assignee and instructing

them to pay all amounts constituting the Debts to the

Assignee and a copy of the said notice shall be delivered to

the Assignee.”

It is very much clear from the above that the Assignment

Deed dated 29.03.2006 specifically contains one clause which

requires that the clients and other related persons shall be

18

Page 19 informed about the alleged Assignment. But this fact was not

brought to the notice of the respondent-Company. Primarily,

it was the duty of the State Bank of Travancore to inform the

respondent-Company about the said assignment and

secondly, Kotak Mahindra Bank was to inform the same to the

respondent-Company. If the intention of the Assignor and the

assignee to the Assignment Deed dated 29.03.2006 was clear,

then why the facts of the same were not brought to the notice

of respondent-Company that too when Clause 2.3 of the

Assignment Deed very clearly states so.

20)The position becomes more clear from the fact that even

after the alleged assignment, in a proceeding before the

appellate tribunal, none of the representative of the State

Bank of Travancore mentioned about the factum of such

assignment. The respondent-Company came to know about

the alleged Assignment after a lapse of 9 months i.e. on

17.01.2007, when an application was moved by the Kotak

Mahindra Bank for substituting its name in place of State

Bank of Travancore. In the absence of such knowledge, on

11.01.2007, the respondent-Company entered into a deed of

19

Page 20 Assignment with the Kotak Mahindra Bank wherein all the

dues of a defaulter, viz., Ravishankar Industries Pvt. Ltd., of

more than Rs. 32 crores were assigned to the Kotak Mahindra

Bank. The Kotak Mahindra Bank was under an obligation to

inform the respondent-Company about the earlier Assignment

Deed which was not done. More so, the Kotak Mahindra Bank

received a sum of Rs. 225 lakhs in March 2007 from

Ravishankar Industries Pvt. Ltd. but without giving any

information as to the terms of settlement and the mode of

payment to the complainant-Company, approached the

Recovery Officer-I for appropriating the same.

21)With regard to the contention of learned senior counsel

for the appellants herein that there can be no vicarious

liability attributed to the Director, Deputy Director of a

Company unless the Statute specifically creates so, no doubt,

a corporate entity is an artificial person which acts through its

officers, Directors, Managing Director, Chairman, etc. If such

a company commits an offence involving mens rea, it would

normally be the intent and action of that individual who would

act on behalf of the company that too when the criminal act is

20

Page 21 that of conspiracy. Thus, an individual who has perpetrated

the commission of an offence on behalf of the company can be

made an accused, along with the company, if there is

sufficient evidence of his active role coupled with criminal

intent. Second situation in which an individual can be

implicated is in those cases where the statutory regime itself

attracts the doctrine of vicarious liability, by specifically

invoking such a provision.

22)In view of the above, we are of the considered opinion

that there was suppression of facts by both the Banks and the

State Bank of Travancore was duty bound to inform the

respondent-Company about the Assignment dated

29.03.2006. As regards the appellants herein, appellant No.1

herein has claimed to have joined the State Bank of

Travancore on 11.05.2006 i.e. subsequent to the assignment

deed dated 29.03.2006 whereas appellant No.2 was the

signatory to the said deed.

23)There is no denying the fact that both the appellants

were responsible for day to day functioning of the State Bank

of Travancore. Furthermore, admittedly, appellant No.1 was

21

Page 22 in employment of the State Bank of Travancore at the time of

the execution of the deed of assignment and the appellant

No.2 was the signatory to it. On a bare perusal of the

complaint, it creates an iota of doubt as to why the

respondent-Company was kept in dark by the State Bank of

Travancore at the time of alleged Assignment Deed dated

29.03.2006

24)However, from the admitted position, it is evident that

the complainant-respondent Company in its wisdom had

withdrawn the complaint against the two persons, who were

the officers of the Kotak Mahindra Bank Ltd. from a common

complaint made against four persons. However, we do not find

any reason as to why the remaining two persons, being the

present appellants, who were the officers of the State Bank of

Travancore at the relevant time, are being prosecuted. Hence,

the complaint against the present appellants does not survive

and in the interest of justice the same is liable to quashed and

is accordingly quashed.

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Page 23 25)In view of the above discussion, the appeal succeeds and

is allowed. However, there shall be no order as to costs.

………… .………………………J.

(R.K. AGRAWAL)

.…....……..………………………………J.

(ADARSH KUMAR GOEL)

NEW DELHI;

MARCH 21, 2017.

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