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CASE NO.:

Appeal (crl.) 834 of 2002

PETITIONER:

M/s Indian Oil Corporation

RESPONDENT:

M/s NEPC India Ltd., & Ors.

DATE OF JUDGMENT: 20/07/2006

BENCH:

H. K. Sema & R. V. Raveendran

JUDGMENT:

JUDGMENT

With

Criminal Appeal No. 833 of 2002

RAVEENDRAN, J.

These appeals are filed against the common order dated

29.3.2001 passed by the Madras High Court allowing Crl.O.P.

Nos.2418 of 1999 and 1563 of 2000. The said two petitions were filed

by the respondents herein under section 482 of Criminal Procedure

Code ('Code' for short) for quashing the complaints filed by the

appellant against them in C.C. No.299 of 1999 on the file of Judicial

Magistrate No.6, Coimbatore and C.C. No. 286 of 1998 on the file of

Judicial Magistrate, Alandur (Chennai).

2. The appellant (Indian Oil Corporation, for short 'IOC') entered

into two contracts, one with the first respondent (NEPC India Ltd.) and

the other with its sister company Skyline NEPC Limited ('Skyline' for

short) agreeing to supply to them aviation turbine fuel and aviation

lubricants (together referred to as "aircraft fuel"). According to the

appellant, in respect of the aircraft fuel supplied under the said

contracts, the first respondent became due in a sum of

Rs.5,28,23,501.90 and Skyline became due in a sum of

Rs.13,12,76,421.25 as on 29.4.1997.

3. The first respondent hypothecated its two Fokker F27-500

Aircrafts, bearing Registration No. VT-NEJ (12684) and VT-NEK

(10687) to the appellant under Deed of Hypothecation dated 1.5.1997,

to secure the outstanding amounts. Clause (2) of the said Deed

provided that the two aircrafts with all parts and accessories stood

hypothecated to IOC by way of charge and as security for payment of

the amounts due, with effect from the date of hypothecation. Clause

(3) read with the schedule set out the instalments schedule for

payment of the amount due. Under clause (6), NEPC India declared

that it would not assign, sell, pledge, charge, underlet or otherwise

encumber or part with the possession, custody or beneficial interest in

respect of the two aircrafts without the previous written consent of

IOC. It also undertook not to do any act which may diminish the value

of the hypothecated property without clearing the entire outstanding

amount. Clause (9) provided that if NEPC India failed to pay any of the

instalments with interest within the stipulated time, or if any

undertaking or assurance given by NEPC India was found to be false,

IOC shall have the "right to take possession of the hypothecated

property" and sell the same by public auction or by private contract

and appropriate the sale proceeds towards the outstanding dues

without recourse to court of law. Clause 12 confirmed that NEPC India

had handed over the title deeds relating to the aircraft to IOC, and

agreed to receive them back only after paying the amounts due. It is

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stated that Skyline also hypothecated its aircraft (VT-ECP) under a

separate Hypothecation Deed dated 14.5.1997. It is further stated that

a tripartite agreement dated 6.5.1997 was entered among IOC, NEPC

India and Skyline setting out the mode of payment of the dues and

recovery in the event of default.

4. As NEPC India failed to pay the first two instalments as per

schedule, IOC stopped supply of aircraft fuel on 3.6.1997. However,

subsequently, under a fresh agreement dated 20.9.1997, a revised

payment schedule was agreed and IOC agreed to re-commence supply

of aircraft fuel on 'cash and carry' basis. Even this arrangement came

to an end as the instalments were not paid.

5. Apprehending that NEPC India may remove the hypothecated

aircraft (VT-NEJ) from Coimbatore Airport to a place outside its reach,

IOC filed C.S. No.425 of 1997 in the Madras High Court seeking a

mandatory injunction to the Airport Authority of India and Director

General of Civil Aviation to detain the said aircraft stationed at

Coimbatore Airport, under section 8 of the Aircraft Act, 1934, so as to

enable it to take possession thereof. The High Court granted an

interim injunction on 16.9.1997 restraining NEPC India from removing

the aircraft (VT-NEJ) from Coimbatore Airport. In regard to the other

hypothecated aircraft (VT-NEK) kept at Meenambakkam (Chennai)

Airport, IOC filed a suit (OS No.3327/1998) in the City Civil Court,

Chennai for a similar mandatory injunction.

6. IOC filed the two complaints against NEPC India and its two

Directors (respondents 2 & 3 herein) in July, 1998 under section 200

of Code of Criminal Procedure alleging unauthorized removal of the

engines and certain other parts from the two hypothecated aircraft.

They are :

(i) C.C. No. 299 of 1999 before the Judicial Magistrate No.6,

Coimbatore, regarding Aircraft bearing No. VT-NEJ.

(ii) C.C. No. 286 of 1998 before the Judicial Magistrate, Alandur

(Chennai) regarding aircraft bearing No. VT \026 NEK.

The relevant averments in the complaint in C.C. No.299/1999

(Coimbatore Court) reads as under :-

"The complainant states that on 24.4.98, IOC had come to know

that NEPC India Limited in total disregard to the orders of the

Hon. High Court, Madras had clandestinely removed both the

engines and certain other parts from the Aircraft VT-NEJ Aircraft

Sl.No. 10684 (Fokker F27-500) stationed at the Coimbatore

Airport, Coimbatore\005\005\005\005\005\005\005

The complainant states that, besides the above, the act of NEPC

India Limited in removing the engines and certain other parts

from the Aircraft VT-NEJ Aircraft Sl. No. 10684 (Fokker F27-

500) stationed at the Coimbatore Airport, Coimbatore is against

the terms of the hypothecation deed dated 01.5.1997 and

20.9.1997 will amount to theft, criminal breach of trust, and

cheating which are offences punishable under section 378

(Theft), 403 (Dishonest Misappropriation of Property), 405

(Criminal Breach of Trust), 415 (Cheating), 425 (Mischief) of the

Indian Penal Code. No notice was given to IOC in this regard."

The relevant averments in the complaint in C.C. No.286/1998 (Alandur

Court) read as under :-

"\005 With a view to defeat the said right of IOC (that is right to

take possession and sell the aircraft), NEPC India removed the

engines of the Aircraft (VT-NEK) stationed at the

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Meenambakkam Airport\005\005\005\005\005\005\005\005

The complainant states that, the act of NEPC India Limited in

removing the engines and certain other parts from the Aircraft

VT-NEK Aircraft Sl. No. 10687 (Fokker F27-500) stationed at the

Meenabakkam Airport, Chennai is against the terms of the

hypothecation deed dated 1.5.1997 as well as the terms of the

agreement dated 20.9.1997 and will amount to offences

punishable under section 378 (Theft), 403(Dishonest

Misappropriation of Property), 405 (Criminal Breach of Trust),

415 (Cheating), 425 (Mischief) of the India Penal Code. No

notice was given to IOC in this regard."

Both the complaints also contain the following common allegations :

"The complainant states that the accused had with fraudulent

intention to cheat and defraud IOC had induced IOC to resume

supply of Aircraft fuel on Cash and Carry basis, by undertaking

to clear the outstanding amount of Rs.18 crores approximately

within the time stipulated in the hypothecation agreements.

However, the accused had failed to clear the said outstanding

amounts and had breached the terms of the hypothecation

agreements. Subsequently on 20.9.2007, an agreement was

entered into between IOC and M/s NEPC India Limited. As per

the terms of the above agreement M/s NEPC India Limited had

agreed to clear the outstanding amount of Rs.18 crores

approximately due to IOC from M/s NEPC India Limited and M/s

Skyline NEPC Limited within a time frame. However, M/s NEPC

India Limited had failed to keep up the schedule of payments

mentioned in the said agreements.

The facts narrated above will clearly show that IOC has got

every right to take possession of the Aircraft VT-NEK as well as

VT-NEJ. Only with a view to defeat the said right of IOC, M/s

NEPC India has removed the engines of the aircraft. \005\005\005.."

7. The respondents herein filed Crl. O.P. No.1563 of 2000 and

Crl.O.P. No.2418 of 1999 respectively under section 482 of Cr.P.C. for

quashing the said two complaints on the following two grounds :

(i) The complaints related to purely contractual disputes of a

civil nature in respect of which IOC had already sought

injunctive reliefs and money decrees.

(ii) Even if all the allegations in the complaints were taken as

true, they did not constitute any criminal offence as

defined under sections 378, 403, 405, 415 or 425 IPC.

8. The High Court by common judgment dated 23.3.2001 allowed

both the petitions and quashed the two complaints. It accepted the

second ground urged by the Respondents herein, but rejected the first

ground. The said order of the High Court is under challenge in these

appeals. On the rival contentions urged, the following points arise for

consideration :

(i) Whether existence or availment of civil remedy in respect

of disputes arising from breach of contract, bars remedy

under criminal law?

(ii) Whether the allegations in the complaint, if accepted on

face value, constitute any offence under sections 378, 403,

405, 415 or 425 IPC ?

Re : Point No. (i) :

9. The principles relating to exercise of jurisdiction under Section

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482 of the Code of Criminal Procedure to quash complaints and

criminal proceedings have been stated and reiterated by this Court in

several decisions. To mention a few - Madhavrao Jiwaji Rao Scindia v.

Sambhajirao Chandrojirao Angre [1988 (1) SCC 692], State of

Haryana vs. Bhajanlal [1992 Supp (1) SCC 335], Rupan Deol Bajaj vs.

Kanwar Pal Singh Gill [1995 (6) SCC 194], Central Bureau of

Investigation v. Duncans Agro Industries Ltd., [1996 (5) SCC 591],

State of Bihar vs. Rajendra Agrawalla [1996 (8) SCC 164], Rajesh

Bajaj v. State NCT of Delhi, [1999 (3) SCC 259], Medchl Chemicals &

Pharma (P) Ltd. v. Biological E. Ltd. [2000 (3) SCC 269], Hridaya

Ranjan Prasad Verma v. State of Bihar [2000 (4) SCC 168], M.

Krishnan vs Vijay Kumar [2001 (8) SCC 645], and Zandu

Phamaceutical Works Ltd. v. Mohd. Sharaful Haque [2005 (1) SCC

122]. The principles, relevant to our purpose are :

(i) A complaint can be quashed where the allegations made in

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 the case alleged

against the accused.

For this purpose, the complaint has to be examined as a

whole, but without examining the merits of the allegations.

Neither a detailed inquiry nor a meticulous analysis of the

material nor an assessment of the reliability or

genuineness of the allegations in the complaint, is

warranted while examining prayer for quashing of a

complaint.

(ii) A complaint may also be quashed where it is a clear abuse

of the process of the court, as when the criminal

proceeding is found to have been initiated with

malafides/malice for wreaking vengeance or to cause

harm, or where the allegations are absurd and inherently

improbable.

(iii) The power to quash shall not, however, be used to stifle or

scuttle a legitimate prosecution. The power should be used

sparingly and with abundant caution.

(iv) The complaint is not required to verbatim reproduce the

legal ingredients of the offence alleged. If the necessary

factual foundation is laid in the complaint, merely on the

ground that a few ingredients have not been stated in

detail, the proceedings should not be quashed. Quashing

of the complaint is warranted only where the complaint is

so bereft of even the basic facts which are absolutely

necessary for making out the offence.

(v) A given set of facts may make out : (a) purely a civil

wrong; or (b) purely a criminal offence; or (c) a civil wrong

as also a criminal offence. A commercial transaction or a

contractual dispute, apart from furnishing a cause of action

for seeking remedy in civil law, may also involve a criminal

offence. As the nature and scope of a civil proceedings are

different from a criminal proceeding, the mere fact that the

complaint relates to a commercial transaction or breach of

contract, for which a civil remedy is available or has been

availed, is not by itself a ground to quash the criminal

proceedings. The test is whether the allegations in the

complaint disclose a criminal offence or not.

10. While on this issue, it is necessary to take notice of a growing

tendency in business circles to convert purely civil disputes into

criminal cases. This is obviously on account of a prevalent impression

that civil law remedies are time consuming and do not adequately

protect the interests of lenders/creditors. Such a tendency is seen in

several family disputes also, leading to irretrievable break down of

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marriages/families. There is also an impression that if a person could

somehow be entangled in a criminal prosecution, there is a likelihood

of imminent settlement. Any effort to settle civil disputes and claims,

which do not involve any criminal offence, by applying pressure though

criminal prosecution should be deprecated and discouraged. In G.

Sagar Suri vs. State of UP [2000 (2) SCC 636], this Court observed :

"It is to be seen if a matter, which is essentially of civil nature,

has been given a cloak of criminal offence. Criminal proceedings

are not a short cut of other remedies available in law. Before

issuing process a criminal court has to exercise a great deal of

caution. For the accused it is a serious matter. This Court has

laid certain principles on the basis of which High Court is to

exercise its jurisdiction under Section 482 of the Code.

Jurisdiction under this Section has to be exercised to prevent

abuse of the process of any court or otherwise to secure the

ends of justice."

While no one with a legitimate cause or grievance should be prevented

from seeking remedies available in criminal law, a complainant who

initiates or persists with a prosecution, being fully aware that the

criminal proceedings are unwarranted and his remedy lies only in civil

law, should himself be made accountable, at the end of such

misconceived criminal proceedings, in accordance with law. One

positive step that can be taken by the courts, to curb unnecessary

prosecutions and harassment of innocent parties, is to exercise their

power under section 250 Cr.P.C. more frequently, where they discern

malice or frivolousness or ulterior motives on the part of the

complainant. Be that as it may.

11. Coming to the facts of this case, it is no doubt true that IOC has

initiated several civil proceedings to safeguard its interests and recover

the amounts due. It has filed C.S. No.425/1997 in the Madras High

Court and O.S. No.3327/1998 in the City Civil Court, Chennai seeking

injunctive reliefs to restrain the NEPC India from removing its aircrafts

so that it can exercise its right to possess the Aircrafts. It has also filed

two more suits for recovery of the amounts due to it for the supplies

made, that is CS No.998/1999 against NEPC India (for recovery of

Rs.5,28,23,501/90) and CS No.11/2000 against Skyline (for recovery

of Rs.13,12,76,421/25), in the Madras High Court. IOC has also

initiated proceedings for winding up NEPC India and filed a petition

seeking initiation of proceedings for contempt for alleged disobedience

of the orders of temporary injunction. These acts show that civil

remedies were and are available in law and IOC has taken recourse to

such remedies. But it does not follow therefrom that criminal law

remedy is barred or IOC is estopped from seeking such remedy.

12. The respondents, no doubt, have stated that they had no

intention to cheat or dishonestly divert or misappropriate the

hypothecated aircraft or any parts thereof. They have taken pains to

point out that the aircrafts are continued to be stationed at Chennai

and Coimbatore Airports; that the two engines of VT-NEK though

removed from the aircraft, are still lying at Madras Airport; that the

two DART 552 TR engines of VT-NEJ were dismantled for the purpose

of overhauling/repairing; that they were fitted to another Aircraft (VT-

NEH) which had been taken on lease from 'M/s Aircraft Financing and

Trading BV' and that the said Aircraft (VT-NEH) has been detained by

the lessor for its dues; that the two engines which were meant to be

fitted to VT-NEJ (in places of the removed engines), when sent for

overhauling to M/s Hunting Aeromotive, U.K., were detained by them

on account of a dispute relating to their bills; and that in these peculiar

circumstances beyond their control, no dishonest intent could be

attributed to them. But these are defences that will have to be put

forth and considered during the trial. Defences that may be available,

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or facts/aspects when established during the trial, may lead to

acquittal, are not grounds for quashing the complaint at the threshold.

At this stage, we are only concerned with the question whether the

averments in the complaint spell out the ingredients of a criminal

offence or not.

13. The High Court was, therefore, justified in rejecting the

contention of the respondents that the criminal proceedings should be

quashed in view of the pendency of several civil proceedings.

Re : Point No.(ii)

14. This takes us to the question whether the allegations made in

the complaint, when taken on their face value as true and correct,

constitute offences defined under sections 378, 403, 405, 415 and 425

IPC ? Learned counsel for the appellant restricted his submissions only

to sections 405, 415 and 425, thereby fairly conceding that the

averments in the complaint do not contain the averments necessary to

make out the ingredients of the offence of theft (section 378) or

dishonest misappropriation of property (section 403).

Section 378

15. Section 378 defines theft. It states : "whoever, intending to take

dishonestly any movable property out of the possession of any person

without that person's consent, moves that property in order to such

taking, is said to commit theft." The averments in the complaint clearly

show that neither the aircrafts nor their engines were ever in the

possession of IOC. It is admitted that they were in the possession of

NEPC India at all relevant times. The question of NEPC committing

theft of something in its own possession does not arise. The appellant

has therefore rightly not pressed the matter with reference to section

378.

Section 403

16. Section 403 deals with the offence of dishonest misappropriation

of property. It provides that "whoever dishonestly misappropriates or

converts to his own use any movable property", shall be punished with

imprisonment of either description for a term which may extend to 2

years or with fine or both. The basic requirement for attracting the

section are : (i) the movable property in question should belong to a

person other than the accused; (ii) the accused should wrongly

appropriate or convert such property to his own use; and (iii) there

should be dishonest intention on the part of the accused. Here again

the basic requirement is that the subject matter of dishonest

misappropriation or conversion should be someone else's movable

property. When NEPC India owns/possesses the aircraft, it obviously

cannot 'misappropriate or convert to its own use' such aircraft or parts

thereof. Therefore section 403 is also not attracted.

Section 405

17. We will next consider whether the allegations in the complaint

make out a case of criminal breach of trust under section 405 which is

extracted below :

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"405. Criminal breach of trust. \026 Whoever, being in any

manner entrusted with property, or with any dominion

over property, dishonestly misappropriates or converts to

his own use that property, or dishonestly uses or disposes

of that property in violation of any direction of law

prescribing the mode in which such trust is to be

discharged, or of any legal contract, express or implied,

which he has made touching the discharge of such trust,

or wilfully suffers any other person so to do, commits

"criminal breach of trust".

A careful reading of the section shows that a criminal breach of trust

involves the following ingredients : (a) a person should have been

entrusted with property, or entrusted with dominion over property; (b)

that person should dishonestly misappropriate or convert to his own

use that property, or dishonestly use or dispose of that property or

willfully suffer any other person to do so; (c) that such

misappropriation, conversion, use or disposal should be in violation of

any direction of law prescribing the mode in which such trust is to be

discharged, or of any legal contract which the person has made,

touching the discharge of such trust. The following are examples

(which include the illustrations under section 405) where there is

'entrustment' :

(i) An 'Executor' of a will, with reference to the estate of the

deceased bequeathed to legatees.

(ii) A 'Guardian' with reference to a property of a minor or

person of unsound mind.

(iii) A 'Trustee' holding a property in trust, with reference to

the beneficiary.

(iv) A 'Warehouse Keeper' with reference to the goods stored

by a depositor.

(v) A carrier with reference to goods entrusted for transport

belonging to the consignor/consignee.

(vi) A servant or agent with reference to the property of the

master or principal.

(vii) A pledgee with reference to the goods pledged by the

owner/borrower.

(viii) A debtor, with reference to a property held in trust on

behalf of the creditor in whose favour he has executed a

deed of pledge-cum-trust. (Under such a deed, the owner

pledges his movable property, generally vehicle/machinery

to the creditor, thereby delivering possession of the

movable property to the creditor and the creditor in turn

delivers back the pledged movable property to the debtor,

to be held in trust and operated by the debtor).

18. In Chelloor Mankkal Narayan Ittiravi Nambudiri v. State of

Travancore, Cochin [AIR 1953 SC 478], this Court held :

"\005 to constitute an offence of criminal breach of trust, it is

essential that the prosecution must prove first of all that the

accused was entrusted with some property or with any dominion

or power over it. It has to be established further that in respect

of the property so entrusted, there was dishonest

misappropriation or dishonest conversion or dishonest use or

disposal in violation of a direction of law or legal contract, by the

accused himself or by someone else which he willingly suffered

to do.

It follows almost axiomatically from this definition that the

ownership or beneficial interest in the property in respect of

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which criminal breach of trust is alleged to have been

committed, must be in some person other than the accused and

the latter must hold it on account of some person or in some

way for his benefit."

[Emphasis supplied]

In Jaswantrai Manilal Akhaney v. State of Bombay [AIR 1956 SC 575],

this Court reiterated that the first ingredient to be proved in respect of

a criminal breach of trust is 'entrustment'. It, however, clarified :

"\005.. But when S. 405 which defines "criminal breach of trust"

speaks of a person being in any manner entrusted with

property, it does not contemplate the creation of a trust with all

the technicalities of the law of trust. It contemplates the

creation of a relationship whereby the owner of property makes

it over to another person to be retained by him until a certain

contingency arises or to be disposed of by him on the happening

of a certain event."

19. The question is whether there is 'entrustment' in an

hypothecation? Hypothecation is a mode of creating a security without

delivery of title or possession. Both ownership of the movable property

and possession thereof, remain with the debtor. The creditor has an

equitable charge over the property and is given a right to take

possession and sell the hypothecated movables to recover his dues

(note : we are not expressing any opinion on the question whether

possession can be taken by the creditor, without or with recourse to a

court of law). The creditor may also have the right to claim payment

from the sale proceeds (if such proceeds are identifiable and

available). The following definitions of the term 'hypothecation' in P.

Ramanatha Aiyar's Advanced Law Lexicon (Third (2005) Edition, Vol.2,

Pages 2179 and 2180) are relevant :

"Hypothecation : It is the act of pledging an asset as security for

borrowing, without parting with its possession or ownership. The

borrower enters into an agreement with the lender to hand over

the possession of the hypothecated asset whenever called upon

to do so. The charge of hypothecation is then converted into

that of a pledge and the lender enjoys the rights of a pledgee."

'Hypothecation' means a charge in or upon any movable

property, existing in future, created by a borrower in favour of a

secured creditor, without delivery of possession of the movable

property to such creditor, as a security for financial assistance

and includes floating charge and crystallization of such charge

into fixed charge on movable property. (Borrowed from section

2(n) of Securitisation and Reconstruction of Financial Assets &

Enforcement of Security Interest Act, 2002)"

But there is no 'entrustment of the property' or 'entrustment of

dominion over the property' by the hypothecatee (creditor) to the

hypothecator (debtor) in an hypothecation. When possession has

remained with the debtor/owner and when the creditor has neither

ownership nor beneficial interest, obviously there cannot be any

entrustment by the creditor.

20. The question directly arose for consideration in Central Bureau of

Investigation v. Duncans Agro Industries Ltd., Calcutta [1996 (5) SCC

591]. It related to a complaint against the accused for offences of

criminal breach of trust. It was alleged that a floating charge was

created by the accused debtor on the goods by way of security under a

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deed of hypothecation, in favour of a bank to cover credit facility and

that the said goods were disposed of by the debtor. It was contended

that the disposal of the goods amounted to criminal breach of trust.

Negativing the said contention, this Court after stating the principle as

to when a complaint can be quashed at the threshold, held thus :

"\005\005\005.a serious dispute has been raised by the learned

counsel \005\005 as to whether on the face of the allegations,

an offence of criminal breach of trust is constituted or

not. In our view, the expression 'entrusted with property'

or 'with any dominion over property' has been used in a

wide sense in Section 405, I.P.C. Such expression

includes all cases in which goods are entrusted, that is,

voluntarily handed over for a specific purpose and

dishonestly disposed of in violation of law or in violation

of contract. The expression 'entrusted' appearing in

Section 405, I.P.C. is not necessarily a term of law. It has

wide and different implications in different contexts. It is,

however, necessary that the ownership or beneficial

interest in the ownership of the property entrusted in

respect of which offence is alleged to have been

committed must be in some person other than the

accused and the latter must hold it on account of some

person or in some way for his benefit. The expression

'trust' in Section 405, I.P.C. is a comprehensive

expression and has been used to denote various kinds of

relationship like the relationship of trustee and

beneficiary, bailor and bailee, master and servant,

pledger and pledgee. When some goods are

hypothecated by a person to another person, the

ownership of the goods still remains with the

person who has hypothecated such goods. The

property in respect of which criminal breach of trust

can be committed must necessarily be the property

of some person other than the accused or the

beneficial interest in or ownership of it must be in

other person and the offender must hold such

property in trust for such other person or for his

benefit. In a case of pledge, the pledged article belongs

to some other person but the same is kept in trust by the

pledgee. In the instant case, a floating charge was

made on the goods by way of security to cover up

credit facility. In our view, in such case for

disposing of the goods covering the security against

credit facility, the offence of criminal breach of trust

is not committed." (emphasis supplied)

21. The allegations in the complaints are that aircrafts and the

engines fitted therein belong to NEPC India, and that a charge was

created thereon by NEPC India, in favour of IOC, by way of

hypothecation to secure repayment of the amounts due to IOC. The

terms of hypothecation extracted in the complaint show that the

ownership and possession of the aircrafts continued with NEPC India.

Possession of the aircraft, neither actual nor symbolic, was delivered to

IOC. NEPC India was entitled to use the aircraft and maintain it in

good state of repairs. IOC was given the right to take possession of

the hypothecated aircrafts only in the event of any default as

mentioned in the Hypothecation Deed. It is not the case of the IOC

that it took possession of the aircraft in exercise of the right vested in

it under the Deed of Hypothecation. Thus, as the possession of the

aircraft remained all along with NEPC India in its capacity as the owner

and the Deed of Hypothecation merely created a charge over the

aircrafts with a right to take possession in the event of default, it

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cannot be said that there was either entrustment of the aircrafts or

entrustment of the dominion over the aircrafts by IOC to NEPC India.

The very first requirement of section 405, that is the person accused

of criminal breach of trust must have been "entrusted with the

property" or "entrusted with any dominion over property" is, therefore,

absent.

22. Learned counsel for the appellant, however, sought to

distinguish the decision in Duncan Agro on two grounds. It was pointed

out that Duncan Agro itself recognizes that there can be criminal

breach of trust where a beneficial interest exists in the other person,

and the offender holds the property in trust for such person. It is

submitted that when the deed of hypothecation was executed by NEPC

India in favour of IOC, the hypothecation created a beneficial interest

in the property in favour of IOC, and vis-`-vis such 'beneficial interest'

of IOC, the possession of the property by NEPC India was in 'trust'. In

support of this contention, reliance was placed on a decision of the

Sind Judicial Commissioner in Gobindram C. Motwani v. Emperor :

(1938) 39 Cr.L.J. 509. In that case the complaint was that the accused

had hypothecated the goods in their shop as collateral security against

an advance and had agreed to hold the goods and proceeds thereof in

trust and to pay the proceeds as and when received by them.

However, as they did not pay the proceeds, the complaint was that

they committed criminal breach of trust. The Magistrate took the view

that as the hypothecated goods were still the property of the accused,

they could not commit criminal breach of trust in respect of their own

property. The Judicial Commissioner did not agree. He held :

"The test in this case appears to me to be whether the

owner of the goods, the accused, created an equitable

charge over the goods in their possession when they

executed the trust receipt. If they did so, they held the

goods as trustees, they were "in some manner entrusted"

with the goods, and if they dealt with them in violation of

the terms of the trust, they committed an offence under

this section, provided they had the necessary criminal

intent. I can myself see no reason why it should be said

that by this trust receipt the accused did not give a

beneficial interest in the goods to the applicant and did

not hold the goods, with which they were entrusted as

legal owners in trust for the applicant. That being so, I

think the learned Magistrate was wrong in his decision

that the accused could not be guilty of criminal breach of

trust because the goods were their own property."

It is evident that the said observations were made on the peculiar

facts of that case where the Commissioner concluded that the goods

were held by the accused in trust as trustee in view of execution of a

'Trust Receipt' by the accused. The facts were somewhat similar to

example (viii) in Para 17 above. Further the Judicial Commissioner

finally observed that there was so much room for an honest difference

of opinion as to the rights and liabilities of the parties to the trust

receipt that no useful purpose could be served in interfering with the

order of discharge by the Magistrate. The said decision is therefore of

no assistance to the appellant.

If the observations relied on by the appellant are to be interpreted as

holding that the debtor holds the hypothecated goods, in trust for the

creditor, then they are contrary to the decision of this Court in Duncan

Agro (supra) which specifically holds that when goods are

hypothecated, the owner does not hold the goods in trust for the

creditor. A charge over the hypothecated goods in favour of the

creditor, cannot be said to create a beneficial interest in the creditor,

until and unless the creditor in exercise of his rights under the deed,

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takes possession. The term 'beneficial interest' has a specific meaning

and connotation. When a trust is created vesting a property in the

trustee, the right of the beneficiary against the trustee (who is the

owner of the trust property) is known as the 'beneficial interest'. The

trustee has the power of management and the beneficiary has the

right of enjoyment. Whenever there is a breach of any duty imposed

on the trustee with reference to the trust property or the beneficiary,

he commits a breach of trust. On the other hand, when the owner of a

goods hypothecates a movable property in favour of a creditor, no

'beneficial interest' is created in favour of the creditor nor does the

owner become a trustee in regard to the property hypothecated. The

right of the creditor under a deed of hypothecation is the right to

enforce the charge created under the deed of hypothecation in the

manner specified in the deed and by no stretch of imagination can

such right be equated to a beneficial interest of a beneficiary in a

property held in trust. Therefore, the first contention that a creditor

has a beneficial interest in the hypothecated property and the owner is

in the position of a trustee with reference to the creditor is liable to be

rejected.

23. The second ground on which learned counsel for the appellant

sought to distinguish Duncan Agro is that the said case dealt with a

hypothecation deed creating a floating charge, whereas the case on

hand related to a fixed charge and therefore, the principle laid down

in Duncan Agro will not apply. This contention is also without basis.

The principle stated in Duncan Agro will apply in regard to all types of

hypothecations. It makes no difference whether the charge created by

the deed of hypothecation is a floating charge or a fixed charge. Where

a specific existing property is hypothecated what is created is a 'fixed'

charge. The floating charge refers to a charge created generally

against the assets held by the debtor at any given point of time during

the subsistence of the deed of hypothecation. For example where a

borrower hypothecates his stock-in-trade in favour of the Bank

creating a floating charge, the stock-in-trade, held by the borrower as

on the date of hypothecation may be sold or disposed of by the debtor

without reference to the creditor. But as and when new stock-in-trade

is manufactured or received, the charge attaches to such future stock-

in-trade until it is disposed of. The creditor has the right at any given

point of time to exercise his right by converting the hypothecation into

a pledge by taking possession of the stock-in-trade held by the debtor

at that point of time. The principle in Duncan Agro is based on the

requirement of 'entrustment' and not with reference to the 'floating'

nature of the charge. The second contention also has no merit.

24. We accordingly hold that the basic and very first ingredient of

criminal breach of trust, that is entrustment, is missing and therefore,

even if all the allegations in the complaint are taken at their face value

as true, no case of 'criminal breach of trust' as defined under section

405 IPC can be made out against NEPC India.

Section 415

25. The essential ingredients of the offence of 'cheating' are : (i)

deception of a person either by making a false or misleading

representation or by other action or omission (ii) fraudulent or

dishonest inducement of that person to either deliver any property or

to consent to the retention thereof by any person or to intentionally

induce that person to do or omit to do anything which he would not do

or omit if he were not so deceived and which act or omission causes or

is likely to cause damage or harm to that person in body, mind,

reputation or property.

26. The High Court has held that mere breach of a contractual terms

would not amount to cheating unless fraudulent or dishonest intention

is shown right at the beginning of the transaction and in the absence

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of an allegation that the accused had a fraudulent or dishonest

intention while making a promise, there is no 'cheating'. The High

Court has relied on several decisions of this Court wherein this Court

has held that dishonest intent at the time of making the

promise/inducement is necessary, in addition to the subsequent failure

to fulfil the promise. Illustrations (f) and (g) to section 415 makes this

position clear :

"(f) A intentionally deceives Z into a belief that A means to

repay any money that Z may lend to him and thereby

dishonestly induces Z to lend him money, A not intending to

repay it. A cheats."

"(g). A intentionally deceives Z into a belief that A means to

deliver to Z a certain quantity of indigo plant which he does not

intend to deliver, and thereby dishonestly induces Z to advance

money upon the faith of such delivery. A cheats; but if A, at the

time of obtaining the money, intends to deliver the indigo plant,

and afterwards breaks his contact and does not deliver it, he

does not cheat, but is liable only to a civil action for breach of

contract."

27. In Rajesh Bajaj (supra), this Court held :

"It is not necessary that a complainant should verbatim

reproduce in the body of his complaint all the ingredients of the

offence he is alleging. Nor is it necessary that the complainant

should state in so many words that the intention of the accused

was dishonest or fraudulent. \005..

The crux of the postulate is the intention of the person who

induces the victim of his representation and not the nature of

the transaction which would become decisive in discerning

whether there was commission of offence or not. The

complainant has stated in the body of the complaint that he was

induced to believe that respondent would honour payment on

receipt of invoices, and that the complainant realised later that

the intentions of the respondent were not clear. He also

mentioned that respondent after receiving the goods have sold

them to others and still he did not pay the money. Such

averments would prima facie make out a case for investigation

by the authorities."

28. In Hridaya Ranjan Prasad Verma (supra), this Court held :

"On a reading of the section it is manifest that in the definition

there are set forth two separate classes of acts which the person

deceived may be induced to do. In the first place he may be

induced fraudulently or dishonestly to deliver any property to

any person. The second class of acts set forth in the section is

the doing or omitting to do anything which the person deceived

would not do or omit to do if he were not so deceived. In the

first class of cases the inducing must be fraudulent or dishonest.

In the second class of acts, the inducing must be intentional but

not fraudulent or dishonest.

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 to 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

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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."

29. In this case, the complaints clearly allege that the accused with

fraudulent intention to cheat and defraud the IOC, had induced IOC to

resume supply of aircraft fuel on cash and carry basis, by entering into

a further agreement dated 20.9.1997 and undertaking to clear the

outstanding amount of Rs.18 crores approximately within the time

stipulated in the Hypothecation Agreements. The sum and substance

of the said allegation read with other averments extracted above, is

that NEPC India, having committed default in paying the sum of Rs.18

crores, entered into a fresh agreement dated 20.9.1997 agreeing to

clear the outstanding as per a fresh schedule, with the dishonest and

fraudulent intention of pre-empting and avoiding any action by IOC in

terms of the hypothecation deeds to take possession of the aircrafts.

Though the supplies after 20.9.1997 were on cash and carry basis, the

fraudulent intention is alleged to emanate from the promise under the

said agreement to make payment, thereby preventing immediate

seizure (taking possession) of the aircrafts by IOC. This allegation

made in addition to the allegation relating to removal of engines, has

been lost sight of by the High Court. All that is to be seen is whether

the necessary allegations exist in the complaint to bring the case

within section 415. We are clearly of the view that the allegations in

the complaint constitute such an offence. We are not concerned with

the proof of such allegations or ultimate outcome of trial at this stage.

Section 425

30. Section 425 IPC provides : "Whoever, with intent to cause, or

knowing that he is likely to cause, wrongful loss or damage to the

public or to any person, causes the destruction of any property, or any

such change in any property or in the situation thereof as destroys or

diminishes its value or utility, or affects it injuriously, commits

"mischief". The three ingredients of the Section are : (i) intention to

cause or knowledge that he is likely to cause wrongful loss or damage

to the public or to any person; (ii) causing destruction of some

property or any change in the property or in the situation thereof; and

(iii) the change so made destroying or diminishing the value or utility

or affecting it injuriously. For the purpose of section 425, ownership or

possession of the property are not relevant. Even if the property

belongs to the accused himself, if the ingredients are made out,

mischief is committed, as is evident from illustrations (d) and (e) to

section 425. The complaints clearly allege that NEPC India removed

the engines thereby making a change in the aircrafts and that such

removal has diminished the value and utility of the aircrafts and

affected them injuriously, thereby causing loss and damage to IOC,

which has the right to possess the entire aircraft. The allegations

clearly constitute the offence of 'mischief'. Here again, we are not

concerned with the proof or ultimate decision.

Conclusion :

31. In view of the above discussion, we find that the High Court was

not justified in quashing the complaints/criminal proceedings in

entirety. The allegations in the complaint are sufficient to constitute

offences under sections 415 and 425 of IPC. We accordingly allow

these appeals in part and set aside the order of the High Court insofar

it quashes the complaint under sections 415 and 425. As a

consequence, the Judicial Magistrate, Coimbatore and the Judicial

Magistrate, Alandur before whom the matters were pending, shall

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proceed with the matters in accordance with law in regard to the

complaints filed by IOC in so far as offences under sections 415 and

425 of IPC. Parties to bear their respective costs.