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CASE NO.:

Appeal (crl.) 1072 of 2001

PETITIONER:

S.W. PALANITKAR AND ORS.

RESPONDENT:

STATE OF BIHAR AND ANR.

DATE OF JUDGMENT: 18/10/2001

BENCH:

D.P. MOHAPATRA & SHIVARAJ V. PATIL

JUDGMENT:

JUDGMENT

2001 ( 4 ) Suppl. SCR 397

The Judgment of the Court was delivered by SHIVARAJ V. PAUL, J.

Leave granted.

This appeal is by the accused in Complaint Case No. 1388 of 1997 in the

Court of Chief Judicial Magistrate, Patna, aggrieved by the order dated

20.12.2000 passed by the High Court of Patna in Criminal Misc. No. 6232 of

1998.

In brief the facts to the extent relevant and necessary for disposal of

this appeal are as under :-

There was an agreement dated 21.2.1995 between the appellant No. 1 (the

company) and the respondent no. 2 under which he was appointed as a

consignment stockist of the company subject to certain terms and

conditions.

The said agreement was valid till 20.2.1996. By a subsequent agreement

dated S.S.1997 the same arrangement was extended up to 31.3.1997 on the

same terms and conditions. On 3.10.1997 respondent No. 2 (complainant)

served a notice on the Manager Marketing and Regional Manager of the

company requesting them to make payment of Rs. 15.00 lacs to it within 15

days or in the alternative refer the disputes and differences to

arbitration as per clause 29 of the agreement. Thereafter the parties met

and the company offered to supply Ammonium Sulphate to the respondent for

the period 1997-98 on certain terms. The respondent rejected the offer

finding the terms unreasonable. It is thereafter the respondent filed a

complaint on 8.12.1997 alleging offences under sections 406 and 420 read

with Section 120B of the Indian Penal Code (IPC) inter alia stating "that

the accused persons in collusion and connivance of each other with wrongful

objects and motive to wrongfully squeeze money/ gratification from the

complainant and in their own benefit used the complain-ant wrongly and have

cheated the complainant by practising fraud and have acted fraudulently

against the complainant and by doing such acts they have committed criminal

breach of trust and put the complainant to wrongful loss and have gained

wrongfully. The accused persons have also cheated the com-plainant by using

the office and godown premises of the complainant on the basis of false

assurances given to the complainant and without making any farthing for

such costly and valuable premises and thus committed criminal breach of

trust, fraud and cheating which caused loss of rupees fifteen lacs".

The learned Chief Judicial Magistrate, Patna by his order dated 6.1.1998

issued summons against the appellants. The appellants approached the High

Court by filing a petition under Section 482 Cr.P.C. for quashing the

aforemen-tioned order of the learned Magistrate. The High Court by the

impugned order dismissed the said petition. In these circumstances the

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appellants are before this Court in appeal.

Shri Dushyant Dave, learned Senior Counsel for the appellants urged that

the High Court failed to exercise its power under Section 482 Cr.P.C.

having regard to the facts and circumstances of the case in order to

prevent abuse of process of the court and/or to secure the ends of justice;

that the disputes between the appellants and respondent no. 2 were purely

of civil nature arising out of contractual relationship relating to

commercial transac-tion; even looking to the sworn statements, terms of the

agreement and the notice dated 3.10.1997, no case is made out to proceed

against the appellants on criminal side, that the essential ingredient of

the offence under Section 405 IPC is not made out as the appellants were

not entrusted with any property or with domain over property; similarly the

ingredients of the offence under Section 415 & 120-B IPC also were not

satisfied. According to him, the learned Magistrate committed a serious

error in issuing the process; unfortunately, the High Court, also failed to

correct the same, exercising jurisdiction under Section 482 of the Cr.P.C.

Alternatively and lastly, he submitted that at any rate no case is made out

against the appellants 1-6 and 8. Hence, issuing a process against them is

patently illegal and untenable. Shri L.K. Bajla, learned counsel for

respondent No. 2 made submissions supporting the impugned judgment of the

High Court and justifying the order passed by the learned Magistrate in

issuing the process. More or less, he reiterated the submissions that were

made before the High Court.

Before examining respective contentions on their relative merits, we think

it is appropriate to notice the legal position. Every breach of trust may

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

evidence of a mental act of fraudulent misappropriation. An act of breach

of trust involves a civil wrong in respect of which the person wronged may

seek his redress for damages in a civil court but a breach of trust with

mens rea gives rise to a criminal prosecution as well.

The ingredients in order to constitute a criminal breach of trust are: (1)

entrusting a person with property or with any dominion over property (ii)

that person entrusted (a) dishonestly misappropriating or converting that

property to his own use; or (b) dishonestly using or disposing of that

property or willfully suffering any other person so to do in violation (i)

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

discharged (ii) of any legal contract made touching the discharge of such

trust.

The ingredients of the offence of cheating are: (i) there should be

fraudulent or dishonest inducement of a person by deceiving him, (ii) (a)

the person so deceived should be induced to deliver any property to any

person, or to consent that any person shall retain any property; or (b) the

person so deceived should be intentionally induced to do or omit to do

anything which he would not do or omit if he were not so deceived; and

(iii) in cases covered by (ii) (b), the act of omission should be one which

causes or is likely to cause damage or harm .to the person induced in body,

mind, reputation or property.

One of us (D.P. Mohapatra J.) speaking for the Bench, in Hridaya Ranjan

Prasad Verma & Ors. v. State of Bihar & Anr, [2000] 4 SCC 168, on facts of

that case, has expressed thus :

"In determining the question it has to be kept in mind that the distinc-

tion between mere breach of contract and the offence of cheating is a fine

one. It depends upon the intention of the accused at the time of inducement

which may be judged by his subsequent conduct but for this subsequent

conduct is not the sole test. Mere breach of contract cannot give rise to

criminal prosecution for cheating unless fraudulent or dishonest intention

is shown right at the beginning of the transac-tion, 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

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necessary to show that he had fraudu-lent or dishonest intention at the

time of making the promise. From his mere failure to keep up promise

subsequently such a culpable intention right at the beginning, that is,

when he made the promise cannot be presumed."

[emphasis supplied]

Finding that ingredients of the offence of cheating and its allied offences

had not been made out, this Court interfered with the order of the High

Court and quashed the criminal proceedings.

In G.V. Rao v. L.H.V. Prasad & Ors., [2000] 3 SCC 693, this Court in para 7

has stated thus :-

"As mentioned above, Section 415 has two parts. While in the first part,

the person must "dishonestly" or "fraudulently" induce the com-plainant to

deliver any property; in the second part; the person should intentionally

induce the complainant to do or omit to do a thing. That is to say, in the

first part, inducement must be dishonest or fraudulent. In the second part,

the inducement should be intentional. As observed by this Court in

Jaswantrai Manilal Akhaney v. State of Bombay, AIR (1956) SC 575 a guilty

intention is an essential ingredient of the offence of cheating. In order,

therefore, to secure conviction of a person for the offence of cheating,

"mens rea" on the part of that person, must be established. It was also

observed in Mahadeo Prasad v. State of W.B., AIR (1954) SC 724 that in

order to constitute the offence of cheating, the intention to deceive

should be in existence at the time when the inducement was offered"

[emphasis supplied]

In Irisuns Chemical Industry v. Rajesh Agarwal & Ors., [1999] 8 SCC 686

dealing with the effect of existence of arbitration clause in the agreement

on criminal prosecution on the ground that civil proceedings are also

maintainable, this Court has held that quashing of F.I.R. or a complaint

exercising power under Section 482 Cr.P.C. should be limited to a very

extreme exception; merely because an act has a civil profile is not enough

to stop action on the criminal side. It is further held that a provision

made in the agreement for referring the disputes to arbitration is not an

effective substitute for a criminal prosecution when the disputed act

constitutes a criminal offence.

In case of a complaint under Section 200 Cr.P.C. or IPC a Magistrate can

take cognizance of the offence made out and then has to examine the

complain-ant and his witnesses; if any, to ascertain whether a prima facie

case is made out against the accused to issue process so that the issue of

process is prevented on a complaint which is either false or vexatious or

intended only to harass. Such examination is provided in order to find out

whether there is or not sufficient ground for proceeding. The words

'sufficient ground', used under Section 203 have to be construed to mean

the satisfaction that a prima facie case is made out against the accused

and not sufficient ground for the purpose of conviction.

This Court in Nirmaljit Singh Hoon v. The State of West Bengal & Anr.,

[1973] 3 SCC 753, in para 22, referring to scheme of Sections 200-203 of

Cr. P.C. has explained that "The section does not say that a regular trial

of adjudging truth or otherwise of the person complained against should

take place at that stage, for, such a person can be called upon to answer

the accusation made against him only when a process has been issued and he

is on trial. Section 203 consists of two parts. The first part lays down

the materials which the Magistrate must consider, and the second part says

that if after considering those materials there is in his judgment no

sufficient ground for proceeding, he may dismiss the complaint. In Chandra

Deo Singh v. Prakash Chandra Base, [1964] 1 SCR 639, where dismissal of a

complaint by the Magistrate at the stage of Section 202 inquiry was set

aside, this Court laid down that the test was whether there was sufficient

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ground for proceeding and not whether there was sufficient ground for

conviction, and observed (p. 653) that where there was prima facie

evidence, even though the person charged of an offence in the complaint

might have a defence, the matter had to be left to be decided by the

appropriate forum at the appropriate stage and issue of a process could not

be refused. Unless, therefore, the Magistrate finds that the evidence led

before him is self-contradictory, or intrinsically untrustworthy, process

cannot be refused if that evidence makes out a prima facie case" In Smt.

Nagawwa v. Veeranna Shivalingappa Konjalgi & Ors., [1976] 3 SCC 736 this

Court dealing with the scope of inquiry under Section 202 has stated that

it is extremely limited only to the ascertainment of the truth or falsehood

of the allegations made in the complaint (a) on the materials placed by the

complainant before the court; (b) for the limited purpose of finding out

whether a prima facie case for issue of process has been made out; (c) for

deciding the question purely from the point of view of the complainant

without at all adverting to any defence that the accused may have. It is

also indicated by way of illustration in which cases an order of the

Magistrate issuing process can be quashed on such case being "where the

allegations made in the complaint or the statements of the witnesses

recorded in support of the same taken at their face value make out

absolutely no case against the accused or the complaint does not disclose

the essential ingredients of an offence which is alleged against the

accused".

Cautioning against issuing of process so that it should not be an instru-

ment in the hands of the private complainant as vendetta to harass the

person needlessly, this Court in Punjab National Bank & Ors. v. Surendra

Prasad Sinha, [1993] Supp. (1) SCC 499 has this to say in para 6 :-

"It is also salutary to note that judicial process should not be an

instrument of oppression or needless harassment. The complaint was laid

impleading the Chairman, the Managing Director of the Bank by name and a

host of officers. There lies responsibility and duty on the magistracy to

find whether the concerned accused should be legally responsible for the

offence charged for. Only on satisfying that the law casts liability or

creates offence against the juristic person or the persons impleaded then

only process would be issued. At that stage the court would be circumspect

and judicious in exercising discretion and should take all the relevant

facts and circumstances into consideration before issuing process lest it

would be an instrument in the hands of the private complaint as vendetta to

harass the persons needlessly. Vindication of majesty of justice and

maintenance of law and order in the society are the prime objects of

criminal justice but it would not be the means to wreak personal vengeance.

Considered from any angle we find that the respondent had abused the

process and laid complaint "against the appellants without any prima facie

case to harass them from vendetta." Similarly in Madhavrao Jiwajirao

Scindia & Ors. v. Sambhajirao

Chandrojirao Angre & Ors., [1988] 1 SCC 692, this Court has stated that

"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 utilized for any

oblique purpose and where in the opinion of the court chances of an

ultimate conviction is bleak and, therefore, no useful purpose is

likely to be served by allowing a criminal prosecution to continue, the

court may while taking into consideration the special facts of a case also

quash the proceeding even though it may be at a preliminary stage."

Turning to the facts of the case, there is nothing either in the complaint

and/or in the sworn statements of the complainant and the three witnesses

that any property was entrusted to any of the appellants at all or the

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appellants had domain over any of the properties of respondent no. 2 which

they dishonestly converted to their own use so as to satisfy the

ingredients of Section 405 IPC punishable under Section 406 IPC. Further

the agreement also did not require entrustment of any property to the

appellants. Taking the complaint and the statements of the witnesses as

they are, it cannot be said even prima facie, that the appellants committed

any offence punishable under Section 406 IPC, since the ingredients of that

offence were not satisfied. Hence the learned Magistrate committed a

serious error in issuing process against the appellants for the said

offence. Unfortunately, the High Court also failed to correct this manifest

error. It is clear from the allegations made in the complaint and the sworn

statements that the appellant no. 1 company entered into an agreement with

the respondent no. 2 on certain terms and conditions. It is alleged that

the appellant no. 7 went to Patna and contracted respondent no. 2 and

induced him to enter into an agreement assuring him of huge profit. At the

time of arriving at such an agreement, none of the other appellants either

met the respondent no. 2 or induced him to enter into any agreement with a

view to cheat him. The agreement was further renewed for a period of one

year. It is not the case that there was no supply of goods at all as it has

come on record that there was supply of 400 ton of fertilizer, may be it

was far less than the required quantity. The allegations made against the

appellants other than the appellant no. 7 are very vague and bald. From the

material that was placed before the Magistrate, even prima facie, it cannot

be said that there was conspiracy or connivance between the other

appellants and the appellant No. 7. If the appellants have committed breach

of agreement, it is open to respondent no. 2 to seek redressal in a

competent court or forum to recover damages, if permissible in law in case

he had sustained any loss. In order to constitute an offence of cheating,

the intention to deceive should be in existence at the time when the

inducement was made. It is necessary to show that a person had fraudulent

or dishonest intention at the time of making the promise, to say that he

committed an act of cheating. A mere failure to keep up promise

subsequently cannot be pre-sumed as an act leading to cheating.

Looking to the complaint and the grievances made by the complainant therein

and having regard to the agreement, it is clear that the dispute and

grievances arise out of the said agreement. Clause 29 of the agreement

provides for reference to arbitration in case of disputes or controversy

between the parties and the said clause is wide enough to cover almost all

sorts of disputes arising out of the agreement. As a matter of fact, it is

also brough to our notice that the complainant issued a notice dated

3.10.1997 to the appellants invoking this arbitration clause claiming Rs.

15. lacs. It is thereafter the present complaint was filed. For the alleged

breach of the agreement in relation to commercial transaction, it is open

to the respondent no. 2 to proceed against the appellants for his redressal

for recovery of money by way of damages for the loss caused, if any. Merely

because there is an arbitration clause in the agreement, that cannot

prevent criminal prosecution against the accused if an act constituting a

criminal offence is made out even prime facie.

Many a times, complaints are filed under Section 200 Cr.P.C. by the parties

with an oblique motive or for collateral purposes to harass, to wreck

vengeance, pressurize the accused to bring them to their own terms or to

enforce the obligations arising out of breach of contract touching

commercial transactions instead of approaching civil courts with a view to

realize money at the earliest. It is also to be kept in mind that when

parties commit a wrongful act constituting a criminal offence satisfying

necessary ingredients of an offence, they cannot be allowed to walk away

with an impression that no action could be taken against them on criminal

side. A wrongful or illegal act such as criminal breach of trust,

misappropriation, cheating or defamation may give rise to action both on

civil as well as on criminal side when it is clear from the complaint and

sworn statements that necessary ingredients of constituting an offence are

made out. May be parties are entitled to proceed on civil side only in a

given situation in the absence of an act constituting an offence but not to

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proceed against the accused in a criminal prosecution. Hence before issuing

a process a Magistrate has to essentially keep in mind the scheme contained

in the provisions of Section 200-203 of Cr.P.C. keeping in mind the

position of law stated above and pass an order judiciously and not

mechanically or in routine manner.

The learned Magistrate, in our view, having regard to the facts stated and

the legal position explained above, committed a serious error in issuing

the process against the appellants 1 to 6 and 8 for offences under Sections

406,420 and 120-B IPC when the acts alleged against them did not constitute

these offences satisfying their ingredients even prima facie. In the light

of the material brought on record at that stage process could have been

issued only as against the appellant no. 7 that too for an offence under

Section 420 IPC only.

The High Court dismissed the petition filed under Section 482 Cr.P.C. by

the impugned order placing reliance, in particular, on two decisions of

this Court, one Trisuns Chemical Industry (supra) and Medchi Chemicals &

Pharma (P) Ltd. v. Biological E. Ltd. & Ors., [2000] 3 SCC 269. In the

first case, this Court held that the exercise of inherent power should be

limited to very extreme exceptions. Further it was held that referring the

disputes to arbitration is not an effective substitute for a criminal

prosecution when the disputed act is an offence. It may be noted that the

said judgment gets attracted only when the disputed act is an offence,

which the High Court has filed to notice. No doubt, exercise of inherent

power under Section 482 Cr.P.C. by High Court should be limited to very

extreme exceptions but in a case where ingredients of alleged offences are

not satisfied even prima facie, it cannot be said that power under Section

482 Cr.P.C. should not be exercised to quash the process issued by a

Magistrate. In the case of Smt. Nagawwa (supra), it is laid down that in

such a case, power under section 482 Cr.P.C. can be exercised to quash the

process issued by a Magistrate.

In the second case also, this Court has expressed that "exercise of

jurisdiction under the inherent power as envisaged under Section 482

Cr.P.C. to have the complaint or the charge-sheet quashed is an exception

rather than a rule and the case for quashing at the initial stage must have

to be treated as rarest of rare so as not to scuttle the

prosecution....................In the event, however, the court on perusal

of the complaint comes to a conclusion that the allegations leveled in the

complaint or charge-sheet on the face of it does not constitute or disclose

any offence as alleged, there ought not to be any hesi-tation to rise up to

the expectation of the people and deal with the situation as is required

under the law." Even from this case also, it is clear that if no offence is

made out from the allegations made in the complaint, there should be no

hesitation in exercising power under Section 482 Cr.P.C. to pass

appropriate order.

In the case on hand, we have already stated above that except against the

appellant no. 7, no offence was made out against the remaining appellants

as the ingredients of offences alleged against them were not satisfied.

Unfortu-nately, the High Court failed to exercise jurisdiction under

Section 482 Cr.P.C. to correct manifest error committed by the learned

Magistrate in issuing proc-ess against the appellants 1-6 and 8 when the

alleged acts against them did not constitute offences for want of

satisfying the ingredients of the offences. The approach and considerations

while exercising power and jurisdiction by a Magistrate at the time of

issuing process are to be in terms of Sections 200 to 203 under Chapter XV

of Cr.P.C., having due regard to the position of law explained in various

decisions of this Court, and whereas while exercising power under Section

482 of Cr.P.C. the High Court has to look at the object and purpose for

which such power is conferred on it under the said provision. Exercise of

inherent power is available to the High Court to give effect to any order

under the Cr.P.C., or to prevent about of the process of any court or

otherwise to secure the ends of justice. This being the position, exercise

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of power under Section 482 Cr.P.C. should be consistent with the scope and

ambit of the same in the light of the decisions aforementioned. In

appropriate cases, to prevent judicial process from being an instrument of

oppression or harass-ment in the hands of frustrated or vindictive

litigants, exercise of inherent power is not only desirable but necessary

also, so that the judicial forum of court may not be allowed to be utilized

for any oblique motive. When a person approaches the High Court under

Section 482 Cr.P.C. to quash the very issue of process, the High Court on

the facts and circumstances of a case has to exercise the powers with

circumspection as stated above to really serve the purpose and object for

which they are conferred.

Thus having regard to facts and circumstances stated and discussion made

above, the issue of process against appellant nos. 1-6 and 8 is set aside

and the process issued against appellant no. 7 namely, Amrit Lal Desai @

A.B. Desai for offences under Sections 406 and 120-B is also set aside.

However, the issue of process against him under Section 420 IPC is

maintained. The order of the learned Magistrate and the impugned order are

modified to this extent. Thus, this appeal is partly allowed and stands

disposed of in the above terms.