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PETITIONER: SHRI ASHIM K.ROY

       Vs.

RESPONDENT: BIPINBHAI VADILAL MEHTA & ORS.

DATE OF JUDGMENT:       14/10/1997

BENCH: A.S. ANAND, K. VENKATASWAMI

ACT:

HEADNOTE:

JUDGMENT:                THE 14TH DAY OF OCTOBER, 1997 Present:                Hon’ble Dr. Justice A.S.Anand                Hon’ble Mr.Justice K.Venkataswami R.K. Jain and S.Sanjanwala, Sr.Advs., Anil Shrivastava, Adv. with them for the appellant Shanti Phushan,  Arun Jaitely,  Sr.Advs., Levang S.Nanavati, Yashank Adhyaru,  V.K.Bhatt, Saurin  A.Mehta, Mrs.  Nirmlala Gupta,  Mrs,   V.D.Khanna,  Advs.   for  M/s.   I.M.Nanavati Associates Ms. Hemantika Wahi, Adv. for the State.                       J U D G M E N T      The following Judgment of the Court was delivered: K.Venkataswami, J.      These appeals  arise out  of a  complain filed  by  the appellant which was subsequently registered as Criminal Case No. 262/89.   Brief  facts leading  to the  filing of  these appeals are given below:-      The appellant  who was  a  General  Secretary  of  Hind Mazdoor Kisan Panchayat to which Gujarat Mazdoor Panchayat a recognised trade  union of  a  limited  company,  originally known  as  M/s.  Sayaji  Mills  Ltd.  now  known  as  Sayaji Industries  Ltd,   is  affiliated.      According   to   the appellant/complainant, respondents 1 & 2 (hereinafter called the "contesting  respondents") have committed offences under Section 120-B  and 409  IPC read  with  Section  77  of  the Companies Act.  The contesting  respondents are  father  and son.   One Vadilal Lalbhai Mehta was the father of the first respondent Bipinbhai  Vadilal Mehta.   One Suhasbhai Vadilal Mehta was the brother of the first respondent.  They entered into a memorandum of understanding on 30.1.1982 for dividing their  properties.     As   per  the   said  memorandum   of understanding, the  first respondent’s  family will be given management and control of M/s Sayaji Industries Ltd and M/s. C.V. Mehta  Pvt. Ltd.  On the other hand, the management and control  of   other  companies,   namely,  M/s.   Industrial Machinery Manufacturers  Pvt. Ltd, M/s. C.Doctor. & Co. Pvt. Ltd. shall  remain with  Suhash Bhai  Mehta, brother  of the first respondent.   As  per the terms of the memorandum, the liabilities of  M/s.   C.V.Mehta  Pvt.  Ltd.  towards  other

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concerns amounting  to  Rs.  39  lacs  and  odd  was  to  be discharged by  the first  respondent and his family and only after  the   Clarence  of  the  said  liability,  the  first respondent and his family could take over the management and control of  the companies  allotted to them.  It was alleged by the  appellant  in  the  complaint  that  the  contesting respondents   had  no  funds  with  them  to  discharge  the liability allotted  to them  and they  could not  also raise funds to  be deposited  with M/s. C.V.Mehta Pvt. Ltd. within the stipulated  period, namely,  February to November, 1982. Therefore, a modification to the memorandum of understanding was entered into between the same parties on 13.11.1982.  As per the  modified memorandum of understanding, it was agreed that the  contesting respondents  will deposit  Rs. 20  lacs immediately with  M/s. C.V.  Mehta  Pvt.  Ltd  in  order  to acquire the shares of M/s. Sayaji Industries Ltd and thereby gain management  and control  of M/s.  Sayaji Industries Ltd (hereinafter referred  to as  the ’Company’).   In  order to discharge the  liability as  per the  modified memorandum of understanding, it is the specific case of the appellant that the contesting  respondents entered  into  a  conspiracy  to commit criminal  breach in  relation to  the  funds  of  the company and thereby dishonestly siphoned the public funds to the detriment  of the  shareholders and the employees of the company.   The  appellant  explaining  the  act  of  alleged conspiracy has  stated in  the complaint that the contesting respondents  diverted   the  funds   of  the  company  in  a clandestine manner by manipulating and tempering the records and accounts and caused the wrongful gain in so transferring the funds  of the  company by  making advances to a supplier M/s. Santosh Starch Products Ltd. by three different cheques drawn on  Punjab National bank.  It was further alleged that the accused persons in furtherance of the conspiracy made it to appear  that M/s. Santosh Starch Products advanced a loan of Rs.  20 lacs  on 13.11.1982 by three cheques in favour of Bipin Mehta  who in  turn ploughed  the amount  in M/s. C.V. Mehta Pvt. Ltd. to discharge the liability undertaken by him as per the modified memo of understanding.  In this process, the  contesting   respondents  acquired   the  control   and management of  M/s. Sayaji  Industries Ltd.  Inasmuch as the funds of  the company were utilised in the manner aforesaid, according to  the appellant, the contesting respondents have violated Section  77 of  the Companies Act.  In addition, it was  the   case  of  the  complainant  that  the  contesting respondents have  also committed  offences punishable  under Section 120-B and 40 of IPC.      On receipt  of such complaint, the Judicial Magistrate, First Class,  Ahmadabad (Rural)  conducted an  inquiry under Section 202  Cr.  P.C.    The  learned  Magistrate  recorded statements  of   four  witnesses.    After  considering  the deposition of the said four witnesses and also the documents produced before  him, the Magistrate was of the opinion that prima facie  a case  against the  contesting respondents was made out for the offences punishable under Section 120-B and 409 IPC  read with Section 77 of the Companies Act.  Learned Magistrate was  also of  the view  that the  case has  to be tried by the Sessions Court and accordingly he committed the case under Section 323 of Cr.P.C. to Sessions Court.      The  contesting   respondents  previously   moved   the Sessions Court  for anticipatory  bail while the proceedings were pending  before the  Magistrate.   The learned Sessions Judge rejected  that application for anticipatory bail.  The contesting respondents  moved the Gujarat High Court against the  order   of  the   Sessions  Judge  declining  to  grant anticipatory  bail   and  also  against  the  order  of  the

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Magistrate registering  the case and committing the same for proceeding further  by the Sessions Court.  These two cases, namely, Criminal  Revision Application  No. 247  of 1989 and Criminal Miscellaneous  Application No. 4216 of 1994 came up for consideration before the High Court.      Before the learned single Judge, it was conceded by the learned counsel  appearing  for  the  complainant  that  the warrant issued  against the  contesting respondent  for  the offence punishable under Section 77 of the Companies Act was uncalled for  and that the order of committing criminal case to the Sessions Court was also not proper.  In view of these concessions, the  High Court  confined  the  dispute  as  to whether  the   warrant   issued   against   the   contesting respondents for  the offences punishable under Section 120-B and 409  was justified.   The  learned Judge by his detailed and considered  order dated  2.12.94  held  that  the  order passed by  the learned Magistrate was without application of mind and  that on  the day  on which the offence was said to have been committed by the contesting respondents, they were not even  ordinary directors much less managing directors of the company  having control and management of the affairs of the company.   On  the other hand, the learned Judge held on facts that  it was  established, it  was the  father of  the respondent no.  1 who was the chairman and managing director of the company on the relevant date and he was not impleaded as a  party.  The company also was not impleaded as  a party accused.  The learned Judge further found that the complaint was at the instance of somebody to settle his score with the contesting respondents and it was a clear case of deliberate attempt on  the part of the complainant to use the machinery of the  court for an oblique purpose. The learned Judge also found that  the chances of ultimate conviction are bleak and therefore, no  useful purpose will be served by allowing the criminal  prosecution  to  continue.    In  coming  to  this conclusion, the  learned Judge placed reliance on a judgment of this Court in Madhavrao Jiwaji Rao Scindia and Anoher vs. Sambhajirao Chandrojirao Angre and Others (AIR 1988 SC 709). In the  result, the  learned Judge  allowed the applications and quashed  the complaint and charge against the contesting respondents.      Aggrieved by  the common  order of  the High Court, the present appeals by special leave are preferred.      Mr. R.K. Jain, learned Senior Counsel appearing for the appellant, submitted  that when  the money was advanced from the funds  of the  company, it was for a definite purpose of getting it back to discharge the personal liability and this is sufficient  to constitute  an offence  under Section 409. He  further   submitted  that  even  though  the  contesting respondents were not in actual control and management of the company on  the relevant date, they were in de facto control of management  of the  company and  that was  sufficient for making them  liable under Section 409.  In any case that was a matter for evidence and not a case for quashing.      He emphasized that contesting respondents held dominion over the  company’s funds  and the company having 67% public money, the  transaction in  question coupled with the manner in which  it was carried out clearly or at least prima facie bring out  an offence  under Section  409  punishable  under Section 120-B  IPC.  He further emphasized about the limited jurisdiction of the High Court under Section 482 of the Code of Criminal  Procedure and  according to  him the High Court exceeded its  jurisdiction in quashing charge and proceeding which was  the result  of  preliminary  inquiry  held  under Section 202 of Cr.P.C.      Mr. Shanti  Bhushan, learned  Senior Counsel, appearing

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for respondent  no.1, on  the other  hand submitted that all the three  findings of  the High Court are well-founded.  In addition to  that, he also submitted that there was delay in filing the  complaint and  the complainant  as such  has  no locus standi  to file  the complaint.   After  referring  to Section 405  IPC  Mr.  Shanti  Bhushan  submitted  that  the element of  entrustment s totally absent in this case as the accused persons  came into  picture only  after the relevant date and,  therefore, no  case was  made at  all against the contesting respondents  under  Section  409  and  20-B  IPC. Therefore, the  question of  registering the  complaint will not arise.   According  to the  learned Senior  Counsel,  in addition to  the absence  of entrustment aspect, the further ingredient required  to make out a case, namely "with a view to cause  wrongful loss  or gain"  was also  not there.  The transaction was  a normal  one.   Advances were given to the regular supplier.   The cheques given by the supplier to the individual by way of loan has nothing to do with the subject matter of  complaint and the whole thing was misconceived by the complainant.      According to the learned Senior Counsel, the High Court was right in quashing the proceedings.      Mr. Arun  Jaitley,  learned  Senior  Counsel,  for  the second respondent,  adding to  the submissions of Mr. Shanti Bhushan, highlighted  that on  the  relevant  date,  namely, 13.11.1982, contesting  respondents were  not in  control or management of  the company  and they  were not even de facto directors and  according to the memorandum of understanding, both original  and modified,  the accused  came into picture only after the discharge of the liability and not earlier to that.   Therefore, the  accused, if  at all, could take over the control  and management  of the  company only  after the transaction complained  of was  over.   Therefore, the  High Court was  right in  quashing  the  proceedings.    He  also emphasized that  the complaint  was to  achieve  an  oblique purpose and the High Court was right in observing that there was somebody behind the appellant.      Mr. Jain  in reply to the argument submitted that under Section 409  IPC, there  is no question of limitation and in any case  the complainant  has explained the delay in moving the court.  He also submitted that the complainant has locus standi to prefer the complaint.      We have  carefully scrutinised  the complaint  and  the documents and  considered  the  arguments  advanced  by  the counsel on  both sides.   We  are of  the view that the High Court was  right in  exercising the  power under Section 482 Cr.P.C. and  quashing the  proceedings in  this  case.    As noticed above, the High Court has given mainly three reasons in support  of its  conclusion.   We feel  that out of three reasons by  the High  Court the  one reason  with  which  we propose to  deal with is more than sufficient to sustain the order of  the High  Court. Before  giving our reasons, it is necessary  to   extract  the   relevant  portions  from  the complaint itself.   The pivotal point in the complaint finds a place  in paragraph  8 of  the complaint,  which reads  as follows:- "These accused persons in furtherance of the conspiracy made advances to  a supplier  M/s Santosh Starch Products situate at 71, New Cloth Market, Ahmedabad, as under:- Amount Rs.       Date        Cheque No.    Bank’s name 1.00 lacs        13.11.82     853901        PNB, Maskati                                            Mkt. Branch 5.00 lacs        -do-        853902           -do- 5.00 lacs       25.11.82     853934           -do- thus  the  accused  persons  in  furtherance  of  conspiracy

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diverted the  funds of  M/s Sayaji  Industries Ltd.  to  M/s Santosh Starch  Products to the tune of Rs. 20.00 lacs.  The complainant has also learnt that M/s Santosh Starch Products had actually  advanced loans  to  the  concerns  of  accused persons M/s  Santosh Starch  Product advanced  loan  of  Rs. 20.00 lacs  on 13th  November, 1982  by different cheques as under:- Amount Rs.       Date        Cheque    Name of Bank’s name in lacs                      No.       Party ........................................................... 7.00             13.11.82    887275    Bipinbhai     PNB                                        V.Mehta(HUF) 6.00              -do-       887276       -do-        -do- 7.00              -do-       887277    Priyambhai     -do-                                        Bipinbhai                                        Mehta This transfer  of amount from M/s Santosh Starch Products as loan in  their personal  accounts and  the transfer of funds from M/s  Sayaji Industries  Limited clearly  reflected  the dishonest  and   fraudulent  intention   to  take  over  the management and  control of  M/s Sayaji  Industries  Limited. These accused  persons in  furtherance of  their  conspiracy cleared their  liability of  making immediate payment of Rs. 20.00 lacs  in M/s  C.V. Mehta  Pvt. Ltd. as part payment of the total  payment of  about Rs.  39.00 lacs and odd and the accused defrauded company viz. M/s Sayaji Industries Ltd. by transferring the  amount of  Rs. 20.00  lac to  M/s  Santosh Starch  Product.    The  accused  acquired  the  controlling interest in the companies shareholders by using funds of the company  itself  and  thereby  violated  the  provisions  of Section 77  of the  Companies Act  a well as the Articles of the Association of the Company.  The accused dishonestly and fraudulently made payment to M/s Santosh Starch Product from M/s Sayaji  Industries  Ltd.  as  well  as  from  M/s  Maize Products until  of Sayaji  Industries Ltd.  with a  view  to obtain loan  from M/s  Santosh Starch  Product in  their own personal account.  Thus these accused persons in furtherance of the conspiracy to take over the management and control of M/s  Sayaji   Industries  Ltd.  illegally  and  fraudulently siphoned the  funds  of  the  company.    Thus  the  accused achieved  their   primary  objective   of  taking  over  the management  and   control  of  M/s  Sayaji  Industries  Ltd. continued with  their conspiracy in arranging to consolidate control and  management of  M/s Sayaji Industries Ltd.  This was done by acquiring the control and management of M/s C.V. Mehta Pvt.  Ltd.  This was very essential to consolidate the control of  M/s Sayaji Industries Ltd. Primarily because M/s C.V. Mehta  Pvt. Ltd.  owned approximately  10,000 shares of M/s Sayaji Industries Ltd."      Apart from  the above,  it is  also relevant  to notice some of  the other  allegations in  the complaint  which are given below: In paragraph  6, it is stated: "According to this Memorandum of Modification the accused persons were required to deposit Rs.20.00 lacs  immediately with  M/s C.V. Mehta Pvt. Ltd. in order to  acquire first  the shares of M/s Sayaji Industries Ltd.      In  paragraph  7,  the  complaint  has  stated:  "These accused persons  with a  dishonest and fraudulent intention, with a  view to  acquire and gain the management and control of M/s  Sayaji Industries  Ltd. diverted  the funds  of  the company in a clandestine manner.      The complainant/appellant  herein in  his affidavit  in reply before  the  High  Court  in  Crl.  Misc.  Application No.2627 of 1988, inter alia, had stated thus:

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    "Thus said  document also contained      a  recital  that  transfer  of  the      management of Sayaji Mills Ltd. and      the appointment  of Shri  Bipinbhai      Vadilal Mehta  and Shri  Pribambhai      Bipinbhai Mehta  on  the  Board  of      Directors thereof  are only  to  be      made after  Shri Bipinbhai  Vadilal      Mehta  has   paid  and  brought  in      C.V.Mehta Pvt.  Ltd. the sum of Rs.      20.00 lacs.  No doubt this document      has been  signed on  13th November,      1982 but it clearly transpires that      move  for  this  modification  must      have   started    prior   to   13th      November,   1982   and   both   the      petitioners  having  finalised  the      deal  with   M/s   Santosh   Starch      Products Pvt.  Ltd. to  obtain loan      of Rs.  20.00 lacs in their private      and personal capacity, the document      came  to   be  executed   on   13th      November,    1982."     Here    the      complainant has speculated also.      A cursory  reading of  the complaint, in particular the extracts especially  the underlined  portion as given above, will clearly  show that the contesting respondents (accused) will come into picture only after the liability contemplated under  the   modified  memorandum   of   understanding   was discharged.  In other words, the accused respondents 1 and 2 could have  come into  picture only  after the  transactions complained of  had taken  place and  as noticed above it was the father  of he  first respondent,  who was  the  Managing Director of Sayajit Industries Ltd. when the transactions in question took  place.   The respondents  Nos.1 and  2  could have played  no part  in that  transaction as  they were not even  ordinary   Directors  at  that  time  in  M/s  Sayajit Industries Ltd.   Therefore,  the allegations  made  in  the complaint even it is taken in its entirety still they do not constitute an  offence either  under Sections  120-B and 409 IPC.  In the circumstances, it would be manifestly unjust to allow the  proceedings  in  the  criminal  complaint  to  be proceeded with against respondents 1 and 2.      In this connection, though it is very well settled that the power  under Section  482 Cr.P.C.  should  be  sparingly invoked with  circumspection, this  court  consistently  has taken the  view that  it should be exercised to see that the process of  law is not abused or misused.  In R.P. kapur Vs. State of  Punjab (AIR  1960 SC  866), a three-Judge Bench of this Court  while considering  the exercise  of power  under Section 561-A of the Code (predecessor for Section 482) held as follows:-      "It is  well established  that  the      inherent jurisdiction  of the  High      Court can  be  exercised  to  quash      proceedings in a proper case either      to prevent the abuse of the process      of any Court or otherwise to secure      the ends  of justice.......  It  is      not    possible,    desirable    or      expedient   to    lay   down    any      inflexible rule  which would govern      the  exercise   of  this   inherent      jurisdiction  can   and  should  be      exercised    for    quashing    the

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    proceedings.   There may  be  cases      where it  may be  possible for  the      High Court  to take  the view  that      the institution  or continuance  of      criminal  proceedings   against  an      accused person  may amount  to  the      abuse of  the process  of the court      or  that   the  quashing   of   the      impugned proceedings  would  secure      the             ends             of      justice.........................      Cases  may  also  arise  where  the      allegations    in     the     First      Information    Report     or    the      complaint, even  if they  are taken      at their face value and accepted in      their entirely,  do not  constitute      the offence  alleged; in such cases      no   question    of    appreciating      evidence arises;  it  is  a  matter      merely of  looking at the complaint      or the  First Information Report to      decide whether  the offence alleged      is disclosed or not.  In such cases      it would be legitimate for the High      Court to  hold  that  it  would  be      manifestly  unjust   to  allow  the      process of the criminal court to be      issued against the accused person."      We are  firmly of  the view that the above observations with all  fours apply to the facts of this case in the light of the  extracts given above from the complaint itself.  The law laid  down by  this Court  in K.P.Kapur’s case has stood the test  of time  and held  the field  or more  than  three decades.   This Court  has applied the above ruling wherever the facts warranted the application.  Very recently in State of U.P.  Vs. O.P.  Sharma - (1996) 7 SCC 705, again a three- Judge Bench of this Court quoted with approval the following passage from  the State  of Bihar  Vs. Rajendra  Agrawalla - (1996) 8 SCC 164:-      "It has  been held by this Court in      several  cases  that  the  inherent      power of  the Court  under  Section      482  of   the  Code   of   Criminal      Procedure should  be very sparingly      and cautiously  used only  when the      court comes  to the conclusion that      there would  be manifest  injustice      of the  court, it such power is not      exercised.   So far as the order of      cognizance  by   a  Magistrate   is      concerned, the  inherent power  can      be exercised  when the  allegations      in the  first information report or      the  complaint  together  with  the      other  materials  collected  during      investigation taken  at their  face      value,  do   not   constitute   the      offence alleged.   at that stage it      is not open for the court either to      sift the evidence or appreciate the      evidence and come to the conclusion      that no  prima facie  case is  made      out."      In fairness to the High Court, we must also set out the

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reasoning of  the High Court on this aspect.  The High Court rightly observed:-      "Reading the  complaint  and  other      material on  record it appears that      even according  to the  complainant      the loan was advanced on 13.11.1982      by  Sayaji  Industries  Limited  to      Santosh  Starch  Products  and  the      Santosh Starch Products are alleged      to have  advanced the  loan to  the      accused on  the same  day  i.e.  on      13.11.1982 and  this, according  to      him,  is  an  offence  constituting      both criminal  breach of  trust and      conspiracy.         Reading     the      requirement of  Section 409  it  is      clear that  proof of entrustment of      money  is  a  condition  precedent.      The ingredients  of offence u/s 409      of IPC  are  to  be  found  in  the      definition  clause   of   "criminal      breach of  trust" in section 405 of      IPC.  It is therefore necessary for      the   complainant   o   prove   the      entrustment of property or dominion      over it  and in the second instance      "dishonest   misappropriation"   or      "conversion to the accused own use"      of the  property concerned,   It is      well settled that the dishonest use      or disposition  of the  property in      question  in   violation   of   any      direction of  the  law  prescribing      the mode  in which  the trust is to      be  discharge   or  of   any  legal      contract, express or implied, which      is made  touching the  discharge of      such trust,  or wilfully  suffering      of  any   person  to   do  so  also      constitute the offence of "Criminal      Breach of  Trust". Now upon reading      the  complaint,  it  becomes  clear      that it is the specific case of the      complainant  that   the  loan   was      advanced on  13.11.1982  by  Sayaji      Industries   Limited   to   Santosh      Starch  Products  alleged  to  have      advanced the loan to the accused on      the same day and thus, according to      him, is  an offence constituting of      both criminal  breach and trust and      conspiracy.  This, in my view, does      not amount  in law  into an offence      under section amount in law into an      offence under  section 409  as  the      ingredients of  section 409 are not      attracted.     For  attracting  the      provisions of  Section 409  one has      to allege  that the breach of trust      is committed  by public  servant or      by  banker,   merchant  or   agent,      broker or  attorney.   Reading  the      accused   occupy   any   of   these      positions.   In  absence  of  these      particulars in the complaint, in my

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    view,  the  complainant  has  prima      facie failed  to make  out the case      against the petitioners, Similarly,      it  is   clear  from   reading  the      complaint  and  other  material  on      record  that  the  complainant  has      failed to  make out  any case under      section 120B or 409 of IPC."      We are  in agreement  with the  view expressed above by the High  Court.  This one aspect is sufficient to quash the proceeding and  we need  not deal  with the  other points on which arguments were advanced before us.  In the result, the appeals fail and are accordingly dismissed.