REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. _________OF 2009 [Arising out of Special Leave Petition (Criminal) No. 3176 of 2008]

STATE OF MAHARASHTRA     … APPELLANT

Versus

SAYED MOHAMMED MASOOD & ANR.    … RESPONDENTS

J U D G M E N T

S.B. SINHA, J.

1. Leave granted.

2. The State of Maharashtra is before us aggrieved by and dissatisfied  

with  a  judgment  and order  dated  3rd March,  2008 passed  by  a  Division  

Bench of the High Court of Judicature at Bombay in Criminal Writ Petition  

No. 2333 of 2007 quashing a First Information Report (“FIR”) lodged by the  

respondent No.2 herein at the Cuff Parade Police Station, Mumbai.

3. The first respondent is the Chairman-cum-Managing Director of M/s  

City Limouzines (India) Ltd. (hereinafter called and referred for the sake of  

brevity  as,  “the said  Company”).   He established  the  said Company.   A  

scheme known as  “Go/Vehicle  on  rental  basis  and  earning  by  sitting  at  

home” was floated.  In terms of the said Scheme, assurances were given to  

the people for earning money in easy way.  A public advertisement was also  

issued in a newspaper.  They also issued pamphlets and thereby attracted  

huge  investments.   In  terms  of  the  said  Scheme,  Rs.97,907/-  was  to  be  

invested in ‘rent a car’ scheme wherein agreement was executed inter alia  

providing that the car would be purchased in the name of investor but would  

be  used  by  the  Company on rent  to  others  wherefor  the  investor  would  

receive a sum of Rs.4,000/- per month for a period of five years.  After 60  

months, i.e., at the end of the agreement, the investor may take back his car  

in proper working condition.  It was equally provided that an investor was  

entitled to inspect the vehicle given on lease/rent once in three months upon  

giving 15 days prior notice.   

4. Clauses 4, 8, 10 and 15 of the said agreement read as under:

“4. Inspection: The Lessor is entitled to inspect  the Vehicle given on Lease/rent once in 3 months  by giving 15 days prior notice to the above stated  

2

address  and  inspect  the  vehicle  at  any  of  the  offices of the Lessee in India.

xxx  xxx xxx

8. Buy Back: The Lessee will have the option  at the discretion of the Lessor/registered owner to  purchase the vehicle at  a  fair market value upon  mutual consent after the expiry of the agreement.  However,  this  buyback  clause  is  not  to  be  construed to be conferring any enforceable right on  the Lessee but the first option to buy the car shall  be that of the Lessee herein.

xxx  xxx xxx

10. Completion of contract: Upon  successful  completion  of  the  terms  of  this  agreement,  the  Lessor shall  receive the leased Vehicle in proper  working condition including the tyres and battery  in  good  condition  with  normal  wear  and  tear  acceptable depending on the period of use.

xxx  xxx xxx

15. Issue  of  Preference  Shares:  The  Lessee  undertakes to issue redeemable Preference shares  to  the  Lessor  towards  the  margin  money  paid  (excluding Insurance & RTO Charges) which will  be  held  by  the  Lessor  as  security  for  the  entire  period of  the validity of  the agreement  being 60  months  from the date  of  issue to  ensure  smooth  installment payments to the bank and the lease/hire  charges to the Lessor.”

5. The  complainant  –  respondent  No.2,  pursuant  to  the  said  

advertisement,  invested a sum of Rs.97,907/-.   Indisputably,  he was paid  

3

Rs.4,000/- per month for a period of five years.  However, despite demand,  

he was not given the car.  He was, however, given three post-dated cheques  

of ABN Amro Bank amount to Rs. 25,000/-, Rs.20,000/- and Rs.10,000/-  

although he had asked for the said amount in cash.   

6. In the said FIR, it was inter alia alleged:

“As  mentioned  above,  Directors  of  the  said  Company in their office without listening anything  from me, as per their own wishes making changes  on the document of agreement, when I noticed that  then I enquired about the same in more detail.  It is  transpired that the said company by showing false  inducement  about  big  return  in  various  financial  schemes and transferring the motor vehicle in the  name of investor, till date has accepted deposits of  crores  of  rupees  under  various  schemes  from  25000 investors.   But  I  came to  know that  said  company  has  purchased  motor  car  only  in  the  name of 500 investors.  

All aspect of above mentioned schemes are  in existence only on paper but in reality not even a  single scheme is in force as per the scheme shown  on the document.  I also came to know that apart  from the above mentioned office of the company at  Bombay, and other places said company has office  on  rental  basis  and Sayyed  Masood  Jamadar,  in  collusion  with  other  directors  of  the  Company,  induces people for making investment and amount  invested  by  people  is  being  utilized  for  other  purpose,  other  than  the  original  purpose  and  is  being  utilized  personally  or  for  some  other  purposes.  The said company on the internet at its  

4

website  namely  www.citylimouzines.com  &  www.city-money.com  has  projected  the  said  company  as  bearing  ISO-9001-2000  certification  and  inducing  common  poor  people  to  invest  money in the said company and thereby cheating  the people.  If immediate legal action is not taken  against the said company then there will be huge  financial  loss  to  ordinary  investors.   Since  Directors of the said company threatened investors  whenever  investors  go  to  ask  back  money  therefore, rein of fear against them is created.

Above  mentioned  persons  namely  Sayyed  Mohammad Masood Jamadar  and Geeta Razzaki  and other persons have collusively established City  Limouzines  Ltd.  Company  and  through  that  company several other companies are established  and through them false  inducement is  given and  financial investments is accepted from the people  and misappropriation of the same on large scale is  done and defrauded citizens and Government.”

7. The respondent No.1 filed a writ  petition before the Bombay High  

Court praying for quashing the said FIR.  

The Division Bench of the High Court keeping in view the various  

clauses in the agreement entered into by and between the complainant and  

the said Company opined that although the investor might have been entitled  

to the car at the end of the period of five years, but as there has been no  

intention  to  defraud  him  at  the  time  of  inception  of  execution  of  the  

5

agreement and the dispute between the parties revolved on interpretation of  

the clauses of the agreement, no offence under Sections 406, 420 and 120B  

of the Indian Penal Code has been made out, stating:

“13. At  the  cost  of  repetition  we may  mention  that the facts in the present case are not at dispute  at  all  that  the  investment  made  by each of   the  consumers to the tune of Rs.97,907/- and in return  they  received  Rs.2,40,000/-.   The  only  question  which  remained  was  whether  the  investors  were  entitled to the car at the end of the period of five  years  or  not.   There  has  been  no  intention  to  defraud at the time of inception of execution of the  agreement.   There  can  be  made  several  interpretations  of the clauses  in the agreement  if  the  agreement  is  taken as a  whole.   It  is  a  well  accepted  principle  of  interpretation  that  while  interpreting  clause  of  agreement,  whole  of  the  agreement  has  to  be  taken  into  consideration.  Applying the principles laid down by the various  judgments  of  the  Supreme  Court  hereinabove  referred,  we  do  not  think  that  in  the  facts  and  circumstances of the case an offence of cheating is  made out.”

The High Court, however, in its judgment only considered the case  

from the point of view of Section 420 of the Indian Penal Code and not  

Sections 406 and 120B thereof.   

8. Mr. T.K. Viswanathan, learned Senior Counsel appearing on behalf of  

the State would contend that having regard to the well settled principle of  

6

law that the High Court does not quash an FIR save and except sparingly  

and in rarest of rare cases, the impugned judgment is not sustainable.   

9. Our attention in this behalf has been drawn to various grounds taken  

in this Appeal to contend that the investigation so far conducted reveals that  

a large number of illegalities have been committed by the said Company  

including the violation of the provisions of Section 45(1A) of the Reserve  

Bank of India Act.  

10. Ms.  Bindu  K.  Nair, learned  counsel  appearing  on  behalf  of  the  

respondent, on the other hand, would take us through the FIR, agreement  

entered into by and between the parties, Lessee’s covenants therein as also  

other documents to contend that no offence can be said to have been made  

out  either  under  Section  406  of  the  Indian  Penal  Code  or  Section  420  

thereof.   It  was  urged that  as  no car  was  purchased in  the  name of  the  

respondent  No.2,  there  was no property  and,  thus,  there was  neither  any  

question  of  any  entrustment  thereof  nor  any  misappropriation.  The  

complainant himself having redeemed the merging money in terms of the  

provisions of the agreement, the ingredients of the offence of Section 406 of  

the Indian Penal Code cannot be said to have been made out.  Drawing our  

attention to the definition of ‘cheating’ as contained in Section 415 of the  

7

Indian Penal Code, the learned counsel would contend that neither there was  

any  inducement  nor  deception  having  been  made  and  pursuant  to  the  

agreement no property having been delivered in favour of the accused by the  

complainant nor there was any act of omission on his part which caused or  

likely to cause any damage to the property, the question of commission of  

any offence under Section 420 of the Indian Penal Code does not arise.   

11. The legal position in regard to exercise of jurisdiction by the High  

court for quashing of an FIR is now well settled.  It is not necessary for us to  

delve deep thereinto as the propositions of law have recently been stated by  

this  Court  in  R. Kalyani  v.  Janak C. Mehta [(2009) 1 SCC 516] in the  

following terms:

“15. Propositions  of  law  which  emerge  from  the said decisions are:

(1)  The  High  Court  ordinarily  would  not  exercise  its  inherent  jurisdiction  to  quash  a  criminal  proceeding  and,  in  particular,  a  first  information  report  unless  the  allegations  contained therein, even if given face value and  taken to be correct  in their entirety, disclosed  no cognizable offence.

(2) For the said purpose the Court, save and  except  in  very  exceptional  circumstances,  would not look to any document relied upon by  the defence.

(3) Such a power should be exercised very  sparingly.  If  the  allegations  made  in  the  FIR  disclose  commission  of  an offence,  the  Court  shall not go beyond the same and pass an order  

8

in favour of the accused to hold absence of any  mens rea or actus reus.

(4) If the allegation discloses a civil dispute,  the same by itself may not be a ground to hold  that  the  criminal  proceedings  should  not  be  allowed to continue.”

Yet again in Mahesh Choudhary vs. State of Rajasthan & Anr. [2009  

(4) SCALE 66], this Court stated the law thus:

“13. The principle providing for exercise of the  power by a High Court under Section 482 of the  Code of  Criminal  Procedure  to quash a  criminal  proceeding  is  well  known.   The  court  shall  ordinarily exercise the said jurisdiction, inter alia,  in the event the allegations contained in the FIR or  the Complaint  Petition even if  on face value are  taken  to  be  correct  in  their  entirety,  does  not  disclose commission of an offence.”

We  may  also  notice  that  in  State  of  Maharashtra v.  Mohd.  Sajid  

Husain Mohd. S. Husain [(2008) 1 SCC 213], this Court laid down the law  

in the following terms:

“14. The  learned  counsel  would  submit  that  prima facie the girl  was above 16 years and she  being a consenting party and having been getting  consideration, no case under Section 376 IPC has  been  made  out  and,  thus,  this  Court  should  not  interfere with the impugned judgment.”

9

12. There cannot be any doubt or dispute whatsoever that a simple breach  

of contract or a case involving pure civil dispute would not attract the penal  

provisions contained in the Indian Penal Code either under Section 406 or  

Section 420 thereof.   

13. Had  the  dispute  between  the  parties  rested  in  the  aforementioned  

premise, probably we would not have interfered with the judgment of the  

High Court;  but  then,  our  attention  has  been drawn to  certain  evidences  

which have  surfaced during investigation  and disclosed before  us by the  

State in the grounds stated in this Memo of Appeal.   

We may notice a few of them:

“cc) Because  preliminary  findings  shows  that  public  at  large especially  middle  class and  lower class people have invested their hard  earned money and or money received at the  time of their VRS or amount received from  insurance companies  after casualty of their  legal heirs,  are likely to be cheated by the  inducement of “Rosy picture” shown by the  company  with  respect  to  motor  vehicle  scheme.   Because  as  soon  as  influx  of  investors  stops  the  company  will  stop  payment  to  the  old  investors,  as  the  company does not have any type of business  which generates fair legal income/profit.

xxx xxx xxx

10

ff) Because  another  witness  has  stated  in  his  statement  dated  03/10/07  that  he  has  invested Rs.1,07,000 for Maruti Omni in the  month  of  January  2005  immediately  after  the  agreement  he  has  received  three  post  dated cheques of Rs.4000/- each from CLIL.  Company has taken Rs.25,630/- for RTO &  Insurance Charges but has not purchased a  vehicle in his name.

xxx xxx xxx

ii) Because  another  witness  in  his  statement  dated 17/11/07 that he is running Travelling  Business  in  the  name  as  “Amey  Tourist.”  He  owns  Maruti  Esteem Car  No.  MH-01- JA-6710 and the same is being used for his  business purpose.  Neither he has given his  said m/v to CLIL nor has invested money in  C.L.I.L.   An  enquiry  has  been  made  with  Shri Arun Potade because CLIL data on first  mirror image shows this car as one which is  from their scheme as Indica and registered  in the name of Smt. Jayshree Devgude (File  no. 15971 of CLIL).

jj) Because  another  witness  has  stated  in  his  statement dated 19/11/07 that he had Kinetic  Honda  Scooter  No.  MH-01-E-6343  in  his  name  but  due  to  rusting/damage  he  had  scraped  the  said  m/v.   He  does  not  know  anything about CLIL. An enquiry has been  made with Shri Deepak R. Kalwar because  CLIL data on first mirror image shows that  Maruti  Omni  Car  No.  MH-01-E-6343  has  been  registered  in  the  name  of  one  Smt.  Asha Thakur (file no.- 1738 of CLIL) and  enquiry with RTO revealed that the vehicle  No.  MH-01-E-6343  is  Kinetic  Honda  

11

Scooter  and  registered  in  the  name  of  Deepak Kalwar.”

14. The allegation  made in  the  FIR and the materials  collected during  

investigation, in our considered opinion, should be allowed to be taken to its  

logical end.

15. We must, however, acknowledge that Ms. Nair has cited the following  

decisions for our consideration.   

i. Alpic Finance Ltd.   vs. P. Sadasivan & Anr. [(2001) 3 SCC 513]

ii. Radha Ballav Pal & Anr.   vs. Emperor [AIR 1939 Calcutta 327]

iii. Velji Raghavji Patel   vs.  The State of Maharashtra [AIR 1965 SC  

1433]

iv. Vir Prakash Sharma   vs.  Anil  Kumar Agarwal & Anr. [(2007) 7  

SCC 373]

v. All  Cargo  Movers  (India)  Private  Limited  & Ors.    vs.  Dhanesh  

Badarmal Jain & Anr. [(2007) 14 SCC 776]

vi. New India Insurance Co. Ltd.   vs. Sadanand Mukhi & Ors. [(2009)  

1 SCALE 252]  

12

vii. U. Dhar & Anr.   vs. State of Jharkhand & Anr. [(2003) 2 SCC 219]

viii. Uma Shankar Gopalika   vs. State of Bihar & Anr. [(2005) 10 SCC  

336]

In Alpic Finance Ltd. (supra) the dispute was found to be of pure civil  

nature.   

In Radha Ballav Pal & Anr (supra), the Calcutta High Court looked to  

the policies and schemes floated by the Company to opine that in the fact of  

the said case no case has been made out for convicting the appellant therein.  

But the matter having reached the High court after a judgment of conviction  

was recorded, all the materials were brought on record by the parties by that  

time.   

In Velji Raghavji Patel (supra), it involved a question of dealing with  

the assets of a partnership firm by a partner.  

In  Vir Prakash Sharma (supra), this case primarily revolved around  

bouncing of a cheque.

13

In Dhanesh  Badarmal  Jain (supra),  the  court  found  only  a  civil  

liability on the part of the accused and opined that it was at best a case of  

interpretation of agreement, stating  

“16. We are  of  the  opinion  that  the  allegations  made in the complaint petition, even if given face  value and taken to be correct in its entirety, do not  disclose  an  offence.  For  the  said  purpose,  this  Court  may  not  only  take  into  consideration  the  admitted facts but it is also permissible to look into  the pleadings of Respondent 1-plaintiff in the suit.  No  allegation  whatsoever  was  made  against  the  appellants  herein  in  the  notice.  What  was  contended  was  negligence  and/or  breach  of  contract on the part of the carriers and their agent.  Breach of contract simpliciter does not constitute  an offence. For the said purpose, allegations in the  complaint  petition  must  disclose  the  necessary  ingredients therefor. Where a civil suit is pending  and the complaint petition has been filed one year  after filing of the civil suit, we may for the purpose  of finding out as to whether the said allegations are  prima  facie  correct,  take  into  consideration  the  correspondences  exchanged  by  the  parties  and  other  admitted documents.  It  is  one thing to  say  that the Court at this juncture would not consider  the  defence of  the  accused but  it  is  another  thing  to  say  that  for  exercising  the  inherent  jurisdiction of this Court, it is impermissible also  to  look  to  the  admitted  documents.  Criminal  proceedings should not be encouraged, when it is  found to be mala fide or otherwise an abuse of the  process  of  the  court.  Superior  courts  while  exercising this  power should also strive  to serve  the ends of justice.”

14

Sadanand Mukhi & Ors. (supra) involved a pure civil dispute dealing  

with the compensation and insurance policies in the Motor Vehicle Claims  

Tribunal (MACT).  

 Similar was the position in Uma Shankar Gopalika (supra) wherein it  

was stated:

“….It  is  well  settled  that  every  breach  of  contract  would  not  give  rise  to  an  offence  of  cheating and only in those cases breach of contract  would  amount  to  cheating  where  there  was  any  deception  played  at  the  very  inception.  If  the  intention to cheat has developed later on, the same  cannot amount to cheating. In the present case it  has nowhere been stated that at the very inception  there was any intention on behalf of the accused  persons to cheat which is a condition precedent for  an offence under Section 420 IPC.”

Hence  the  petition  of  complainant  did  not  disclose  any  criminal  

offence at all  much less any offence either under Section 420 or Section  

120B of the Indian Penal Code.  It was purely civil in nature.  

16. We have, however, no doubt in our mind that the Investigating Officer  

shall  conduct  the  investigation  fairly  and impartially  and shall  allow the  

company to carry on its business without any hindrance whatsoever. If any  

15

books of account or other documents are required, the Investigating Officer  

subject to just exceptions may take the xerox copies thereof duly certified by  

the accused as also an undertaking that, as and when called upon, they would  

produce the said books of account in a court of law.   

Subject  to  the  aforementioned  directions,  the  Investigating  Officer  

shall carry out the investigation in accordance with law.

17. We,  therefore,  are  of  the  opinion  that  in  the  peculiar  facts  and  

circumstances of this case and particularly in view of the materials which  

have  surfaced  during  investigation,  the  impugned  judgment  cannot  be  

sustained.   It  is  set  aside  accordingly.   The  appeal  is  allowed  with  the  

aforementioned directions.  

……………….…..………….J. [S.B. Sinha]

..………………..……………J.  [Deepak Verma]

New Delhi; August 4, 2009

16