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PETITIONER: CENTRAL BUREAU OF INVESTIGATION, SPE,SIU (X), NEW DELHI

       Vs.

RESPONDENT: DUNCANS AGRO INDUSTRIES LTD.,CALCUTTA

DATE OF JUDGMENT:       09/07/1996

BENCH: RAY, G.N. (J) BENCH: RAY, G.N. (J) G.B. PATTANAIK (J)

CITATION:  JT 1996 (6)   227        1996 SCALE  (5)99

ACT:

HEADNOTE:

JUDGMENT:                  The 9th Day of July, 1996 Present:           Hon’ble Mr. Justice G.N Ray           Hon’ble Mr. Justice G.B.Pattanaik K.T.S.Tulsi,  Additional  Solicitor  General,  Vikas  Pahwa, A.S.Bhasme, P.Parmeswaran,  and A.Bhattacharya,  Advs.  with him for the appellant Shanti Bhushan and Rajinder Singh, Sr. Advs., and P.N.Misra, Advs. with them for the Respondent                       J U D G M E N T The following judgment of the Court was delivered: Central Bureau of Investigation, V. Duncans Agro Industries Ltd., Calcutta                       J U D G M E N T G.N RAY, J.      The appeals   are  directed  against a  common Judgment dated December  23,   1992 Passed   by  the   Calcutta  High Court   in Crl.R.No.  859   of 1991  and Crl. R. No. 1203 of 1991. By  the impugned judgment,  the High Court allowed the said criminal  revisions and  quashed the  impugned FIR Nos, RC-4/87-SIU(X) dated August  14, 1987  and RC-I(8)/89-SIU(x) dated  June  12,  1989.  The    respondent,  Duncans    Agro Industries  Ltd., moved the Calcutta High Court for quashing the said FIRs lodged by the Central Bureau of Investigation.      It was  inter alia  alleged in the FIR dated August 14, 1987  that   reliable  information   was  received   by  the complainant, the  Superintendent of Police, CBI, SIU(x), New Delhi,  that  M/S  National  Tobacco  Company  which  was  a division of M/s Duncans Agro Industries Ltd, had cash credit facilities on  hypothacation of stocks etc, with United Bank of India,  Royal Exchange  Branch,  Calcutta.  The  ultimate credit facilities  limit  sanctioned  to  m/s  Duncans  Agro Industries Ltd.,  in the  account of  M/s  National  Tobacco Company as  on January 12, 1984 was to the tune of Rs. 17.50 crores  subject   to  the   drawing     power  according  to

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hypothecation of  raw materials/stocks etc. M/s Duncans Agro Industries Ltd, was submitting the monthly statements of raw materials held by its division, M/s National Tobacco Company and such  hypothecated raw materials were liable to Physical inspection and  verification by  Bank authorities.  In 1984, M/s  Duncans Agro Industries Ltd, mode an application before the Calcutta  High Court and obtained an order from the High Court on  August 10,1984  that National  Tobacco Company,  a Tobacco Division  of  Duncans  Agro  Industries  Ltd,  would henceforth function  under the name and style of new Tobacco Company Limited  which would  be fully  downed subsidiary of M/s Duncans  Agro  Industries Ltd  and the management of the said newly  constituted company  would be carried as per the Scheme of  Arrangement  approved by  the High  Court. It was further alleged  in  the said  FIR that  after the  approval of   the aforesaid  Scheme of  Arrangement, M/s Duncans Agro Industries Limited  approached  the United  Bank on December 3, 1984,  to transfer  the credit  limits standing  in their name  to  M/s  New  Tobacco  Company    Limited  and    Shri S.K.Ghosh,   Chief Officer  (Legal) of   the  United Bank of India gave  opinion on  January 22, 1985  that the  order of the Calcutta   High   Court   was  binding on  the Bank  and consequently the  Bank would  either continue  the  advances with   transferee Company   or   to   sue transferee Company i.e. M/s  New Tobacco  Company Limited, for recovery of  its dues.   The said   Chief  Officer   of the  Bank advised the Bank that   the Bank  would not be in a position the enforce its right   in  respect   of doubts  and immovable assets of the transferor   company.  The Board  of Director  of United Bank   of India  resolved that the credit limits of the Bank in respect  of National  Tobacod Company would be allowed to be   transferred in  the new  account of New Tobacod Company limited with retrospective effect from April 1, 1984 subject to  the   condition  that   the  company  would  furnish  an undertaking to  create mortgage  on  all  their  assets  and properties in favour of the Bank and without written consent of the  Bank, holding  level  of  percentage  share  of  M/s Duncans Agro  Industries Limited  in  the  National  Tobacod Company would  not undergo  any change.  Such resolution was drafted in the meeting of the Board of Directors held on May 30, 1985.  The note of Shri S.K.Ghosh, Chief Officer (Legal) along with  a Board  Note dated May 30,1985 prepared by Shri S.N.Ghoshal, General  Manager of the Bank were placed before the Board  of Directors,  while recommending transfer limits in favour  of New  Tobacoo Company,  the Bank  officials did not specify  whether stocks  had been  inspected and how the Bank would  remain a  secured creditor  of M/s  Duncans Agro Industries Limited for National Tobacco Company. It was also not mentioned  by the  officials of  the Bank  as to whether stocks  had   been  inspected   and  verified   and  whether registration of  hypothecation charged  under Section 125 of the Companies  Act was  valid and  effective or  whether the bank  was  holding  certificate  of  registration  from  the Registrar of Companies as provided for by the Companies Act. It was  further  alleged  in  the  FIR  that  the  Board  of Directors of United Bank of India were misled because of the omissions and  commissions of  the officials of the Bank and the said  Board of  Directors acted on legal opinion of Shri Ghosh although  such opinion was detrimental to the interest of the  Bank. In  the FIR,  it was  also alleged that credit limits were  got transferred  to the New Tobacco Company and M/S DUNCANS  Agro Industries  Limited had  managed with  the executive and Directors of the Bank to transfer the debts of the said  Duncans Agro Industries Limited to Nil without any payment. It  was alleged  that M/s  Duncans Agro  Industries

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Limited  instead   of  filing   a  memorandum   of  complete satisfaction of  charge with  the  Registrar  of  Companies, itself  managed   with  Shri  D.K.Sengupta,  Asstt.  Manager (Advances) to issue a memorandum of complete satisfaction of charge when  there had  been no repayment whatsoever. It was also Shri  G.N.Ghoshal General  Manager,  Shri  N.  Ganguli, Chief Manager,  Shri S.K.Ghosh,  Chief Officer (Legal), Shri S.K. Hajra,  Law  Officer,  Shri  D.K.  Sengupta,  Assistant Manager (Advances) of United Bank of India and other persons had conspired   with  a criminal  design to defraud the Bank and to  deliberately misappropriate  the huge stock lying at different places.  It was  alleged that  the said  facts had disclosed commission  of offences  under Section  1208  read with Sections 409, 420,467,468 and 471 Indian Penal Code.      In  the   second  FIR  dated  12.6.1989  field  by  the superintendent of  Police, CBI,  SPE,  STU  (X),  New  Delhi against (i)  Sri Gauri  Prasad Goenka, Director Duncans Agro Industries Limited,  (2) Sri  B. Mukherjee  Manager, Tobacco Accounts and  Authorised Signatory,  Duncans Agro Industries Ltd and  (3) M/s Duncans Agro Industries Ltd. It was alleged that during  the  course  of  investigation  of  RC-4/37-SIU (x),CBI,SPE, New  Delhi it transferred that Tobacco Division of M/s  Duncans Agro  Industries Limited  had been  enjoying credit facilities against hypothecation of stocks and shares of tobacco  in the  name of  M/s  National  Tobacco  Company Limited form  the  United  Bank  of  India,  Royal  Exchange Branch, Calcutta  and Andhra  Bank, Kakinada Branch (A.P) to the tune  of 15.25  crores till 1935. The credit limits were enhanced by  Reserve Bank  of India   from  15.25 crores  to 17.50 crores  on the  request of the Company and recommended by United  Bank of India. Out of enhanced alleged in the FIR that the  Directors of  the New  Tobacco  Company  in  their lather dated  June 26,  1985  addressed  to  chief  Manager, United Bank  of  India,  Royal  Exchange  Branch,  Calcutta, assured that  the Board’s  resolution would  be furnished to the Bank  to the  effect that  without  the  Bank’s  written consent, the  holding level  of percentage  of shares in the New Tobacco Company by Duncans Agro Industries Limited would not undergo  any change. It was also alleged in the FIR that in order  to defraud  the Bank  and to nullify the assurance given to  the Bank,  M/s  Duncans  Agro  Industries  Limited entered into  a memorandum  of understanding  with  M/s  New Tobacco Company on March 6, 1986 in order to render the very basis of  the scheme  approved by the High Court infructuous and to  complete the  delinking of  Duncans Agro  Industries Limited and  New Tobacco  Company  so  that  the  assets  of Duncans Agro Industries Limited would remain out of reach of its creditors. By such process, the United Bank of India was defrauded. It  was alleged  in the  FIR that the stock worth about Rs.12  crores were  either fraudulantly of dishonestly removed or  disposed of  without any  payment  to  the  Bank although the  same were  hypothecated with  the Bank. In the FIR, it  was alleged  that Shri G.P. Goenka, Chairman of M/s Duncans Agro  Industries Limited,  Shri N.K. Jain, Director, New Tobacco  Company  Limited  and  Shri  Bhasker  Banerjee, Director, National  Tobacco Company   along  with some  Bank Officers, namely credit facilities, a sum of Rs. 1.58 crores was to  be financed  by the  Canara Bank,  Lake Road Branch, Calcutta with  the concurrence  of United  Bank of India and Andhra Bank.  Sri G.P.Goenka  was one  of the  Directors  of Duncans Agro  Industries Ltd and was having the control over the affairs  of the  said  company.  Sri  B.  Mukherjee  was manager  (Accounts)   and  responsible  for  preparation  of accounts of  Tobacco Division and both the  said G.P. Goenka and  B.   Mukherjee  were   also  amongst   the   authorised

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signatories for operating current account.      It was  alleged in  the   FIR that  after  getting  the sanction of enhanced credit facilities. Sri G.P. Goenka, Sri B. Mukherjee  and other  officials of  Tobacco  Division  of Duncans Agro  Industries Limited  entered  into  a  criminal conspiracy to  cheat Canara  Bank, Lake  Road Branch  and to obtain credit  in their  account by  falsely and dishonestly declaring that  tobacco stocks  and stores were available at Guntur for  hypothecation to  Canara Bank,  Lake Road Branch over and  above the  stocks hypothecated  to United  Bank of India and  Andhra Bank. Pursuant to the authorities given by the Board  of Directors  Sri G.P.Goenka  executed  documents with Canara  Bank creating  a floating  charge of stocks and stores at Guntur valuing 158 Lakhs and B. mukherjee declared to Canara  Bank that  tobacco stocks  worth Rs.1,44,40,122/- were lying at Guntur as on 28.3.84 over and above the stocks hypothecated to United Bank and Andhra Bank. A balance sheet of  Tobacco  Division  of  Duncans  Industries  Limited  was prepared under  the overall  charges  of  B.  Mukherjee  and audited by  M/s Price  water House  and  Company,  Calcutta, showing total  value of  stocks and  stores  of  tobacco  at Rs.12,39,27,002.19 p.   In  the said  Balance Sheet, advance against hypothecation  in the  stocks and  stores have  been shown    Rs,13,78,82,585.17    from    United    Bank    and Rs,2,27,12,86,350 from  Andhra Bank  making a  total of  Rs. 16,05,95,408.17 No.  available stocks  were  indicated  free from any  hypothecation.  Sri  B.  Mukherjee  in  the  stock statement submitted  to United  Bank of  India declared that value of  Tobacco stocks  and stores  as  on  31,3,1984  was Rs.16,92,75,446/-. On the same date, the value of stocks and stores worth  more than  Rs.3 crores  was declared to Andhra Bank. Thus  although no  stocks and stores of Tobacco beyond the hypothecated  stocks and  stores to  the said  two Banks were available, the officials of the Canara Bank acting upon the documents  executed by  G.P.Goenka and declaration given by B. Mukherjee were induced to sanction and release interim loan of  Rs. 1  crore in  April 1984  and balance  of Rs. 58 lakhs in  June 1984.  It was  alleged in  the FIR that above facts disclose commission of offence under Section 120B read with 420  IPC and substantive offences under Section 420 IPC against G.P.Goenka, B. Mukherjee and others.      Mr  Tulsi,   learned   Additional   Solicitor   General appearing for  the appellants,  has submitted  that both the FIRs contain allegations of facts which constitute essential ingredients of  the offence  referred to  in the  respective FIR. Mr.  Tulsi has submitted that the essential ingredients for the  offence of  criminal breach  of   trust defined  in Section 405  and punishable  under Sections  406 and 409 IPC are:      a) Entrustment  of property  in any      manner or creation of dominion over      property;       b)        Dishonest      misappropriation, conversion to his      own use  of disposal  of  the  said      property; (c) Misappropriation etc.      In violation  of any legal contract      touching  the   discharge  of  such      trust; d)  Misappropriation  either      by  the   Person   entrusted   with      property  or   through  any   other      person.      He has submitted  that allegations in FIR No. RC-4/1987 satisfy each  of the  essential ingredients  of the offences under Suction  403. It  has been submitted by Mr. Tulsi that the ultimate credit facility limit sanctioned to M/s Duncans

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Agro Industries Limited (hereinafter referred to as DAIL) in the account  of National  Tobacco Company  as on January 12, 1984 was  to the  tune of Rs.17.50 crores subject to drawing power. In  view of  hypothecation of  raw  materials  stocks etc., DAIL  was submitting  the  monthly  statement  of  raw materials held by its division. National Tobacco Company and the same  was liable to physical inspection and verification by Bank officials. Such facts clearly constitute entrustment as envisaged  under Section  405 IPC. The allegations in the FIR about  the request  made by  DAIL to  the United Bank of India for transfer of credit facilities in their name to M/s New Tobacco  Company on  December 3, 1984 and as a result of conspiracy a  wrong opinion  was given  by the Chief Officer (Legal) and the Board of Directors of the Bank was misled so that the transfer limit in favour of New Tobacco Company was allowed by  the Board without inspection and verification of the stocks  and  by  deliberately  withholding  of  relevant material from the Board by the officials of the Bank and the allegations that later on, a memorandum of understanding was entered between  DAIL and  New Tobacco  Company by which the shareholding of  DAIL  as  per  the  scheme  of  arrangement approved by  the High  Court was altered, clearly constitute an offence  of misappropriation of the property entrusted to the Bank.  Mr, Tulsi has also submitted that the allegations that stock  worth about  Rs. 12  crores were fraudulently or dishonestly removed  or disposed  of without  any payment to the Bank  with whom  the same  were  hypothecated  with  the connivance of  the concerned  Bank official prima facie make out  the   offence  of  misappropriation  of  the  entrusted property in  clear breach  of  trust.  Mr.  Tulsi  has  also submitted that  essential  ingredients  of  the  offence  of forgery  Punishable   under  Section  468  and  471  IPC  as contained in  Section 464 IPC have also been made out in the FIR . Mr. Tulsi has submitted that the essential ingredients for creating false document as contained in Section 464 are:      a)   Dishonest    or    fradulently      making   of    the   document;   b)      Intention to  create a  belief that      it was  made by or by the authority      of a  person; c)  Knowledge that it      was not  made with the authority of      that person.      Mr. Tulsi  has also  submitted that  the allegations to the following  effect that:  "Shri D.K.  Sengupta signed the memorandum as  Chief  Manager,  which  post  was  not  being occupied by  him not  he had  any authority to sign as such. Shri   S.K.   Hajra,   Law   Officer   has   willfully   and unauthorisedly filled  up  the  body  portion  of  the  said memorandum   of satisfaction." -  Prims facie  make  out  an offence  under Section 468 and 471 IPC.      Mr.  Tulsi   has  also  submitted  that  the  essential ingredients of  the offence  of  cheating  as  contained  in Section 415 IPC are:-      a)   Dishonest    inducement;    b)      Delivery  of   any  property  as  a      result of  inducement; c) Damage or      harm to the person induced.      Mr. Tulsi  has submitted  that each of such ingredients of the  said  offence  is  satisfied  on  the  face  of  the allegations made  in the  FIR. There  is specific allegation that the representation was made by the officers of the Bank with regard to the existence of stock worth Rs. 17.50 crores for hypothecation  to  the  Bank  and  credit  facility  was granted to the tune of Rs. 17.50 crores on the belief of due hypothecation of stock. There is also allegation in FIR that

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stock  worth   Rs.12  crores   had  been   fraudulently   or dishonestly used  or disposed  of without any payment to the Bank. Such  allegations constitute  ingredients of cheating, causing damage  to the  Bank which  was induced  because  of false statement  made by  DAIL and  its officials. Mr. Tulsi has submitted that entrustment of physical possession of the property is not essential for the offence defined in Section 405  IPC.  The  expression  "whoever  being  in  any  manner entrusted with property or with any dominion over property", clearly  negatives   the  contention   that  since  physical possession was  not exclusively  transferred to  the   Bank, there   can not  be a  case of  entrustment. If  the offence under Section  405  IPC  is  interpreted  in  the  aforesaid manner, it  will  open  the  flood  gate  for  Bank  frauds, corruption amongst  public servants  and will  endanger  the smooth flow  of trade  and  commerce.  In  support  of  this contention, Mr.  Tulsi has  relied in  the decision  of this court in   The  Superintendent  and  Remembrance  of  Legal Affairs, West  Bengal Vs.  S.K.Roy (1971 (4) SCC 230) It has been     held     in     the     said     decision     that:      There are,  however,  two  distinct      parts involved in the commission of      the offence  of criminal  breach of      trust. The  first consists  of  the      creation  of   an   obligation   in      relation to the property over which      dominion or  control is acquired by      the  accused.   The  second   is  a      misappropriation  or  dealing  with      the   property    dishonestly   and      contrary  to   the  terms   of  the      obligation created.           In the case of an offence by a      public  servant   punishable  under      Section 409, I.P.C. the acquisition      of dominion  or  control  over  the      property  must   also  be   in  the      capacity of  a public servant. This      is not the same thing as having the      authority, as  a public  servant to      get the  control or  dominion  over      property    annexed     with     an      obligation.  The  gravamen  of  the      offence    is     the     dishonest      misappropriation of  the  money  or      property  which   comes  into   the      possession or  under the control of      a  public   servant  who   has  the      ostensible authority  to receive it      even though,  technically speaking,      form the  point of  view of view of      the  distribution  of  departmental      duties under  internal rules  of an      offence, it  may not  be within the      scope of  his authority  or duty to      accept the  money. The  fact that a      public servant acts fraudulently in      the exercise  of his  duties  as  a      public servant  to get  dominion or      control over  some property will be      an   aggravating    and   not    an      exculpating    circumstance.    The      "entrustment" results from what the      person  handing   over   money   or      property  to   a  public   servant,

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    servant,  and   believe  about  the      purpose for which he which he hands      over money  or property  is made to      think, understand and believe about      the  purpose  for  which  he  hands      over money  or property to a public      servant. It  this place  because of      and due  to  the  exercise  of  the      official authority the requirements      of Section 409, IPC, are satisfied.           Ordinarily,    it    is    the      ostensible or  apparent scope  of a      public  servant’s   authority  when      receiving  property   and  not  its      technical limitations,  under  some      internal rules of the department or      office concerned,  and the use made      by  the   servant  of   his  actual      official capacity  which  determine      whether there is a sufficient nexus      or  connection   between  the  acts      complained  of   and  the  official      capacity so  to bring it within the      ambit of Section 409 IPC.           To constitute an offence under      Section 409, IPC it is not required      that     mis-appropriation     must      necessarily take  place  after  the      creation  of   a  legally   correct      entrustment   of    dominion   over      property. The entrustment may arise      in "any  manner  whatsoever",  That      manner whatsoever", That manner may      or  may   not  involve   fraudulent      conduct  of  the  accused.  Section      409,    IPC     covers    dishonest      misappropriation in  both types  of      cases; that is itself fraudulent or      improper and those where the public      servant misappropriation  what  may      have  been   quite   properly   and      innocently received.  All that  is      required is  what may  by described      as "entrustment"  or acquisition of      dominion  over   property  in   the      capacity  of   a   public   servant      servant who,  as a  result  of  it,      becomes charged  with a duty to act      in a  particular way,  or, at least      honestly.           The obligation  to  act  in  a      certain manner with regard to or to      deal honestly  with property,  over      which  a   public  servant  obtains      dominion or  control the use of his      official capacity  may arise either      expressly or impliedly.      Mr. Tulsi  has also  submitted that  the investigations had not been completed in respect of the allegations made in the FIR.  At that  stage, the High Court must accept each of the allegations made in the FIR as correct on its face value for the purpose of determining as to whether the ingredients of the  offences alleged in the FIR are contained therein or not. Mr.Tulsi  has submitted that the High Court has grossly erred  in  quashing  the  complaints.  Mr.  Tulsi  has  also

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submitted that  the High  Court is not justified in quashing the FIRs  so as  to strangulate  the investigations  at  the inception. What value to be attached to the allegations made in the  FIR is  to be examined at trial when on the basis of FIR charge  sheet will  be framed. It is not the duty of the High Court  to  embark  upon  appreciation  of  evidence  in quashing the proceedings. In support of this contention, Mr. Tulsi has  relied in the decisions of this Court in State of Haryana Vs.  Bhajan Lal  (1992) (1) SCC 335), State of Bihar Vs. P.P.  Sharma (1992  (Supp.) (1) SCC 222), Janata Dal Vs. H.S Choudhary (1992 (4) SCC 305).      Mr. Tulsi  has also  submitted that  it is  not alleged that the  FIRs were  made  with  an  oblique  or  mala  fide purpose. Hence,  the same  are not liable to be quashed even before completing the investigations.      Mr. Tulsi  has also submitted that a particular act may constitute booth  civil wrong  as well as criminal wrong but merely because  civil action is also pursued, such course of action does not render criminal action impermissible. It has been contended  by Mr.  Tulsi that since the very definition of offence  of criminal  breach of trust is founded on legal contract touching  upon the discharge of trust, almost every case of criminal breach of trust is bound to have an element of civil  liability. Policy  of the  legislature in enacting the offence  under Section  405 IPC,  therefore, is to treat the breach  of contract  in the  matter of property which is entrusted  as   an  aggravated   civil  wrong   and  thereby constituting a  criminal offence.  That being the policy, to quash a  FIR on  the ground  that a civil remedy has already been invoked  would be  destructive of  the  object  of  the legislation. In this connection, Mr. Tulsi has relied on the decision of  this Court  in Collector of Customs and Central Excise, Bhubneshwar,  District Puri  Vs. Paradip  Port Trust and Another (1990 (4) SCC 205). It has been held in the said decision that:-      Where  the   same  act   or   event      constitutes   an    offence   under      Chapter XVI  and at  the same  time      constitutes  a   contravention   or      abetment of contravention of any of      the provisions  of the  Customs Act      or  failure  to  perform  any  duty      prescribed under the Act or amounts      to non-compliance  with any  of the      provisions of  the Act,  there will      be possibility  of prosecutions and      punishment under Chapter XVI of the      Act and  any other provision of law      and at  the same  time confiscation      and penalty  under Chapter  XVI  of      the Act.      Mr. Tulsi  has also  submitted that in cases were civil and criminal remedies are sought to be pursued, the criminal case has to be given preference over civil cases. In support of this  submission, Mr. Tulsi has referred to a decision of this Court  in M.  S. Sheriff  Vs. The  State of  Madras and Others (1954   SCR  1144). It  has been  held  in  the  said decision that :      Simultaneous prosecution  of  civil      and criminal  proceedings regarding      the  same   matter  is   likely  to      embarrass  the   accused   and   so      ordinarily, and  in the  absence of      special circumstances, the criminal      proceedings   should    be    given

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    precedence    and     the     civil      proceedings   should    be   stayed      pending  the   termination  of  the      criminal.      Mr. Tulsi  has also  submitted that  in a case of grove misappropriation of  huge amounts  of  public  funds,  delay caused by  the accused  was not  a valid ground for quashing the criminal  proceedings. In this connection, Mr. Tulsi has relied on  the decision  of this Court in Union of India Vs. B. R.  Bajaj (1994  (2) SCC 277). In the said case, the  FIR of 1984 was quashed by the Court in 1986 but nine years, the decision of  the   High Court  was  set  aside  and  it  was directed that the investigation should recommence. Mr. Tulsi has submitted  that FIRs  disclose the  offences of cheating the nationalised  Banks of  huge sum of money by the accused in calculated manner. In such circumstances, it will be only proper that  the CBI  should be  permitted to  continue with further investigations and on the face of the allegations in the FIRs  which  clearly  constitute  offences  against  the accused, there  was no  reason to quash the FIRs and thereby stopping   the  investigation  at  the  threshold.  He  has, therefore, submitted  that the  appeal should be allowed and the  CBI   should  be   permitted  to   proceed   with   the investigation for the purpose of framing the chargesheet.      Mr. Shanti  Bhushan, learned  Senior Counsel  appearing for the  respondents, has  disputed the  contentions made by Mr. Tulsi.  He has  submitted that the two FIRs did not made out any  offence of  criminal breach  of trust,  forgery  or cheating and,  therefore, the  High Court  was justified  in quashing the said FIRs. Referring to the allegations made in the FIR No. RC-4/87 dated September 14, 1987 that inspite of the Scheme  of   Arrangement approved  by the  High Court of Calcutta separating the Tobacco Division of DAIL  into a new company i.e.  new Tobacco  Company Limited  M/s  DAIL  would remain liable  for all  assets and  liabilities of the newly formed subsidiary  Company, Mr. Shanti Bhushan has submitted that pursuant  to the  Scheme of Arrangement duly sanctioned by the  Calcutta High  Court on  or about July 31, 1984, the Tobacco Division of DAIL was transferred to and vested along with all  its assets  and liabilities in New Tobacco Company Limited with  effect  from  April  1,  1984.  DAIL  was  the transferor Company  and New  Tobacco Company Limited was the transferor Company.  The order  of the High Court was to the effect that all the assets and liabilities and duties of the said transferor Company relating the its Tobacco Division be transferred from  the said  date without further act or deed to  the   said  transferee  Company.  Accordingly  and  also pursuant to  Section 394  (2) of the Companies Act, 1965 all the assets  and liabilities  of the  Tobacco Division  stood transferred to  the New  Tobacco Company  Limited  and  such assets and  liabilities became assets and liabilities of the said transferee Company. The liability of DAIL to the United Bank   of India as on APRIL 1, 1984 stood transferred to New Tobacco Company Limited. The order of the High Court clearly provided that  no further  act or deed was necessary to give effect to  the Scheme of Arrangement. In view of such Scheme of Arrangement, the Board of Directors of the United Bank of India approved  the transfer  of credit  facilities from M/s DAIL to  the New  Tobacco  Company  Limited.  There  was  no question of  the Board  being misinformed  of  the  material facts  in  the  matter.  Further  in  June/July  1985  fresh hypothecation documents  were executed  by the  New  Tobacco Company Limited  and a  memorandum of satisfaction of charge was filed by the Bank in respect of DAIL to the Registrar of Companies. The  necessary documents  were also  filed by the

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Bank with  the Registrar  evidencing the  charge created  in favour of New Tobacco Company Limited.      Mr.  Shanti   Bhushan  has   also  submitted  that  the allegation in  the FIR  that the  opinion of Shri S.K.Ghosh, Chief Officer  (Legal) of  the United  Bank of  India to the effect that  the bank  would not be in a position to enforce its right in respect of the transferor Company was erroneous and designedly  made, is  also  incorrect  and  without  any basis. Mr.  Shanti Bhushan has submitted that as a matter of fact, the  said opinion of Shri S.K.Ghosh in accordance with the  Scheme   of  Arrangement   since  all  the  assets  and liabilities  of   the  Tobacco   Division  of   DAIL   stood transferred to  New Tobacco  Company form April 1, 1984, Mr. Shanti Bhushan  has further  submitted that  even if  it  is assumed that  such legal  opinion was  not correct,  no  ill motive can  be assigned  to the  said  Officer  because  the opinion itself  was placed  for consideration by the highest administrative body  of  the  Bank,  namely,  the  Board  of Directors. Mr.  Shanti Bhushan  has  also  referred  to  the allegation in the FIR that;      "On March  6, 1996  M/s New Tobacco      Company   Limited    submitted    a      statement to  United Bank  of India      wherein  the   aggregate  value  of      stocks etc.  was  to  the  tune  of      Rs.5.13  crores   only  as  against      Rs.16.55  crores  on  November  30,      1985. It is alleged that the stocks      worth  about   Rs.12  crores   were      either fraudulently and dishonestly      removed or  disposed of without any      payment to  the bank  with whom the      same were  hypothecated,  with  the      connivance of  the  concerned  bank      officials."      Mr. Shanti Bhushan has submitted that it is not alleged that the statement of stocks was incorrect ether on March 6, 1985. In  fact, two  statements correctly  pointed out  that while the  value of  the  stocks  on  November  30,1985  was Rs.16.58 crores,  the value  of stocks  on March 6, 1986 had gone down  to Rs.5.13 crores. There was, therefore, no false statement in  the declaration  of stocks. Mr. Shanti Bhushan has submitted  that since  the stocks  were hypothecated and not  pledge with the bank the possession over the stocks was with the  Company and  not with  the  bank.  The  difference between a  pledge and  a hypothecation  is that while in the case of  pledge the  stocks are  give in  the custody in the bank and  are kept  under their  key and  any removal of any part of  those stocks  by the debtor, without the consent of the Band would be an offence, it would not be so in the case of hypothecation.  In a case of hypothecation, there is only a floating  charge on  various assets.  The possession  over those assets  continues to be with the debtor and debtor was always entitled  to remove any part of those stocks and sell them from  time to  time. Mr.  Shanti Bhushan  has submitted that if  there is  a contractual  term that the value of the hypothecated stocks should not be allowed to go down below a particular amount,  there may  be a  breach of  contract the Bank to  take  civil  proceeding  for  damages  against  the debtor. However, it has not been alleged that there has been breach of  any such  contract  particularly  when  documents which are being relied upon by the Bank themselves show that the value  of the hypothecated property continued to be much more than the amount of loan at any point of time, much more than the amount of loan at any point of time. If a reference

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is made  to the  said balance  sheet, it would show that the advances under  the cash  credit  facility  granted  by  the United Bank of India ware secured not only the hypothecation of stocks  but also  by the  hypothecation of book debts and plant and  machinery of  the Company’s Tobacco Division. Mr. Shanti Bhushan has submitted that while the loans due to the United Bank  of India  amounted to  Rs.13,78,82,685.17,  the value of  the hypothecated  property on  the same  date  was nearly double of that amount. Reference to the balance sheet would show  that the  book debts  comprised goods  worth Rs. 15,34,82,521.12 and  machinery as  on March  31, 1984  worth Rs.1,14,71,499 and  the stocks  and spares were of the value of Rs.12,39,27,002.19 as on March 31, 1984.      Mr. Shanti  Bhushan has  further submitted that even in the case  of the  FIR relating  to the  Canara Bank,  it  is apparent that  the balance sheet of Tobacco Division of DAIL as on March 31, 1984 which was filed by the CBI, showed that the value  of the  property hypothecated  to united  Bank of India exceeded  the amount  of the  loan as  on that date by mare than  Rs.15 crores  and thus  some part  of the  stocks worth  more  than  Rs.2  crores  were  available  for  being hypothercated  to   Canara  Bank.  Mr.  Shanti  Bhushan  has submitted that  the CBI  had misread  the balance  sheet and erroneously proceeded  on the  footing that  it was only the stocks which  were alone  hypothecated to the United Bank of India. Balance  Sheet itself  indicated that  book debts  of more than  Rs. 15  crores and  the machinery worth more than Rs. 2  crores were  also hypothecated  to the United Bank of India and  thus stocks  worth  more than  Rs.2 crores were clearly available for hypothecation to the Canara Bank.      Mr. Shanti  Bhushan has  referred to the allegations in the FIR that:      "The Ultimate credit facility limit      sanctioned  to   M/s  DAIL  in  the      account of  M/s New Tobacco Company      as on  12.1.1984 was to the tune of      Rs.17.50 crores  subject to drawing      power agreeing  to hypothecation of      raw materials, stocks etc, M/s DAIL      was submitting  the  statements  of      raw materials  held by its division      M/s New Tobacco Company and the      same  was   liable   for   physical      inspection and verification by Bank      officials."      Mr.  Shanti   Bhushan  has  submitted  that  the  above allegations did   not  make   out any  offence   of criminal breach of  trust.  According  to  Mr.  Shanti  Bhushan,  the essential  ingredients   of  criminal  breach  of  trust  is entrustment of   property   or   entrustment   of   dominion over property.  The   grant of  credit facility  giving of a loan in  pursuance of  that credit  facility cannot possibly amount to   entrustment  of    property.  A  loan  is  quite different form   entrustment    of  money.  Similarly,  when the   debtor hypothecates  his   goods to  Bank  by  way  of security, there  is no  entrustment  of those  goods to  the bank   by the  debtor. Even  if  there is  any contravention of the    terms    of    the  contract  under  which  credit facilities are  given, it  will  be  merely  a    breach  of contract for   which  the   Bank may  made debtor liable for damages under  the civil  law. There will be no occasion for committing any  offence of  criminal  breach  of  trust.  In support of  this contention, Mr Shanti Bhushan has relied on the decision   of this  Court  in  Velji  Raghavji Patel Vs. State of   Maharashtra  (1965 (2) SCR 429). It has been held

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in  the     said  decision    that  in  order  to  establish entrustment of  dominion over property to an accused person, the mere  existence of  that person’s dominion over property is not  enough. It  must be  further shown that his dominion was the   result  must   be further  shown that his dominion was the result of entrustment.      Mr. Shanti  Bhushan has  also referred to a decision of this Court  in State  of Gujarat  Vs. Jaswantlal  Natha  lal (1968 (2)  SCR 408).  In  the  said  decision  it  has  been indicated that   the term  ’ entrusted’ found in Section 405 IPC Governs not only the words with the property immediately following  it   but  also   the  words   with  the  property immediately following  it but  also the  words or  ’with any dominion over   the    property’    occurring    thereafter. Before there  can   be any    entrustment,  the  entrustment carries with  it the   implication  that the  person handing over any  property or  on   whose behalf  that  property  is handed over  to another,  continues to  be its owner. A mere transaction of  sale cannot  amount to   an entrustment.  It has been  observed in  the said  decision that  although the government had  sold the  cement in  question to  BSS solely for the   purpose  of   being used   in connection with  the construction   work referred  to earlier,  that circumstance does not   make  the transaction  in question anything other than a   sale, After  delivery of the cement, the government has neither    any  right  not  dominion  over  it,  It  the purchaser had  failed to comply with the requirements of any law relating    to  cement  control,  he  should  have  been prosecuted for  the same,  But the  court was unable to hold that there was any breach of trust.      Coming to  the question of offences under Sections 467, 468 and  471 IPC  Mr. Shanti Bhushan has also submitted that no offence  under the  aforesaid Sections  even prima facie, has been committed even on the face value of the Allegations in the  FIR. Mr. Shanti Bhushan has submitted that it is the case of  the  CBI  claims  of  both  the  Banks  have  been satisfied and  the disputes  have been  compromised  in  the civil suits  field by  the Banks.  Accordingly, it  will  no longer  be     a   fit     case  for  carrying  out  further investigation  in   respect    of  the    offences  alleged. eferring to  a recant  decision of   this  Court   in Feroze Dinshaw Lam  Vs. Union  of India  (Judgment   Today (3)   SC 131).   MR. Shanti Bhushan has submitted that  in that  case although   a clear  offence  of fabrication of  evidence had been establish   against  Godrej Company  and  its Directors and officials, the Supreme Court set aside  the order of the High Court  directing a complaint to be  filed holding  that in   view of all the circumstances including the  payment of the  Excise     Duty,   it  would   bot  be    expedient  to proceedagainst the  accused persons, Mr. Shanti  Bhushan has submitted that  any further  investigation in  the matter of offences alleged   in  the  FIRs after  such a long lapse of time and   after the claims of the Banks have been satisfied in   Civil Suits  instituted by  the Banks,  is not  at  all expedient and  on that  score also  no interference  by this Court under the discretionary jurisdiction under Article 136 of the  Constitution against  the impugned  decision of  the High Court is not called for.      Mr. Shanti  Bhushan has  also submitted  that the first FIR was registered in 1987 and the second one was registered in 1989.  The challenge  to  the  Firs.  were  made  in  the Calcutta High  Court only  in 1991.  The CBI  therefore, had more than  four years  time to  complete the  investigations without any  interruption. But admittedly the investigations have  not   yet  been  completed.  Mr.  Shanti  Bhushan  has

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submitted that  FIRs have  been filed  in order to resort to are twisting tactics by the CBI and for launching an fishing and roving  enquiry without  any reasonable  basis.  In  any event, When  the interest of the Banks have been safeguarded in the  civil suits  instituted by the Banks having ended in compromise, no  useful propose  will be served in proceeding with further investigation  after such a long lapse of time. Such course  of action, in the facts of the case, will be an abuse of  the process  of law and impugned order of quashing the FIRs  being reasonable  no interference by this Court is warranted. The appeals, therefore, should be dismissed.      After giving our careful consideration to the facts and circumstances of  the case  and the  submission made  by the respective counsel  for the  parties, it  appears to us that for the  purpose of  quashing the complaint, it is necessary to consider  whether the  allegations in the complaint prima facie make  put an  offence or  not. It  is not necessary to scrutinize the  allegations  for  the  purpose  of  deciding whether such  allegations are  likely to  be upheld  in  the trial. Any  action by  way of  quashing  the complaint is an action to   be taken  at the  threshold before evidences are led in support of the complaint. For quashing the complaint. therefore, had  more than  four years  time to  complete the investigation without  any interruption.  But admittedly the investigations have  not  yet  been  completed.  Mr.  Shanti Bhushan has submitted that FIRs. have been filed in order to resort to  arm twisting tactics by the CBI and for launching a fishing  and roving  enquiry without any reasonable basis. In any  event, when  the interest  of the  Banks  have  been safeguarded in  the civil  suits  instituted  by  the  Banks having ended in compromise, no useful purpose will be served in proceeding  with further  investigation after such a long laps of  time. Such  course of  action, in  the facts of the case, will  be an  abuse of  the process of law and impugned order of  quashing the FIRs being reasonable no interference by this  Court is  warranted. The appeals, therefore, should be dismissed.      After giving our careful consideration to the facts and circumstances of  the case  and the  submissions made by the respective counsel  for the  parties, it  appears to us that for the  purpose of  quashing the complaint, it is necessary to consider  whether the  allegations in the complaint prima facie make  out an  offence or  not. It  is not necessary to scrutinize the  allegations  for  the  purpose  of  deciding whether such  allegations are  likely to  be upheld  in  the trial. Any  action by  way of  quashing the  complaint is  a action to   be taken  at the  threshold before evidences are led in  support of the complaint. For quashing the complaint by way   of action  at  the  threshold.  It  is,  therefore, necessary  to   consider  whether   no  the   face  of   the allegations, a  criminal offence  is constituted  or not. In recent decisions  of this  Court, the  case  of  Bhajan  Lal (supra),  since   relied  on   by  Mr.  Tulsi,  the  guiding principles in quashing a criminal case have been indicated.      In the  instant case, a serious dispute has been raised by the learned counsel appearing for the respective party 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  wide  sense  in Section 405  I.P.C. Such  expression includes  all  case  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

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necessarily a  term  of  law.  It  has  wide  and  different implication in  different context. 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, bailer and bailee, master  and servant,  pledger and pledger. 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 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  to cover  up credit  facility. In our view, In such case  for disposing  of the goods covering the 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. In  the facts  and circumstances of the case, it, however, appears  to us  that the Respondents moved the High Court only  in 1991 although the first Fir was filed in 1987 and the  second was  filed in  1989. The CBI, therefore, Got sufficient  time  to  complete  the  investigation  for  the purpose of framing the charge.      Although Mr.  Tulsi, the  learned Additional  Solicitor General, is  justified in  his submission  that a particular act may  constitute both  civil wrong  as well  as  criminal wrong and  merely because a civil action is also pursued, it does not  render the  criminal action  impermissible, in the facts of  the case,  it appears  to us  that long  after the completion of  civil suits,  the  further  investigation  in connection with  the complaints may not be expedient. It may be noted  that the  opinion  given  by  the  Senior  Manager (Legal) that the credit facility which was given to DAIL for its tobacoo  division should  be transferred  to  the  newly formed Company,  namely, New Tabacoo Company Limited, cannot be held  to be  per se  malafide or  illegal in  vies of the provisions of  Section 394 of the Companies Act. That apart, the legal  opinion of  the said  Senior Manager  (Legal) was placed for  consideration by the highest administrative body of the  bank i.e.  the Board that the credit liability which stood in  favour of DAIL  should be transferred in favour of the  New   Tobacoo  Company   Limited.  In   the   aforesaid circumstances, it  appears to  use that  even if  the Senior Manager (Legal)  or any  other officer  of the  bank had not acted properly,  in view  of  the  fact  that  the  ultimate decision was  taken by  the Board of Directors, it cannot be reasonably held  that some  of  the  Officers  of  the  Bank connived and  misled the  Board. It  may be  noted  that  no allegation has been made against the members of the Board.      In the  facts of the case, it appears to use that there is enough  justification for the High Court to hold that the case was  basically a  matter of civil dispute. It Banks had

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already filed suits for recovery of the dues of the Banks on account of  credit  facility  and    said  suits  have  been compromised on  receiving the  payments from  the  concerned Companies. Even  if an  offence of  cheating is  prima facie constituted,  such   offence  is  compoundable  offence  and compromise decrees  passed in  the suits  instituted by  the banks, for  all intents  and purposes, amount to compounding of the offence of cheating. It is also to be noted that long time has  elapsed since  the complaint was filed in 1987. It may also  be indicated that although such FIRs were filed in 1987 and  1989, the  Banks have  not chosen to institute any case against the alleged erring official despite allegations made  against   them  in  the  FIRs.  Considering  that  the investigations had  not been completed till 1991 even though there was  no impediment  to complete the investigations and further  investigations   are   still   pending   and   also considering the  fact that the claims of the Banks have been compromised on  receiving payments, we do not think that the said complaints  should be  pursued any further, In our view proceeding  further   with  the   complaints  will   not  be expedient. In  the special  facts of the case, it appears to us the decision of the High Court in quashing the complaints does not  warrant any  interference under Article 136 of the Constitution. We, therefore, dismiss these appeals.