REPORTABLE

IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL No.   549      OF 2009 (Arising out of SLP (Crl.) No. 2991 of 2007)  

Chunduru Siva Ram Krishna & Anr.          ..…Appellants

Versus

Peddi Ravindra Babu & Anr.                                             .….Respondents

    With

CRIMINAL APPEAL No.   550     OF 2009 (Arising out of SLP (Crl.) No. 5072 of 2007)  

JUDGMENT

Dr. Mukundakam Sharma, J.

1. Leave granted.

2. Both these appeals are being taken up together and are being disposed of

by this common judgment and order as these appeals have been preferred

against the common judgment and order dated 01.03.2007 passed by the

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Andhra Pradesh High Court at  Hyderabad.  By the aforesaid common

judgment  and  order  the  learned  Single  Judge  of  the  High  Court

dismissed the petition filed by Accused Nos. 1 to 9 praying for quashing

of the complaint filed against them by holding that the allegations made

in  the  said  complaint  do  not  make  out  a  case  for  quashing  of  the

complaint.

3. In order  to appreciate the  contentions  raised before us by the counsel

appearing for the parties it would be necessary to set out the brief facts

leading to filing of the aforesaid complaint dated 02.07.2005.

One Chunduru Subba Rao, Accused No. 1 was having a rice mill at

Village Lakshmipuram in District Guntur, Andhra Pradesh under the name

and style of “C.S.R. Rice Mills”.  He was the sole proprietor of the said rice

mill.  Accused Nos. 2 to Accused No. 5 are the family members of Accused

No.  1  whereas  Accused  Nos.  6  to  Accused  No.  8  are  son-in-law,  the

daughter of Accused No. 1 and the brother of the son-in-law of Accused

No.1  respectively.   Accused  No.  9  has  also  been  arrayed  as  one  of  the

accused  in  the  complaint  filed  and  he  is  the  younger  brother-in-law  of

Accused No. 1.  Accused No. 2 and Accused No. 3 are the two sons of

Accused No. 1 who are aged about 28 and 25 years respectively. Accused

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No. 2 is  stated to be doing his  job after  completing his  graduation from

Nagarjuna University, Guntur, Andhra Pradesh and his post graduation in

Master of Computer Applications under University of Madras.  On the other

hand, Accused No. 3 is stated to be studying Engineering course in Bapatla,

Guntur, Andhra Pradesh.  It is, therefore, disclosed from the aforesaid facts

that all the family members of Accused No. 1 have been arrayed as accused

persons in the complaint filed.

4. It is disclosed from the records that Accused No. 1 had been into rice

mill business for about 20 years and had been purchasing paddy from the

local paddy growers in the village and that he issued vouchers to some of

them while to others promissory notes ranging from Rs. 30,000/- to Rs. 3

lakh were executed as security towards the purchase of paddy.   He had

also obtained Rs. 30 lakhs as loan from State Bank of India, Ponnur and

remodeled  the  rice  mill  and  fortified  his  goodwill.   However,  his

business  has  declined  and  consequently  he  owed  debts  to  the  banks,

several  financial  institutions  and  to  public  and  that  his  liabilities

aggregated to                     Rs. 89,51,600/-.  Therefore, on 24.06.2005, he

filed an insolvency petition bearing I.P. No. 11 of 2005 in the Court of

Senior Civil Judge, Baptala, Guntur District, Andhra Pradesh in which

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he stated that he was sustaining loss for 5-6 years and his aggregated

liabilities  was approximately             Rs.  89,51,600/.  He also  got

published in  the  newspaper regarding the factum of filing of  the said

insolvency petition.

5. Consequent  upon  filing  of  the  aforesaid  insolvency  petition  several

representations  were  made  to  the  District  Collector  by  the  villagers

making allegations against Accused No. 1 and his family members. The

said representations were endorsed by the District Collector to the police

for investigation. The paddy suppliers, who are respondents herein, also

lodged a report  dated 2.7.2005 against  Accused No. 1  and his  family

members with the Station House Officer,  Kakumanu Police Station in

Kakumanu  Mandal,  District  Guntur  for  offences  punishable  under

Sections 406 and 420 read with Section 34 of the Indian Penal Code.   

6. On 18.9.2006, the Station House Officer, Kakumanu filed a charge sheet

bearing  C.C.  No.  110  of  2006  in  the  court  of  the  learned  Judicial

Magistrate  First  Class,  Ponnur  under  Sections  406,  420 and 424 read

with Section  37 IPC against  Accused No. 1 to  Accused No. 9  which

included both the appellants herein.  In the said charge sheet the police

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stated  that  Accused  No.  1  to  Accused  No.  9,  who  are  inter  related,

developed an evil idea by colluding themselves and fraudulently directed

the  loans  and  gold  secretly  in  benami  names  in  order  to  defraud  the

persons who supplied paddy to them.  It was further stated in the charge

sheet  that during the  year 2005 Accused No. 1 purchased paddy crop

from several farmers saying that he would pay the cost of paddy as per

the  existing  market  value.  They blindly  believed  Accused  No.  1  and

unloaded huge quantities of paddy produced by them and entrusted the

same with Accused No. 1.  But Accused No. 1 diverted part of the paddy

to Accused No. 5 who was running rice mill under the name and style of

‘C.S.R. Industries’ opposite to Sivalayam, Old Ponnur, on the ground of

inadequate power supply and secretly sold it for his own use. It has been

further  stated  that  10  days  before  that  he  had  also  diverted  huge

quantities  to  ‘NRI  Industries’,  Ponnur.   Eventually,  Accused  No.  1

gained  unlawfully  to  the  tune  of  Rs.  1,20,00,000/-  by  cheating  the

abovementioned  paddy  suppliers.   He  surrendered  before  the  learned

Judicial Magistrate First Class, Ponnur on 19.7.2005.  Vide order dated

19.7.2005 in the petition for grant of anticipatory bail, the Hon’ble High

Court of Andhra Pradesh directed release of A-6 to A-8 and A2 to A-4

including the appellants herein.    

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7. On 25.11.2006 all  the accused i.e.  Accused Nos.  1 to  Accused No. 9

including  the  appellants  herein  (Accused  No.  2  and  Accused  No.  3)

jointly filed a Criminal Petition No. 5618 of 2006 under Section 482 of

the Criminal Procedure Code (for short ‘CrPC’) before the High Court of

Judicature,  Andhra  Pradesh  at  Hyderabad  seeking  quashing  of  the

Criminal  Complaint  No.  110/2006  and  the  charge  sheet  which  were

pending in the Court of learned Judicial Magistrate First Class, Ponnur

on the ground that it was only a civil liability arising out of breach of

contract by Accused No. 1 in payment of price of paddy and, therefore, it

was improper on the part of the police to come to their aid to recover the

money  under  a  transaction  by  filing  criminal  cases  and  that  the  said

criminal complaint itself was a counter blast to the insolvency petition

filed by Accused No. 1. However, the learned Single Judge of the High

Court  vide  impugned  order  dated  01.03.2007  observed  that  they

collected paddy from various agriculturists  worth Rs. 1,20,00,000/- by

making them to believe that the cost of paddy would be paid immediately

but after having collected the paddy, they failed to pay the amount to the

agriculturists and thereby they cheated those persons. So, it was held that

there was prima facie material against all the accused i.e. Accused Nos. 1

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to Accused No. 9. Accordingly, the High Court dismissed the criminal

petition.  

8. Being aggrieved by the aforesaid order passed by the High Court  two

special leave petitions were filed in this Court which are registered as

SLP (C) No. 2991 of 2007 and SLP (C) No. 5072 of 2007.    

SLP (C) No. 2991 of 2007 was filed by Accused Nos. 2 and 3 who

are sons of Accused No. 1 and they are aged about 28 years and 25 years

respectively.   In this special leave petition notice was issued by this Court

vide order dated 18.05.2007 and while doing so interim stay of the further

proceedings in C.C. No. 110 of 2006 was also passed so far as appellants

herein are concerned.  Similarly, SLP (C) No. 5072 of 2007 was preferred

by Accused Nos. 6 to Accused No. 8 who are son-in-law, the daughter of

Accused No. 1 (a housewife) and the brother of the son-in-law of Accused

No. 1.  Similar orders were passed in their special leave petition also.  Both

the aforesaid petitions were listed before us for hearing when we heard the

learned counsel appearing for the parties.

9.  Mr.  G.  Ramakrishna  Prasad,  learned  counsel  for  the  appellants

submitted that when a sole proprietary firm had allegedly cheated some

suppliers, the members of the family of such sole proprietor cannot be

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roped into a criminal prosecution especially in the light of the facts that

the criminal complaint itself has been lodged as a counter blast  to the

insolvency petition filed by the owner of the sole proprietary mill and the

Investigation  Officers  were  not  justified  in  roping-in  the  innocent

appellants herein despite the fact that there was no substantive allegation

made against them. It was further submitted that the matter is essentially

having  a  civil  profile  and  merely  because  many  people  have  lodged

criminal complaints, criminal prosecution was launched against Accused

No. 2 and Accused No. 3 (appellants herein) without any basis or an iota

of evidence which has gone to the extent of spoiling the bright career

and future of Accused No. 2 and Accused No. 3.  He also submitted that

the appellants herein have nothing to do with the daily conduct of the

business, income derived therefrom or with regard to alleged selling of

paddy stock and in view of this the High Court ought to have taken into

account  the  hardship  and  damage  of  future/career  of  the  appellants

herein.

10.  Learned counsel  for  the appellant  submitted that  the  High Court  had

dismissed the petition of the appellant herein due to total non-application

of mind as it failed to see that the rice mill was being run by Accused

No. 1 as sole proprietary concern and Accused No. 2 and Accused No. 3

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had nothing to do with the said sole proprietary concern and therefore

the offences against  Accused No. 2 and Accused No. 3 had not at  all

sustainable.   He  further  submitted  that  due  to  illegal  actions  of  the

investigating officers and being hand in glove with the farmers the police

made Accused No. 3 to lose one precious academic year as he could not

attend the classes and thereby rendered himself liable to be disqualified

for  appearing  in  the  examination  due  to  shortage  of  attendance.

According to him, although these facts were brought to the notice of the

learned  Advocate  who  appeared  in  the  matter  in  High  Court,

unfortunately the same were not placed on record.

11.  Mr. C.K. Sucharita, learned counsel for the appellants submitted that the

essential ingredients of offence under Section 406 IPC is entrustment of

the property and essential ingredient of offence under Section 420 IPC is

that it must be proved that the complainant had parted with his property

acting on a representation which is false to the knowledge of the accused

and  that  the  accused  had  dishonest  intention  from the  onset  are  not

satisfied even as per the allegations made in the complaint.  He further

submitted that the High Court erred in not invoking its inherent power

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under  Section  482  CrPC to  quash  the  criminal  complaint  against  the

appellants herein as the complaint does not even vaguely suggest that the

appellants herein, who belong to a distinct family, were concerned in any

manner with the business run by Accused No. 1 or with the collection of

paddy. In support of such contentions the learned counsel has relied on

various judgments pronounced by this Court.

12.In  the  light  of  the  aforesaid  submissions  we  may  now  proceed  to

appreciate and analyse the contentions raised before us.   

The  scope  and  ambit  of  Section  482  of  the  Code  of  Criminal

Procedure have been the subject  matter of consideration by the courts in

India.   A number  of  decisions  have  been rendered  by this  Court  on  the

aforesaid issue wherein the law relating to quashing of a complaint has been

succinctly laid down.  In the case of Drugs Inspector v. Dr. B.K. Krishna

[1981 (2) SCC 454] it was held by this Court that in a quashing proceeding,

the High Court has to see whether the allegations made in the complaint

petition, if proved, make out a prima facie offence and that the accused has

prima facie committed the offence.  In the said decision this Court refused

quashing of the complaint on the ground that there were enough allegations

in  the  complaint  and  that  the  accused  persons  were  responsible  for  the

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management  and  conduct  of  the  firm and,  therefore,  the  extent  of  their

liability  could  be  and  would  be  established  during  trial.   In  Municipal

Corporation of Delhi v. Ram Kishan Rohtagi [1983 (1) SCC 1] it  was

held that when on the allegation made in the complaint, a clear case was

made  out  against  all  the  respondents  (accused  persons),  the  High  Court

ought not to have quashed the proceedings on the ground that the complaint

did not disclose any offence.

13. In  Municipal  Corporation  of  Delhi  (supra),  this  Court  observed  as

follows in para 8:  

“8. Another  important  consideration  which  is  to  be  kept  in mind is as to when the High Court acting under the provisions of Section 482 should exercise the inherent  power insofar as quashing  of  criminal  proceedings  are concerned.  This  matter was gone into in greater detail in  Smt Nagawwa v.  Veeranna Shivalingappa Konjalgi, (1976) 3 SCC 736 where the scope of Sections 202 and 204 of the present Code was considered and while  laying  down the  guidelines  and the grounds  on which proceedings could be quashed this Court observed as follows: [SCC para 5, p. 741 : SCC (Cri) pp. 511-12] Thus it may be safely held that in the following cases an order of the  Magistrate issuing process  against  the  accused can be quashed or set aside: (1)  where  the  allegations  made  in  the  complaint  or  the statements  of  the  witnesses  recorded  in  support  of  the  same taken at their face value make out absolutely no case against the  accused or  the complaint  does  not  disclose  the  essential ingredients of an offence which is alleged against the accused; (2) where the  allegations  made in the complaint  are patently absurd and inherently improbable so that no prudent person can

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ever  reach  a  conclusion  that  there  is  sufficient  ground  for proceeding against the accused; (3) where the discretion exercised by the Magistrate in issuing process is capricious and arbitrary having been based either on no  evidence  or  on  materials  which  are  wholly  irrelevant  or inadmissible; and (4) where the complaint suffers from fundamental legal defects, such as, want of sanction, or absence of a complaint by legally competent authority and the like. The cases mentioned by us are purely illustrative and provide sufficient guidelines to indicate contingencies where the High Court can quash proceedings.”

14. However, the most famous case on the subject, decided by this Court,

was the case of State of Haryana & Ors. v. Bhajan Lal, [1992 Suppl.

(1) SCC 335] wherein this Court laid down the law as to when the High

Court acting under the provisions of Section 482 CrPC should and would

exercise the inherent power in so far as quashing of criminal proceedings

are concerned.  In the said decision this Court categorized the cases by

way of  illustration  wherein  such power  should  be  exercised  either  to

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

ends of justice.  It observed in para 102 as follows:-

“102. In  the  backdrop  of  the  interpretation  of  the  various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code which we have extracted and reproduced above, we give the following categories  of  cases  by way of illustration wherein such power

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could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be  possible  to  lay  down  any  precise,  clearly  defined  and sufficiently  channelised  and  inflexible  guidelines  or  rigid formulae and to give an exhaustive list of myriad kinds of cases wherein such power should be exercised. (1) Where the allegations made in the first information report or the  complaint,  even  if  they  are  taken  at  their  face  value  and accepted  in  their  entirety  do  not  prima  facie  constitute  any offence or make out a case against the accused. (2) Where the allegations in the first information report and other materials,  if  any,  accompanying  the  FIR  do  not  disclose  a cognizable offence, justifying an investigation by police officers under  Section  156(1)  of  the  Code  except  under  an order  of  a Magistrate within the purview of Section 155(2) of the Code. (3)  Where  the  uncontroverted  allegations  made  in  the  FIR  or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. (4)  Where,  the  allegations  in  the  FIR  do  not  constitute  a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of  a  Magistrate  as  contemplated  under  Section  155(2)  of  the Code.  (5) Where the allegations made in the FIR or complaint are so absurd  and  inherently  improbable  on  the  basis  of  which  no prudent  person  can  ever  reach  a  just  conclusion  that  there  is sufficient ground for proceeding against the accused. (6) Where there is an express legal bar engrafted in any of the provisions  of  the  Code  or  the  concerned  Act  (under  which  a criminal  proceeding  is  instituted)  to  the  institution  and continuance of the proceedings and/or where there is a specific provision  in  the  Code  or  the  concerned  Act,  providing efficacious redress for the grievance of the aggrieved party. (7)  Where  a  criminal  proceeding  is  manifestly  attended  with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.”

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15. The above decision was followed by this Court in  Pepsi Foods Ltd. v.

Special Judicial Magistrate [1998 (5) SCC 749].  In paragraph 28 of

the said judgment this Court held thus :  

“28.  Summoning of an accused in a criminal case is a serious matter. Criminal law cannot be set into motion as a matter of course.  It  is  not  that  the  complainant  has  to  bring  only  two witnesses to support his allegations in the complaint to have the criminal  law  set  into  motion.  The  order  of  the  Magistrate summoning  the  accused  must  reflect  that  he  has  applied  his mind to the facts of the case and the law applicable thereto. He has to examine the nature of allegations made in the complaint and the evidence both oral and documentary in support thereof and would that be sufficient for the complainant to succeed in bringing  charge  home  to  the  accused.  It  is  not  that  the Magistrate  is  a  silent  spectator  at  the  time  of  recording  of preliminary evidence  before  summoning  of  the  accused.  The Magistrate has to carefully scrutinise the evidence brought on record and may even himself put questions to the complainant and his witnesses to elicit answers to find out the truthfulness of the allegations or otherwise and then examine if any offence is prima facie committed by all or any of the accused.”

16. Further, this Court observed in S. W. Palanikar v. State of Bihar [2002

(1) SCC 241] that every breach of trust may not result in a penal offence

of criminal breach of trust unless there is evidence of a mental act of

fraudulent misappropriation. It observed as follows:

“8. Before examining respective contentions on their  relative merits, we think it is appropriate to notice the legal position. Every  breach  of  trust  may  not  result  in  a  penal  offence  of

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criminal breach of trust unless there is evidence of a mental act of  fraudulent  misappropriation.  An  act  of  breach  of  trust involves a civil wrong in respect of which the person wronged may seek his redress for damages in a civil court but a breach of trust with mens rea gives rise to a criminal prosecution as well.

9. The ingredients in order to constitute a criminal breach of trust  are:  (i)  entrusting  a  person  with  property  or  with  any dominion  over  property,  (ii)  that  person  entrusted  (a) dishonestly misappropriating or converting that property to his own use; or (b) dishonestly using or disposing of that property or wilfully suffering any other person so to do in violation (i) of  any direction  of  law prescribing  the  mode in  which  such trust  is  to  be  discharged,  (ii)  of  any  legal  contract  made, touching the discharge of such trust.

10. The  ingredients  of  an  offence  of  cheating  are:  (i)  there should be fraudulent or dishonest  inducement of a person by deceiving him, (ii)(a) the person so deceived should be induced to deliver any property to any person, or to consent that any person shall retain any property; or (b) the person so deceived should be intentionally induced to do or omit to do anything which he would not do or omit if he were not so deceived; and (iii) in cases covered by (ii)(b), the act of omission should be one which causes or is likely to cause damage or harm to the person induced in body, mind, reputation or property.

11. One of us (D.P. Mohapatra, J.), speaking for the Bench, in Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168 on facts of that case, has expressed thus: (SCC p. 177, para 15)

15. In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution  for  cheating  unless  fraudulent  or  dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise.  From  his  mere  failure  to  keep  up  promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.”        

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                                                                     (emphasis supplied)

17. The  aforesaid  discussion  clearly  pin-point  the  legal  position  on  the

subject which is by now well settled.  The principle that could be culled

out is that when at an initial stage a prosecution is asked to be quashed,

the test to be applied by the court is as to whether the uncontroverted

allegations  as  made  in  the  complaint  filed  prima  facie  establish  the

offence.  It  is  also  for  the  court  to  take into  consideration  any special

feature that may appear in a particular case while considering whether it

is  expedient  and  in  the  interest  of  justice  to  permit  a  prosecution  to

continue. This is so on the basis that the court cannot be utilised for any

oblique purpose.  The tests that are laid down in the case of Bhajan Lal

(supra) are required to be applied very carefully and minutely when a

prayer for quashing is laid before the court.

18. When the  facts  of  the  present  case  are  tested  in  the  backdrop of  the

aforesaid legal position, the position that emerge is as to whether or not

in the report submitted with the Station House Officer, Kakumanu Police

Station  in  Kakumanu  Mandal,  District  Guntur on  02.07.2005  and  the

charge sheet which was filed by the Station House Officer, whether there

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is  any substantial  allegation against  the appellants  which would prima

facie  establish  the  offence  alleged  against  the  appellants.   While

examining  the said  aspect  this  Court  is  required  to  keep in  mind  the

allegations made in the aforesaid report and in the charge sheet which

must be considered uncontroverted.   

19.We have  carefully  examined  the  charge  sheet  which  is  a  part  of  the

record and which was prepared on the basis of the aforesaid report dated

02.07.2005 and also on the basis of the investigation carried out by the

police  thereafter  in which they had gathered certain information.   We

have  read  those  allegations  made  in  the  charge  sheet  against  all  the

appellants herein.  Most of the allegations in the aforesaid charge sheet

are mainly directed against Accused No. 1.  

20.The  allegations  made  against  other  accused  are  that  Accused  No.  1

diverted huge quantities of paddy to NRI industries, Ponnur and made it

disappear with the active assistance of Accused Nos. 2 to Accused No. 9

and that Accused No. 1 purchased lands at Nethaji Nagar, Nidubrolu in

the name of  benamies  with  the assistance  of  Accused No.  6 and that

Accused No. 1 also purchased valuable properties at Bangalore with the

help of Accused No. 2.  These are the only allegations made against the

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role of the present appellants namely Accused Nos. 2 and 3 and Accused

Nos. 6, 7 and 8.  No specific role  is  ascribed to any of the aforesaid

persons except for stating that the huge quantities of paddy was diverted

by Accused No. 1 and made to disappear with the active assistance of

Accused No. 2 to Accused No. 9.  Without ascribing any specific role to

any one of them the aforesaid allegation appear to us to be very bald and

vague.   Similarly  the  allegations  made  against  Accused  No.  2  and

Accused  No.  3  that  they  had  helped  their  father  in  purchasing  some

property is also very vague as no specific role is ascribed to them.   

21.In  our  considered  opinion,  no  useful  purpose  would  be  served  by

allowing  the  prosecution  against  aforesaid  accused  persons  (the

appellants herein).  There is no concrete and direct allegation against all

these  persons  ascribing  any definite  role  to  each  one  of  them in  the

offence alleged.  The statements shown to us as allegations amounting to

prima facie evidence against  them, according to us, are very bald and

vague statements on the basis of which no case could be made out.   

22.We are of the opinion that such allegations do not make out a case of

prima facie  evidence.   Consequently,  we have no  other  option  but  to

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quash the proceedings as against the appellants herein i.e. Accused Nos.

2 and 3 and Accused Nos. 6 to 8.  While doing so, however, we make it

clear that we express no opinion so far as the allegations made in the said

charge  sheet  against  Accused  No.  1  and  other  accused  persons  are

concerned.  We also make it clear that the observations made herein by

us are only with respect to the criminal proceedings and none of these

observations shall be construed as an opinion of ours so far civil liability,

if any, is concerned.

23. Both the appeals are allowed to the aforesaid extent.  There shall be no

order as to costs.          

 ………………………..J.

                                [S.B. Sinha]

  ...………………………J.            [Dr. Mukundakam Sharma]

New Delhi, March 25, 2009

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