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CASE NO.: Appeal (crl.)  62 of 2008

PETITIONER: Suryalakshmi Cotton Mills Ltd.

RESPONDENT: Rajvir Industries Ltd. & Ors.

DATE OF JUDGMENT: 09/01/2008

BENCH: S.B. Sinha & Harjit Singh Bedi

JUDGMENT: J U D G M E N T [Arising out of SLP(Crl.) No. 2920 of 2007]

S.B. SINHA,  J :          1.      Leave granted.

2.      Private parties herein were the Directors of the appellant Company.   They were closely related.  It had two units.   One was known as  Mahaboobnagar Unit and the second was a sales depot at Tirupur.   The  Managing Director of the Company was Shri L.N. Agarwal.   He was  stationed at Hyderabad.   Allegedly, pursuant to negotiations which took  place between him on the one hand, and Shri U.K. Agarwal and Ritesh  Kumar Agarwal (Accused Nos. 2 and 3) on the other, representations were  made that as process for obtaining cheques from the Managing Director had  been taking considerable time, it would be advisable that signed blank  cheques be left  in the hands of accused Nos. 2 and 3 for efficient  management of Mahaboobnagar Unit and Tirupur Sales Depot.

3.      Relying on or on the basis of the said representation, signed blank  cheques were handed over to them during the period 2000 A.D. to 2004  A.D.   Disputes and differences arose between the parties in 2005 A.D.

4.      A Company Petition was filed before the Andhra Pradesh High Court.   A Scheme for arrangement submitted by the parties was approved, pursuant  whereto Mahaboobnagar unit was transferred in favour of Rajvir Industries  Limited (Accused No. 1) and Mahaboobnagar Unit to Shri L.N. Agarwal.    For the said purpose, the units were demerged and vested in the respondent  No. 1.   Allegedly, the said Scheme was fully implemented and the  respondent Nos. 2 and 3 by a letter dated 22.4.2005 stated out that they  would not make demand of any payment in respect of the said  Mahaboobnagar Unit.

5.      L.N. Agarwal allegedly made oral requests to theaccused Nos. 2 and 3  to return the unused signed blank cheques, in his capacity as the Secretary of  the appellant Company.  

6.      However, allegedly on the premise that Respondent Nos. 2 and 3  herein entered into a conspiracy to misuse the said cheques; an informal  complaint was filed on 20.10.2006 and another complaint was filed on  30.10.2006 with Mahankali Police Station. An endorsement was made  therein that there was no role for the police to play at that stage.

7.      Respondents herein thereafter issued a letter dated 1.10.2004 as also a  telegram dated 20.10.2004 stating that as the institutional liability of the  respondent No. 1 had crossed 13.25 crores, with a view to repay a part of the  said amount, a cheque of a sum of Rs. 6.28 crores had been drawn by the  appellant in favour of the first respondent being the amount of difference  which had been deposited for collection.  In the telegram, it was stated;

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\023I HEREBY INFORM YOU THAT AFTER THE  DEMERGER M/S. SURYALAKSHMI COTTON  MILLS LIMITED AND M/S. RAJVIR INDUSTRIES  LIMITED THE SHARES WERE TRANSFERRED  FROM MY SIDE AND YOUR SIDE FOR THE  DIFFERENCE OF SHARE TRANSFER AMOUNTS  AND AS PER OUR PERSONAL  UNDERSTANDING TO CLEAR THE  DIFFERENCE AMOUNT OF MY FAMILY  HOLDING SHARES YOU HAVE ISSUED TWO  CHEQUES ONE FOR RS. 3,39,12,086.00 DATED  31.07.2006 VIDE CHEQUE BEARING NO. 444842  AND ANOTHER CHEQUES BEARING NO.  444841 DATED 31.07.2006 FOR AN AMOUNT OF  RS. 3,80,77,646-00, BOTH THE CHEQUES WERE  DRAWN ON ANDHRA BANK, TIRUPUR  BRANCH, TAMILNADU. THEREAFTER YOU  HAVE REQUESTED ME ORALLY TO PRESENT  THE SAME IN THE 3RD WEEK OF OCTOBER,  2006.   AS PER YOUR INSTRUCTIONS I HAVE  DEPOSITED THE SAID CHEQUE FOR  COLLECTION WITH OUR BANK.  PLEASE  HONOUR THE SAME.\024

8.      A First Information Report thereafter was lodged by the appellant  before the Station House Officer of the Police Station Mahankali, Hyderabad  alleging inter alia that the blank signed cheques issued in the year 2001-2002  had been fraudulently used.    

9.      F.I.R. thereafter was sought to be lodged.

10.     On a purported refusal by the Police Station to register a complaint on  the basis thereof, the appellant filed a complaint petition in the Court of XI  Additional Chief Metropolitan Magistrate, Secunderabad.   Pursuant to the  direction issued by the learned Magistrate, a First Information Report was  lodged by the officer-in-charge of the Mahankali Police Station.    11.     Legal notices were, however, issued by the first respondent upon the  appellant with regard to dishonour of three cheques  bearing No. 444840  dated 31.7.2006 of Rs. 6.28 crores, Cheque No. 444841 dated 31.7.2006 of a  sum of Rs. 3,80,77,646/- and Cheque No. 444842 dated 31.07.2006 of an  amount of Rs. 3,39,12,086/-.

12.     On or about 13.11.2006, an application was filed before the High  Court for quashing of the said First Information Report.  Admittedly, on  6.12.2006, a complaint petition was filed by the first respondent herein  purported to be under Section 138 and 141 of the Negotiable Instruments  Act against the appellant and also its Chairman and Managing Director.   By  reason of the impugned judgment, the said quashing application filed by the  respondents herein has been allowed.    

13.     A learned Single judge of the High Court, in his judgment, not only  considered the ingredients for the offences under Section 406, 420, 460 of  the Indian Penal Code but also the background facts leaving to the dispute  between the parties so as to enable it to ascertain whether the ingredients  thereof stood satisfied or not.  It was held that the said complaint petition  was filed on the basis whereof the First Information Report was directed to  be lodged only to pre-emt the accused from filing a complaint petition under  Section 138 of the Negotiable Instruments Act stating : \023\005..Therefore, even if the allegations in the  complaint are taken as true and correct, at this stage,  they do not make out prima facie case of cheating or  criminal breach of trust or forgery.   Therefore,  continuation of proceedings against the present  petitioner is nothing but abuse of process of Court.\024

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14.     Mr. Rakesh Dwivedi, learned senior counsel appearing on behalf of  the appellant would submit that the High Court committed a manifest error  in quashing the First Information Report at such an early stage and acted in  total disregard of the parameters of its jurisdiction under Section 482 of the  Code of Criminal Procedure.   Taking us through various documents  including the notices served by the parties against each other and the  Scheme of Demerger, it was urged that the purpose for which the cheques  are said to have been issued being not supported by any document or the  deed of demerger, it was pre-mature on the part of the High Court to quash  the First Information Report.  It was contended that it is not the law that for  the purpose of constitution of an offence under Section 420 of the Indian  Penal Code, subsequent conduct for the purpose of ascertaining intention of  the accused in regard to making of a false representation to the complainant  cannot be taken into consideration, more particularly  in a case, where blank  cheques have been issued on good faith and on a representation made by the  accused.   After the Scheme of Demerger was framed in March, 2001, it was  the duty of the respondent to return the cheques which were \021properties\022,  within the meaning of the provisions of Section 405 of the Indian Penal  Code, and then, it was contended, a case of Criminal Procedure of  _________ order been made out.  Embezzlement and/or conversion thereof  for the purposes other than for which the same had been entrusted would  also go to show that the respondents have committed a criminal breach of  trust.         The theory that the accused must have had a bad intention at the time  of the very inception of the contract would apply only to contractual  liabilities and not where some valuable documents are entrusted.   In any  event, the said principle will have no application in relation to offences made  under Section 406 and 463 of the Indian Penal Code.

15.     Mr. C.A. Sundaram, learned senior counsel appearing on behalf of the  respondent, on the other hand, submitted;   (i) The question as to whether the First Information Report in the  facts and circumstances of this case should be treated to be an  abuse of process of Court or not should be determined having  regard to public policy involved namely as to whether a defaulter  who has failed to make lawful payment of an amount and thus  liable to be prosecuted in respect whereof the cheque had been  issued by it can pre-emt filing of a complaint petition which  would be his defence in the case filed against him under Section  138 of the Negotiable Instruments Act.   (ii)    Prosecution under Section 420 of the Indian Penal Code would  lie only in the event, an allegation is made in regard to the  existence of an intention on the part of the accused from the very  inception of the contract and not thereafter.  (iii)   In the counter affidavit filed before the High Court, it has been  alleged that the employees of the respondent No. 1 Company had  filled up the blank cheque which is contradictory to and  inconsistent with the story made out in the complaint petition that  it was respondent Nos. 2 and 3 who did so and, therefore, no  charge can be framed for commission of forgery.   (iv)    Keeping in view the fact that the cheques were purported to be  issued in the years 2000 to 2004 when allegedly the parties were  maintaining excellent relationship and the dispute between them  having been arisen only in September, 2004, it is wholly  improbable that the memorandum of understanding would not  contain a clause in regard to handing over of the blank cheques  and/or no demand shall be made to return the same.  

16.     The parameters of jurisdiction of the High Court in exercising its  jurisdiction under Section 482 of the Code of Criminal Procedure is now  well settled.  Although it is of wide amplitude, a great deal of caution is also  required in its exercise.   What is required is application of well known legal  principles involved in the matter.   

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17.     It is neither feasible nor practicable to lay down exhaustively as to on  what ground the jurisdiction of the High Court under Section 482 of the  Code of Criminal Procedure should be exercised, but some attempts have  been made in that behalf in some of the decisions of this Court as for  example State of Haryana Vs. Bhajan  Lal [1992 Supp (1) SCC 335], Janata  Dal Vs. H.S. Chowdhary and Others [(1992) 4 SCC 305], Rupan Deol Bajaj  (Mrs.) and Another Vs. Kanwar Pal Singh Gill and Another [(1995) 6 SCC  194], Indian Oil Corp. Vs. NEPC India Ltd. and Others [(2006) 6 SCC 736].          In Bhajan Lal (supra), this Court held; \023(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.\024          We may also place on record that criminal proceedings should not be  encouraged when it is found to be mala fide or otherwise abuse of the  process of court.         In All Cargo Movers (I) Pvt. Ltd. & Ors. v. Dhanesh Badarmal Jain &  Anr. [2007 (12) SCALE 391], it was opined : \023We 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 the plaintiff-respondent No. 1 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 simplicitor does not constitute  an offence. For the said purpose, allegations in the

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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 cannot notice 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.\024

18.     Ordinarily, a defence of an accused although appears to be plausible  should not be taken into consideration for exercise of the said jurisdiction.    Yet again, the High Court at that stage would not ordinarily enter into a  disputed question of fact.   It, however, does not mean that documents of  unimpeachable character should not be taken into consideration at any cost  for the purpose of finding out as to whether continuance of the criminal  proceedings would amount to an abuse of the process of Court or that the  complaint petition is filed for causing mere harassment to the accused.   While we are not oblivious of the fact that although a large number of  disputes should ordinarily be determined only by the civil courts, but  criminal cases are filed only for achieving the ultimate goal namely to force  the accused to pay the amount due to the complainant immediately.   The  Courts on the one hand should not encourage such a practice;  but, on the  other, cannot also travel beyond its jurisdiction to interfere with the  proceeding which is otherwise genuine.  The Courts cannot also lose sight of  the fact that in certain matters, both civil proceedings and criminal  proceedings would be maintainable.

19.     The High Court, however, in this case went into various facts  including the backdrop of dispute between the parties.   It proceeded on the  basis that in view of the demerger scheme, the conduct of the appellant in  keeping mum for a long time for getting the unused blank cheques returned  is tell tale.    It entered into the question as to whether the complaint petition  was filed only with a view to pre-emt the respondents herein to take recourse  to the remedies available to them to initiate a criminal proceeding under  Section 138 of the Negotiable Instruments Act or the complaint petition in  effect and substance should be permitted to be raised only by way of  defence.  What has failed to attract the attention of the High Court was that  maintainability of a criminal proceeding like the present one should not be  determined only upon raising a presumption in terms of Section 139 of the  Negotiable Instruments Act, it being a rebuttable one.

20.     The High Court, in our opinion, should have further taken into  consideration the fact that in the event, the defence of the appellant  is accepted in the criminal case, it will have no remedy to  prosecute the respondents again.  To contend that the acquittal of  the appellant would have been the springboard for filing a  complaint will not be correct.  Nobody knows when the criminal  case would come to an end.  In a given situation, even it may  become barred by limitation.  It must also be borne in mind that  commercial expediencies may lead a person to issue blank  cheques.  The course of action in the aforementioned situation, in  our opinion, which could be taken recourse to was to make an  attempt to find out as to whether the complaint petition even if  given face value and taken to be correct in its entirety constitutes  an offence under Section 420, 406, 463 of the Indian Penal Code or  not.

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21.     Ingredients of cheating are; (i)     deception of a person either by making a false or  misleading representation or by other action or  omission; and

(ii)     fraudulent or dishonest inducement of that person to  either deliver any property to any person or to consent  to the retention thereof by any person or to intentionally  induce that person to do or omit to do anything which  he would not do or omit if he were not so deceived and  which act or omission causes or is likely to cause  damage or harm to that person in body, mind,  reputation or property.  

       A bare perusal of Section 415 read with Section 420 of the Indian  Penal Code would clearly lead to the conclusion that fraudulent or dishonest  inducement on the part of the accused must be at the inception and not at a  subsequent stage.

22.     For the said purpose, we may only notice  that blank cheques were  handed over to the accused during the period 2000-2004 for use thereof for  business purposes till the dispute between the parties admittedly arose much  thereafter i.e. in 2005.         In B. Suresh Yadav Vs. Sharifa Bee [2007 (12) SCALE 364], it was  held; \02313.  For the purpose of establishing the offence of  cheating, the complainant is required to show that the  accused had fraudulent or dishonest intention at the  time of making promise or representation.   In a case  of this nature, it is permissible in law to consider the  stand taken by a party in a pending civil litigation.   We do not, however, mean to lay down a law that the  liability of a person cannot be both civil and criminal  at the same time.   But when a stand has been taken in  a complaint petition which is contrary to or  inconsistent with the stand taken by him in a civil suit,  it assumes significance.   Had the fact as purported to  have been represented before us that the appellant  herein got the said two rooms demolished and  concealed the said fact at the time of execution of the  deed of sale, the matter might have been different.  As  the deed of sale was executed on 30.9.2005 and the  purported demolition took place on 29.9.2005, it was  expected that the complainant/first respondent would  come out with her real grievance in the written  statement filed by her in the aforementioned suit.   She, for reasons best known to her, did not choose to  do so.\024                          No case for proceeding against the respondent under Section 420 of  the Indian Penal Code is therefore, made out.    

23.     Filling up of the blanks in a cheque by itself would not amount to  forgery. Whereas in the complaint petition, allegations have been made that  it was respondent Nos. 2 and 3 who had entered into a conspiracy to commit  the said offence as indicated hereinbefore,  in the counter affidavit, it has  been alleged that the employees of the Respondent Company did so.   

       Although, Section 120B of the Code has been added, there does not  exist any averment that the respondent Nos. 2 and 3 have entered into any  conspiracy with their employees.  No case for proceeding with the offence of  forgery against the respondents has, thus, also been made out.

24.     However, a case for proceeding against the respondents under Section  406 has, in our opinion, been made out.  A cheque being a property, the

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same was entrusted to the respondents.   If the said property has been  misappropriated or has been used for a purpose for which the same had not  been handed over, a case under Section 406 may be found to have been  made out.   It may be true that even in a proceeding under Section 138 of the  Negotiable Instruments Act, the appellant could raise a defence that the  cheques were not meant to be used towards discharge of a lawful liability or  a debt, but the same by itself in our opinion would not mean that in an  appropriate case, a complaint petition cannot be allowed to be filed.         We cannot also lose sight of the fact that the respondents were  keeping watch over the matter.  As soon as a first information report was  lodged, a notice was immediately sent.  A quashing application was filed  within a few days for the lodging of the first information report. The  investigation was not allowed to take place at all.  Whereas it would have  been the duty of the Court to uphold and/or to protect the personal liberty of  an accused in a case; but where the first information report prima facie  discloses commission of a cognizable offence, the High Court, ordinarily,  shall not have interfered with investigation thereof by the statutory authority.   We, therefore, allow the appeal in part.   

25.     The investigation by the Officer-in-Charge of Mahankali Police  Station may now be confined to the charge under Section 406 of the Indian  Penal Code.   26.     We hope and trust that the investigation shall be completed and a final  report shall be filed before the appropriate court at an early date.  In the  event, any chargesheet is filed and the cognizance of the offence is taken,  both the cases should be tried by the same Court, one after the other, and  judgment in both the cases must be delivered at the same time.          27.     This appeal is allowed to the aforementioned extent and with the  aforementioned observations and directions.