REPORTABLE IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.      1843           OF 2010 (Arising out of S.L.P. (Crl.) No.5167 of 2007)

V.P. SHRIVASTAVA — APPELLANT (S)

VERSUS

INDIAN EXPLOSIVES LTD. & ORS. — RESPONDENT (S)

WITH

CRIMINAL APPEAL NO.    1844           OF 2010 (Arising out of S.L.P. (Crl.) No.1198 of 2008)  

J U D G M E N T

D.K. JAIN, J.:

Leave granted.

2.These appeals, by special leave, arise out of the judgment and order dated  

28th February  2007,  delivered  by  the  High  Court  of  Calcutta  in  CRR  

No.2898 of 2004 in a common petition filed by the two appellants herein  

and one Mr. A.K. Mukherjee, who is now deceased, under Section 482 of  

the  Code  of  Criminal  Procedure,  1973  (in  short  “the  Code”).   By  the  

impugned  judgment,  the  High  Court  has  declined  to  quash  a  private  

complaint filed by respondent No.1 company against the appellants and Mr.  

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A.K.  Mukherjee  for  offences  under  Sections  420,  406  and  120B of  the  

Indian Penal Code, 1860 (for short  “the IPC’).

3.Shorn of unnecessary details, the facts, material for the purpose of disposal  

of these appeals may be stated thus:

Both the  appellants in these appeals were senior employees of the  

Fertilizer Corporation of India Limited (hereinafter referred to as “FCIL”), a  

government company within the meaning of Section 617 of the Companies  

Act, 1956.  

4.On 20th April 1992, the FCIL’s Board of Directors passed a resolution to  

the effect that the company had become a sick company within the meaning  

of the Sick Industrial (Special Provision) Companies Act, 1985 (hereinafter  

referred to as “SICA”) and hence a reference should be filed with the Board  

of  Industrial  and  Financial  Reconstruction  (hereinafter  referred  to  as  

“BIFR”).   On 6th November  1992, FCIL was declared a “sick company”  

under Section 3(1)(o) of the SICA by the BIFR.

5.The complainant — Indian Explosives Limited (hereinafter referred to as  

“IEL”), respondent No.1 in these appeals, is engaged in the manufacture and  

sale of industrial explosives. Ammonium nitrate is a major raw material for  

the  manufacture  of  explosives,  and the  same was procured by  IEL from  

FCIL.  Some time in the year 2001, FCIL entered into a tripartite agreement  

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with M/s Bharat Coking Coal Limited (hereinafter referred to as “BCCL”)  

and IEL.  As per the arrangement under the agreement, it was agreed that  

FCIL would supply ammonium nitrate to IEL and against this supply, IEL  

would supply explosives of  an equivalent  value to  BCCL, which in turn  

would supply coal of equivalent value to FCIL. It is an undisputed fact that  

pursuant to the said arrangement ammonium nitrate was supplied by FCIL to  

IEL for some time.  However, due to the breakdown of a synchronized gas  

compressor  and  other  financial  difficulties,  FCIL  stopped  supplies  of  

ammonium nitrate to IEL.

6. On 2nd November 2001,  BIFR formed its  final  opinion recommending  

winding up of FCIL and forwarded the same to the High Court of Delhi.  

Some time in December 2001, FCIL aggrieved by the opinion of the BIFR,  

preferred a statutory appeal under Section 25 of SICA before the Appellate  

Authority for Industrial and Financial Reconstruction (hereinafter referred to  

as “AAIFR”).  However, on 16th April 2002, the AAIFR dismissed the said  

appeal and confirmed the order of the BIFR for the winding up of FCIL. In  

June 2002, FCIL and its employees preferred a Writ Petition (CWP No.3298  

of 2002) before the High Court of Delhi challenging the said order of the  

AAIFR. The writ petition was disposed of by the High Court by its order  

dated 26th November 2002, whereby it remitted the matter back to BIFR for  

fresh consideration on the revival of the closed units of FCIL.  BIFR, upon  

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receiving the reference, directed the winding up of FCIL, except the JMO  

unit  and  on  2nd April  2004  sent  its  opinion  to  the  High  Court  for  

confirmation.

7. During  the  pendency  of  the  writ  petition  before  the  High  Court,  the  

Government of India, on 30th July 2002, issued a memorandum for closing  

of  all  the  units  of  FCIL  except  the  Sindhri  and  JMO  units.  On  10th  

September 2002, the Government of India issued yet another memorandum  

directing closure of the Sindhri unit as well. It was further directed that FCIL  

shall implement Voluntary Suppression Scheme in all its units, and all the  

employees shall be discharged of their employment. The appellants herein  

availed of the Voluntary Suppression Scheme and were discharged from the  

service of FCIL.

8.On  22nd May  2003,  IEL  instituted  a  criminal  complaint  (Case  No.  

2560/2003) in the court  of  Chief  Metropolitan Magistrate,  Kolkata under  

Sections 406, 420 and 120B of the IPC read with Sections 540 and 542 of  

the  Companies  Act,  1956  against  both  the  appellants  and  Mr.  A.K.  

Mukherjee.

9.Simultaneously, on 25th May 2003, IEL also filed a Title Suit No. 34 of  

2003 before the 4th Civil  Judge, Alipore for recovery of  the outstanding  

amount of Rs.4,20,41,622/- along with future and pendelite interest against  

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FCIL.  IEL, on 23rd January 2004, obtained and was granted permission by  

the BIFR to continue with the said civil suit subject to the condition that they  

will not execute the decree in the suit without the permission of the BIFR.  

10.On 30th October  2003,  the  Chief  Metropolitan  Magistrate  referred  the  

complaint  to  Metropolitan  Magistrate,  8th Court,  Kolkata,  who  issued  

summons against the appellants and Mr. A.K. Mukherjee. Aggrieved by the  

order  of  the  Magistrate  taking  cognizance  of  the  complaint,  appellants  

together with Mr. A.K. Mukherjee preferred the afore-stated petition under  

Section 482 of the Code for quashing of the order summoning them to stand  

trial, before the Calcutta High Court.

11.As  stated  above,  the  High  Court,  vide  its  impugned  judgment  has  

dismissed the said petition.  The High Court has inter alia, observed that if  

the  fact  that  FCIL,  of  which  the  accused  were  senior  functionaries,  had  

become sick and the question of its winding up was under consideration by  

the BIFR was made known to the complainant company, it would not have  

agreed to the proposal of the accused persons.  According to the High Court,  

in order to arrive at a conclusion whether or not on the available materials  

the accusation against the appellants would be sustained or not, a detailed  

enquiry  by  appreciation  of  the  evidence  would  be  required  and  such  an  

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exercise,  being  entirely  a  matter  of  trial,  cannot  be  undertaken  in  

proceedings under Section 482 of the Code.

Hence the present appeals.

12.Mr. Jaideep Gupta, learned senior counsel appearing for the appellants  

strenuously urged that the complaint deserves to be quashed as it  ex-facie   

lacks the basic ingredients of                   Sections 420 or 406 IPC.  It was  

argued that in the complaint it is not even averred that the accused had a  

fraudulent or dishonest intention to induce the complainant to enter into the  

tripartite  agreement.   Similarly,  there  is  no  allegation  that  the  appellants  

herein  had  dishonestly  misappropriated  or  converted  to  their  use  any  

property of IEL, which had been entrusted to them. Further,  from a bare  

perusal of the complaint, it is evident that the complainant was aware of the  

financial health of FCIL and, therefore, it cannot be said that the appellants  

had  suppressed  the  fact  that  FCIL  was  likely  to  be  declared  as  a  sick  

company.  To buttress the plea, learned  senior counsel referred to the plaint  

in the suit.  Relying on the decision in  All Cargo Movers (India) Private   

Limited & Ors. Vs. Dhanesh Badarmal Jain & Anr.1, it was submitted that  

the  averments  and  the  documents  in  the  civil  suit  could  be  taken  into  

consideration to find out as to whether the allegations in the complaint were  

correct.   Additionally,  learned  senior  counsel  argued  that  the  disputes  

1 (2007) 14 SCC 776

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between FCIL and IEL were essentially civil in nature, and the complaint  

only against the erstwhile employees of FCIL was mala fide and an abuse of  

the process of court and, therefore, deserves to be quashed.

13.Per contra, Mr. Sanjoy Ghosh, learned counsel appearing on behalf of the  

IEL, supported the impugned judgment and argued that the appellants had  

only disclosed to the IEL that FCIL was going through a financial crunch  

and, therefore, withholding of material information regarding its moving the  

BIFR for being declared a sick company was clearly suppression of material  

facts from IEL with a  mala fide  intention to induce them to enter into the  

said agreement with them, knowing fully well that FCIL will not be able to  

honour its commitment under the arrangement.   According to the learned  

counsel, this tantamounts to cheating as also criminal breach of trust within  

the meaning of Sections 415 and 405 IPC respectively.   Learned counsel  

thus,  contended  that  the  High  Court  was  justified  in  not  analyzing  and  

returning a finding on the truthfulness or otherwise of the allegations in the  

complaint  at  such  a  preliminary  stage  of  the  proceedings,  when  only  

summons have been issued to the appellants to appear in the court and it is  

always open to the appellants to apply for discharge before the trial court.

14.The question for consideration, therefore, is whether or not in the light of  

the allegations in the complaint against the appellants, the High Court was  

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correct in law in declining to exercise its jurisdiction under Section 482 of  

the Code?

15.Before evaluating the contentions advanced on behalf of the parties,  it  

will be useful to briefly notice the scope and ambit of the inherent powers of  

the High Court under Section 482 of the Code. The section itself envisages  

three circumstances under which the inherent jurisdiction may be exercised,  

namely; (i) to give effect to an order under the Code; (ii) to prevent an abuse  

of  the process of  court;  and (iii)  to otherwise secure the ends of  justice.  

Nevertheless, it is neither possible nor desirable to lay down any inflexible  

rule which would govern the exercise of inherent jurisdiction of the Court.  

Undoubtedly,  the  power  possessed  by  the  High  Court  under  the  said  

provision is very wide but is not unlimited. It has to be exercised sparingly,  

carefully and cautiously, ex debito justitiae to do real and substantial justice  

for which alone the court exists. It needs little emphasis that the inherent  

jurisdiction does not  confer  an arbitrary power on the High Court  to act  

according to whim or caprice. The power exists to prevent abuse of authority  

and not to produce injustice.

16.In one of the earlier cases, in R.P. Kapur Vs. State of Punjab2 this Court  

had summarised some of the categories of cases where the inherent power  

2 AIR 1960 SC 866

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under Section 482 of  the Code could be exercised by the High Court  to  

quash criminal proceedings against the accused. These are:

(i) where it manifestly appears that there is a legal bar against  

the institution or continuance of the proceedings e.g. want of  

sanction;

(ii) where the allegations in the first information report or the  

complaint taken at its face value and accepted in their entirety  

do not constitute the offence alleged;

(iii) where the allegations constitute an offence, but there is no  

legal  evidence  adduced  or  the  evidence  adduced  clearly  or  

manifestly fails to prove the charge.

17. In Dinesh Dutt Joshi Vs. State of Rajasthan & Anr.3, while dealing with  

the inherent powers of the High Court, this Court has observed thus: (SCC  

p. 573, para 6)

“6. … The principle embodied in the section is based upon  the  maxim:  quando  lex  aliquid  alicui  concedit,  concedere  videtur et id sine quo res ipsae esse non potest i.e. when the  law gives anything to anyone,  it  gives also all  those things  without  which  the  thing  itself  would  be  unavailable.  The  section does not confer any new power, but only declares that  the  High Court  possesses  inherent  powers  for  the  purposes  specified in the section. As lacunae are sometimes found in  procedural law, the section has been embodied to cover such  lacunae  wherever  they  are  discovered.  The  use  of  extraordinary powers  conferred upon the High Court  under  this  section  are  however  required  to  be  reserved,  as  far  as  possible, for extraordinary cases.”

3 (2001) 8 SCC 570

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18.In G. Sagar Suri & Anr. Vs State of U.P. & Ors.4, this Court had opined  

as follows:

“Jurisdiction under Section 482 of the Code has to be exercised  with great care. In exercise of its jurisdiction the High Court is  not  to  examine the  matter  superficially.  It  is  to  be seen if  a  matter, which is essentially of a civil nature, has been given a  cloak of criminal offence. Criminal proceedings are not a short  cut of other remedies available in law. Before issuing process a  criminal court has to exercise a great deal of caution. For the  accused  it  is  a  serious  matter.  This  Court  has  laid  certain  principles on the basis of which the High Court is to exercise its  jurisdiction under Section 482 of the Code. Jurisdiction under  this section has to be exercised to prevent abuse of the process  of any court or otherwise to secure the ends of justice.”

19.Bearing in mind the aforestated legal position in regard to the scope and  

width of power of the High Court under Section 482 of the Code, we shall  

now advert to the facts at hand.

20.As noted above, the complaint against the appellant alleges commission  

of  offences  by  them  of  cheating  and  dishonestly  inducing  delivery  of  

property;  criminal  breach  of  trust  and  of  criminal  conspiracy  punishable  

respectively under Sections 420, 406 and 120B of the IPC.

21.Section 415 IPC deals with “cheating” and reads as follows:

“415.  Cheating.—Whoever, by deceiving any person,  fraudulently  or  dishonestly  induces  the  person  so  deceived to deliver any property to any person, or to  consent  that  any person  shall  retain  any  property,  or  

4 (2000) 2 SCC 636

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intentionally  induces the person so deceived 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, is said to “cheat”.

Explanation.—A  dishonest  concealment  of  facts  is  a  deception within the meaning of this section.”

It is plain from a bare reading of the Section that to hold a person guilty of  

cheating, as defined in Section 415 of the IPC, it is necessary to show that at  

the time of making the promise he had fraudulent or dishonest intention to  

retain the property or to induce the person so deceived to do some thing  

which he would not otherwise do.

22.The ingredients required to constitute an offence of cheating have been  

succinctly laid down in Ram Jas Vs. State of U.P.5, as follows:

“(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 or omission should be  one which causes or is likely to cause damage or harm to the  person  induced  in  body,  mind,  reputation  or  property.”  (Hridaya Ranjan Prasad Verma & Ors. Vs. State of Bihar &  

5 (1970) 2 SCC 740

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Anr.6, S.W.  Palanitkar & Ors.  Vs. State  of  Bihar  & Anr.7,  Kuriachan Chacko & Ors.  Vs. State of Kerala8)

23.Similar views were echoed in Medchl Chemicals & Pharma (P) Ltd. Vs.   

Biological E. Ltd. & Ors.9, wherein it was observed that:

“In order to attract the provisions of Sections 418 and 420 the  guilty intent, at the time of making the promise is a requirement  and  an  essential  ingredient  thereto  and  subsequent  failure  to  fulfil the promise by itself would not attract the provisions of  Section 418 or Section 420. Mens rea is one of the essential  ingredients of the offence of cheating under Section 420. As a  matter of fact Illustration (g) to Section 415 makes the position  clear enough to indicate that mere failure to deliver in breach of  an agreement would not amount to cheating but is liable only to  a civil action for breach of contract.”

24.It is well settled that in order to constitute an offence of cheating, it must  

be shown that the accused had fraudulent or dishonest intention at the time  

of making the representation or promise and such a culpable intention right  

at the time of entering into an agreement cannot be presumed merely from  

his failure to keep the promise subsequently. (Also see: Hira Lal Hari Lal   

Bhagwati Vs. CBI, New Delhi10).  

25.In the instant case, it has been alleged by IEL that at the time of entering  

into the tripartite agreement, the appellants, by having suppressed the fact  

that  FCIL  was  likely  to  be  declared  a  sick  company  and  was,  in  fact,  

6 (2000) 4 SCC 168 7 (2002) 1 SCC 241 8 (2008) 8 SCC 708 9 (2000) 3 SCC 269 10 (2003) 5 SCC 257

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declared to be so by the BIFR, had dishonest intention to induce IEL to enter  

into the said agreement, which amounted to cheating. A bare reading of the  

complaint would show that there is not even a whisper let alone a specific  

averment that the appellants had dishonestly “induced” IEL to enter into the  

said agreement/arrangement.  On the contrary, the complaint clearly reveals  

that IEL was fully conscious of the precarious financial health of FCIL at the  

time they had decided to enter into contract with FCIL and BCCL to ensure  

a  regular  supply  of  their  basic  raw  material  from  FCIL  so  that  their  

production of explosives did not suffer.  At this juncture it would be apposite  

to extract relevant portions of the complaint:

“6.  That the complainant Company approached the accused  persons at their office at 41, Chowringhee Road, Kolkatta-700  071 to supply a large quantity of Ammonium Nitrate and at last  the accused persons had agreed to such proposal. The complaint  had  been  to  the  office  of  the  accused  persons  on  several  occasions  and  had  several  discussions  with  this  regard  with  some terms and conditions.  

7. That the accused persons supplied Ammonium Nitrate to  the complaint  Company for  some time.  The accused persons  who were officers-in-charge of (sic) and were responsible for  the supply of ammonium nitrate to the complainant’s company  made  the  following  representations  to  the  complainant  and  other officers of the complainant’s Company:-

a) That it would not be possible for the accused persons  to maintain regular supply of Ammonium Nitrate to the  complainant’s company due to acute shortage of funds  the Company of the accused persons was not in position  to lift coal from M/S Bharat Coking Coal Ltd. hereinafter  referred as “BCCL” which is one of the subsidiaries of  

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Coal  India  Ltd.  and  unless  regular  supply  of  coal  is  received by the  company of  the  accused  persons  from  BCCL, the manufacture of Ammonium Nitrate would be  hampered and consequently the company of the accused  person  would  not  be  able  to  supply  the  same  to  the  company of the complainant.  

b) That it was represented by the accused persons that as  BCCL  purchases  huge  industrial  explosives  from  the  complainants company, for using explosives in their coal  mines for mining/procuring coal, and as BCCL supplies  coal  to  the  company  of  the  accused  person,  for  the  purpose of its manufacturing Ammonium Nitrate, which  would be supplied to the Company of the complainant,  the  accused  persons  would  make  arrangements  with  BCCL so that instead of making payment to the company  of the accused persons for supply of ammonium nitrate,  the  Complainant’s  Company  would  make  an  advance  payment of Rs. 4,20,41,622/- by supply of explosives to  BCCL and the same would be adjusted for its supply of  coal to the company of the accused person against supply  of  Ammonium  nitrate  of  equivalent  value  by  the  company  of  the  accused  persons  to  the  complainant’s  company. …. …. …. …. …. …. …. …. … …. …. …. …. …. …. …. …. … …. …. …. …. …. …. …. …. …

8. That on such representations the accused persons induced  the complainant and the officers of the company to pay a  sum  of  Rs.4,20,41,622/-  and  equivalent  to  BCCL  between  September  2001  to  November  2001  on  the  specific  representations that the accused persons would  supply ammonium nitrate to IEL and the said sum would  be adjusted towards the supply of ammonium nitrate.

… … …. …. …. …. …. …. …. ….

10. That enquiry revealed that the accused persons deliberately  and with fraudulent intentions while making the aforesaid  

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representations to the complainant and other officers of IEL  for dishonestly inducing them to pay Rs.4,20,41,622/- and  or equivalent to and the said amount an or equivalent was  entrusted to BCCL in the false representation of the accused  persons and the said entrustment was made to BCCL on the  behalf  of  the  accused  persons.   The  accused  persons  deliberately suppressed that FCIL was already declared to  be  a  “Sick  Company”  and  was  referred  to  BIFR  after  eroding its net worth and became a ‘sick company”.  The  accused  persons  also  suppressed  the  fact  that  BIFR  was  considering winding up of FCIL by recommending to the  Hon’ble High Court at Delhi.

11. That  it  was further  learned that  the  accused persons  with  deceptive and fraudulent intentions deliberately suppressed  that  a  huge  amount  was  already  due  to  various  other  suppliers  of  raw  materials  and  other  creditors,  that  the  complainant  would  have  not  parted  with  such  a  huge  amount of Rs.4,20,41,622/- and or equivalent to BCCL if  they  were  not  deceived  by  the  false  and  fraudulent  representation of the accused persons and induced to part  with the said sum.

12. That the accused persons had therefore acted in collusion  and  connivance  with  each  other  in  order  to  defraud  and  cheat the company of the complainant to make entrustment  of  the  said  sum of  Rs.4,20,41,622/-  and  or  equivalent  to  BCCL for and on the behalf of the company of the accused  persons.

13. That  the  accused  persons  were  party  to  a  criminal  conspiracy  and criminal  design they  were  in  collusion  to  each  other  intentionally  deceived  the  complainant  and  officers  of  IEL  and  by  their  false  and  fraudulent  representation  made  the  company  of  the  complainant  to  believe that they would supply ammonium nitrate to IEL of  Rs.4,20,41,622/- and or equivalent is paid by IEL to BCCL  and  by  such  representation  induced  the  complainant  and  other officers of IEL to pay a sum of Rs.4,20,41,622/- and  or  equivalent  to  BCCL  knowing  it  fully  well  that  the  representations made by them were false and they would not  supply ammonium nitrate to IEL in respect of the said sum  

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advanced by IEL to BCCL on their  behalf  and thus they  have committed offences rendering themselves liable to be  prosecuted  under  the  provisions  of  the  Section  120B/420/406  of  the  Indian  Penal  Code  and  also  under  Section 540/542 of the Companies Act, 1956.”

(Emphasis supplied by us)

26.It is manifest from the afore-extracted paragraphs of the complaint that  

the basis of the complaint is that by deliberately suppressing the fact that  

FCIL had already been referred to the BIFR after the erosion of its net worth  

and was likely to be declared a “sick company”, the appellants induced IEL  

to pay Rs.4,20,41,622/- to BCCL and in return did not supply ammonium  

nitrate to them.  In our view, a mere mention of the words “defraud” and  

“cheat” in para 12 of the complaint, in the setting that these have been used,  

is not sufficient to infer that the appellants had dishonest intention right at  

the  beginning  when,  demonstrably,  after  due  deliberations  a  tripartite  

agreement  was  signed,  which,  under  the  given  circumstances  at  that  

juncture, was considered to be in the interest of all the three parties to the  

agreement.   In this  regard,  it  would be useful  to advert  to the following  

observations made by this Court in Anil Mahajan Vs. Bhor Industries Ltd.   

& Anr.11:

“The substance of the complaint is to be seen.  Mere use of the  expression ‘cheating’  in the complaint  is  of  no consequence.  Except  mention  of  the  words  ‘deceive’  and  ‘cheat’  in  the  complaint  filed  before  the  Magistrate  and  ‘cheating’  in  the  complaint filed before the police, there is no averment about the  

11 (2005) 10 SCC 228

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deceit,  cheating or  fraudulent  intention of  the  accused at  the  time of entering into MoU wherefrom it can be inferred that the  accused had the intention to deceive the complainant to pay.”

27.In our opinion, in the present case, at best, it was a case of breach of  

contract  on  the  part  of  FCIL,  for  which  the  said  company  is  already  

defending a civil suit filed by IEL.  In this behalf, it is also pertinent to note  

that in para 5 of the plaint filed by IEL it is averred that:

“While  the  aforesaid  arrangement  was  continuing  and  the  defendant  no.1  supplied  various  quantities  of  Ammonium  Nitrate  malt  to  the  plaintiff  in  the  years  2000-2001,  the  defendant  no.  1  ran into serious  difficulties  in continuing its  production due to breakdown of synchronized gas compressor  and the other financial problems….”

28.In our view, the averment strikes at the root of the allegation that at the  

time  of  entering  into  the  agreement  some  time  in  the  year  2001,  the  

appellants had fraudulent intention to somehow induce IEL to enter into the  

said agreement and part with a huge sum of money.  It bears repetition that  

on their own showing IEL was fully aware of the financial health of FCIL at  

the time the said contract was entered into, as also the reason why FCIL was  

unable  to  continue  the  production  of  ammonium  nitrate.   It  needs  little  

emphasis  that  in  order  to constitute  an offence of  “cheating”,         the  

intention  to deceive should be in existence  at  the  time when the alleged  

inducement  was  made.   In  the  instant  case,  such an  intention  cannot  be  

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inferred from the aforenoted allegations in the complaint and averments in  

the plaint.   In our opinion, therefore,  even if the allegations made in the  

complaint are taken to be correct on their face value, may amount to breach  

of terms of contract by FCIL but do not constitute an offence of “cheating”,  

punishable under Section 420 of the IPC.

29.We may now consider whether the allegations in the complaint make out  

a case of criminal breach of trust, as defined in Section 405 of the IPC, the  

Section reads as follows:

“405.  Criminal breach of trust.—Whoever, being in  any  manner  entrusted  with  property,  or  with  any  dominion over property, dishonestly misappropriates  or  converts  to  his  own  use  that  property,  or  dishonestly  uses  or  disposes  of  that  property  in  violation of any direction of law prescribing the mode  in which such trust is to be discharged, or of any legal  contract,  express  or  implied,  which  he  has  made  touching  the  discharge  of  such  trust,  or  wilfully  suffers any other person so to do, commits “criminal  breach of trust”.

Explanation 1.—A person, being an employer of an  establishment whether exempted under section 17 of  the  Employees’  Provident  Funds  and Miscellaneous  Provisions Act, 1952 (19 of 1952), or not who deducts  the employee’s contribution from the wages payable  to  the  employee  for  credit  to  a  Provident  Fund  or  Family Pension Fund established by any law for the  time being  in  force,  shall  be  deemed to  have  been  entrusted  with  the  amount  of  the  contribution  so  deducted  by  him  and  if  he  makes  default  in  the  payment  of  such  contribution  to  the  said  Fund  in  violation  of  the  said  law,  shall  be  deemed  to  have  

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dishonestly used the amount of the said contribution  in violation of a direction of law as aforesaid.

Explanation 2.—A person,  being an employer,  who  deducts the employees’ contribution from the wages  payable to the employee for credit to the Employees’  State  Insurance  Fund  held  and  administered  by  the  Employees’  State  Insurance  Corporation  established  under the Employees’ State Insurance Act, 1948 (34  of 1948), shall be deemed to have been entrusted with  the  amount  of  the  contribution so deducted by  him  and  if  he  makes  default  in  the  payment  of  such  contribution to the said Fund in violation of the said  Act,  shall  be  deemed  to  have  dishonestly  used  the  amount  of  the  said  contribution  in  violation  of  a  direction of law as aforesaid.”

30.According  to  the  Section,  a  criminal  breach  of  trust  involves  the  

following ingredients:

“(a)  a  person  should  have  been  entrusted  with  property, or entrusted with dominion over property;  

(b) that person should dishonestly misappropriate or  convert  to his own use that property, or dishonestly  use or dispose of that property or wilfully suffer any  other person to do so; and

(c)  that  such  misappropriation,  conversion,  use  or  disposal should be in violation of any direction of law  prescribing  the  mode  in  which  such  trust  is  to  be  discharged, or of any legal contract which the person  has made, touching the discharge of such trust.”

31.In  Onkar Nath Mishra & Ors.  Vs.  State (NCT of Delhi) & Anr.12,  a  

bench of two Judges of this Court, in which one of us (D.K. Jain, J.) was a  

member,  had  observed  that  two  distinct  parts  were  involved  in  the  12 (2008) 2 SCC 561

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commission of the offence of criminal breach of trust. The first part 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  the  

misappropriation or dealing with the property dishonestly and contrary to the  

terms of the obligation created.

32. Therefore,  in relation to the offence under Section 405, IPC, the first  

ingredient that needs to be established is “entrustment.” In Common Cause,   

A Registered Society Vs. Union of India & Ors.13, this Court held that:

“A trust contemplated by Section 405 would arise  only when there is an entrustment of property or  dominion over property. There has, therefore, to be  a  property  belonging  to  someone  which  is  entrusted  to  the  person  accused  of  the  offence  under  Section  405.  The  entrustment  of  property  creates a trust which is only an obligation annexed  to the ownership of the property and arises out of a  confidence reposed and accepted by the owner.”

33.However,  it  must  be  borne  in  mind  that  Section  405,  IPC  does  not  

contemplate the creation of a trust with all the technicalities of the law of  

trust. It  contemplates the creation of a relationship whereby the owner of  

property makes it over to another person to be retained by him until a certain  

contingency arises or to be disposed of by him on the happening of a certain  

13 (1999) 6 SCC 667

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event.  (See:  Jaswantrai  Manilal  Akhaney  Vs.  State  of  Bombay14  and  

Indian Oil Corpn. Vs. NEPC India Ltd. & Ors.15.)

34.In the instant case,  there is nothing in the complaint  which may even  

suggest remotely that the IEL had entrusted any property to the appellants or  

that  the  appellants  had  dominion  over  any  of  the  properties  of  the  IEL,  

which  they  dishonestly  converted  to  their  own  use  so  as  to  satisfy  the  

ingredients of Section 405 of the IPC, punishable under Section 406 IPC.

35.Having come to the conclusion that no  prima facie  case had been made  

out against the appellants in respect of the alleged offences under Sections  

420 and 406 IPC, the question of alleged conspiracy between the appellants  

does  not  arise.   Nevertheless,  in  order  to  bring  home  the  charge  of  

conspiracy within the ambit of Section 120B of the IPC, it is necessary to  

establish that there was an agreement between the appellants for doing an  

unlawful act.  The complaint lacks any such substance.

36.The upshot of the foregoing discussion is that no prima facie case is made  

out against the appellants in respect of alleged offences under Sections 420,  

406 and 120B of the IPC and, in our opinion, it was a fit case where the  

High Court should have exercised its jurisdiction under Section 482 of the  

Code quashing the complaint against the appellants.

14 AIR 1956 SC 575 15 (2006) 6 SCC 736

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37.For the aforegoing reasons, the appeals are allowed; the impugned order  

is set aside and the order of the Magistrate taking cognizance in Complaint  

Case No.2560 of 2003 is quashed.                                                       

.……………………………………J.            (D.K. JAIN)  

                             .…………………………………….J.           (H.L. DATTU)

NEW DELHI; SEPTEMBER 24, 2010

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