Kironkumar Lulla vs State, Rep. By, Inspector Of ... on 17 September, 2009

    IN THE HIGH COURT OF JUDICATURE AT MADRAS

DATED: 17.09.2009

C O R A M

THE HONOURABLE MR.JUSTICE K.MOHAN RAM

Criminal Original Petition No.10765 of 2004

and Crl.M.P.Nos.3649 and 3650 of 2004

1.Kironkumar Lulla

2.Manoj Kumar Lulla

3.Rani Kiran Lulla .. Petitioners

-Vs.-

1.State, Rep. By, Inspector of Police

E.O.W.II, Chennai  2

2.P.Manoharan

3.C.P.Palanisamy

(R-2 & R-3 impleaded as per the order

 of this Court dated 30.08.2004 in

 Crl.M.P.No.9150 of 2004) .. Respondents

Criminal Original Petition filed under Section 482 of the Criminal Procedure
Code to call for the records in C.C.No.17397 of 2003 on the file of the Chief
Metropolitan Magistrate, Egmore, Chennai, and quash the same.

   For Petitioners : Mr. P.R.Raman

  For Respondents : Mr. N.Kumanan,

       Govt. Advocate (Crl. Side), for R-1.

      Mr. R.Marudhachalam, for R-2 & R-3.

- - - - -

O R D E R

 The petitioners herein, who are accused in C.C.No.17397 of 2003 on the file of
the Chief Metropolitan Magistrate, Egmore, Chennai, and who are facing trial for
an alleged offence under Sections 420 read with 34 of the Indian Penal Code,
have filed the above Criminal Original Petition seeking to quash all further
proceedings therein.

 2. The brief facts which are necessary for the disposal of the above Criminal
Original Petition is set out below:-

 The defacto complainant / the second respondent herein and his father were
carrying on business in textiles under different trade names at Pallipalayam,
Erode. It is alleged that accused 1 and 2 approached the complainant and
represented that they are doing export business and fabrics and wanted the
complainant to supply the goods. The complainant supplied fabrics to the accused
and they were very prompt in their dealings in the beginning and thus made the
complainant and his father to take them into confidence. After making the
complainant to part with goods, for which the accused made few payments, the
accused came with a version that they had secured an order for export fabrics of
the value of Rs.1.50 crores and they would be getting another order of the value
of Rs.5 crores on completion of the supply to the value of Rs.1.50 crores. The
complainant, on believing the representation to be true and on the faith that
the accused would make payment as hitherto been done by them for the earlier
purchases of export fabrics, started supplying the materials and by the month of
June 1996, the accused had taken delivery of materials worth Rs.1,41,91,408/- at
their business premises at Door Nos.38 and 39, Whites Road, Royapettah, Chennai
 14 under invoices made in different firm names run by them such as Misty
Apparels Private Limited, Kiron Fashions Private Limited and Kiron Creations
Private Limited.

 3. While so, the complainant came to know that the accused on the same modus
operandi had obtained fabrics from different traders for the value of several
crores and when the complainant contacted the accused, he promised payment as
soon as the goods were delivered to the foreign buyers. But as payments were
delayed and on enquiry the complainant came to know that the accused had sold
the materials obtained by them in the local market for lesser value and no
export was made, the complainant warned the accused with penal consequences if
they fail to make the payments and the accused requested the complainant for
time by stating that they will sell their properties and settle the amounts due
to them, but they failed to keep up their promise. At the end of the year 2000,
the complainant and his father approached the accused in their house and
demanded payments, but, at that time, the accused directed their watchman to
push the complainant and his father out of the house and untied the ferocious
dog. It is further alleged that the second accused threatened the complainant
with the revolver.

 4. On the basis of the aforesaid complaint, a case in Crime No.11 of 2001 was
registered for the alleged offence under Sections 420 read with 34 IPC. After
completing investigation, a charge sheet has been filed for the aforesaid
offence. Being aggrieved by that the above Criminal Original Petition has been
filed by the accused seeking to quash all further proceedings therein.

 5. Heard the learned counsel on either side.

 6. Learned counsel for the petitioners submitted that the second respondent,
P.Manoharan, had filed a counter affidavit in the above Criminal Original
Petition on behalf of the second and third respondents stating that they have
meet the second and third petitioners and amicably settled their disputes and
have entered into a compromise by which they have received a sum of
Rs.10,00,000/- by a demand draft and all the dispute between them have been put
an end to. In the same counter affidavit, he has also stated that in view of the
said settlement reached, the attachment of the immovable property belonging to
the second and third petitioners at No.20, Anderson Road, Thousand Lights,
Chennai  600 004, as per G.O.Ms.No.316 Home (Courts II-A) Department, dated
08.04.2003, may be raised and appropriate orders may be passed in the above
Criminal Original Petition No.10765 of 2004, so that the learned Chief
Metropolitan Magistrate, Egmore, can also allow the compounding of the offence.
But, at the time of hearing, the second respondent, P.Manoharan, denied the very
contents of the counter affidavit and he has filed an affidavit sworn on
07.09.2009 stating as follows:- "7. I submit that we also agreed for receipt of
Rs.1.10 crore as full and final satisfaction because at that time we were in a
position to settle our dues due to our creditors, hence except no other way we
accepted that proposal which was offered by the petitioners. I further submit
that initially they paid Rs.10 lakhs by way of two demand drafts one is in
favour of my father and another in my favour and the petitioners promised us to
settle the remaining amount within three months and believing their words we
accepted those two demand drafts but the petitioners insisted us to sign in
blank stamp papers and other blank papers, and on enquiry they told us that to
withdraw the case they wanted out signatures in blank papers but initially we
refused to sign in blank papers but the petitioners refused to handover those
two demand drafts hence no other way we signed in blank papers stated above and
received those two demand drafts. I further submit that after receiving the said
Rs.10 lakhs from petitioners we settled the same to our creditors.

8. I submit that according to the settlement talk my father and myself
approached the petitioners several times for balance amount of Rs. One crore but
the petitioner prolonged the period without any proper response and the
stipulated period of three months also over but the petitioners activities
changed day by day. I further submit that the act of cheating of the petitioners
and their illtreat activities, my father expired on 05.02.2006 due to heart
syndrome and thereafter I am very much struggling to lead my day to day life as
well as manage the business. Thereafter I approached the petitioners several
times in person for the settlement of balance amount of Rs. One Crore. But the
petitioners refused to see me that too they treated me badly and finally told
that they had already settled entire dues which are liable to pay to me.

9. I hope that I can get proper and appropriate relief before the court of law
since the complaint in C.C.No.17397 of 2004 was pending before the Chief
Metropolitan Magistrate, Egmore, Chennai, and hence I am not taking any further
course of actions against the petitioners for all these days.

10. I submit that while being so the petitioners used to signed papers, which is
obtained from me and my father at the time of settlement, and some how other
managed and filed the counter affidavit and memo as if we prayed before this
Honourable Court to raise the attachment which is made against the petitioners'
properties. I further submit that I do admit that the affidavit found in the
counter affidavit is mine but the contention of the affidavit is not prepared by
me. It is pertinent to note that in the alleged counter affidavit it is clearly
stated that I signed before some of the advocate, but I deny the same and I did
not sign before any advocate on 27.05.2005."

 7. Since the second respondent is disputing the settlement said to have been
arrived at between him and the petitioners and he is also disputing the contents
in the counter affidavit filed before this Court, the same cannot be gone into
in these proceedings. It is for the petitioners to proceed separately against
the second respondent in the manner known to law. Therefore, the above Criminal
Original Petition has to be disposed of on merits.

 8. Learned counsel for the petitioners submitted that pending the above
Criminal Original Petition, the first petitioner has expired. According to the
learned counsel, none of the allegations contained in the complaint disclose any
offence under Section 420 read with 34 IPC. He further submitted that the
transactions in respect of which the offence alleged are business transactions
or commercial transactions and any breach of contract may lead only to a civil
liability but not to any criminal action. According to the learned counsel for
the petitioners, none of the allegations contained in the complaint or in the
statement of witnesses recorded during the course of investigation reveal the
ingredients of the offence under Section 420 IPC. He further submitted that in
the complaint itself the defacto complainant has stated that the petitioners
were very prompt in their dealings in the beginning and therefore submitted that
admittedly the petitioners had no intention at the beginning of the transaction
to cheat the complainant and his father and the very allegations in the
complaint reveal that the petitioners had running account with the defacto
complainant and they had purchased stock worth crores of rupees and they have
paid huge amounts towards the purchases made by them, therefore, the learned
counsel submitted that any subsequent failure to pay the value of the goods
purchased by them will not amount to cheating and therefore submitted that the
charge sheet filed against them is liable to be quashed. Learned counsel for the
petitioners relied upon the following decisions:- (i) (1988) 1 Supreme Court
Cases 692 (MADHAVRAO J.SCINDIA v. SAMBHAJIRAO C. ANGRE). In the said decision,
in paragraph 7, it is laid down as under:-

"7. The legal position is well settled that when a prosecution at the initial
stage is asked to be quashed, the test to be applied by the court is as to
whether the uncontroverted allegations as made prima facie establish the
offence. It is also for the court to take into consideration any special
features which appear in a particular case to consider 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 and where
in the opinion of the court chances of an ultimate conviction is bleak and,
therefore, no useful purpose is likely to be served by allowing a criminal
prosecution to continue, the court may while taking into consideration the
special facts of a case also quash the proceeding even though it may be a
preliminary stage." (ii) AIR 2001 SUPREME COURT 2960 (S.N.Palanitkar v. State of
Bihar). In the said decision, in paragraph 21, it is observed as under:-

"21. It is clear from the allegations made in the complaint and the sworn
statements that the appellant No.1 company entered into an agreement with the
respondent No.2 on certain terms and conditions. It is alleged that the
appellant No.7 went to Patna and contacted respondent No.2 and induced him to
enter into an agreement assuring him of huge profit. At the time of arriving at
such an agreement, none of the other appellant either met the respondent No.2 or
induced him to enter into any agreement with a view to cheat him. The agreement
was further renewed for a period of one year. It is not the case that there was
no supply of goods at all as it has come on record that there was supply of 400
ton of fertilizer, may be it was far less than the required quantity. The
allegations made against the appellants other than the appellant No.7 are very
vague and bald. From the material that was placed before the Magistrate, even
prima facie, it cannot be said that there was conspiracy of connivance between
the other appellants and the appellant No.7. If the appellants have committed
breach of agreement, it is open to respondent No.2 to seek redressal in a
competent Court or forum to recover damages, if permissible in law in case he
had sustained any loss. In order to constitute an offence of cheating, the
intention to decive should be in existence at the time when the inducement was
made. It is necessary to show that a person had fradulent or dishonest intention
at the time of making the promise, to say that he committed an act of cheating.
A mere failure to keep up promise subsequently cannot be presumed as an act
leading to cheating."

 (iii) (2006) 6 Supreme Court Cases 736 (INDIAN OIL CORPN. v. NEPC INDIA LTD.).
In the said decision, in paragraphs 13 and 14, it is laid down as under:-

"13. While on this issue, it is necessary to take notice of a growing tendency
in business circles to convert purely civil disputes into criminal cases. This
is obviously on account of a prevalent impression that civil law remedies are
time consuming and do not adequately protect the interests of lenders /
creditors. Such a tendency is seen in several family disputes also, leading to
irretrievable breakdown of marriages / families. There is also an impression
that if a person could somehow be entangled in a criminal prosecution, there is
a likelihood of imminent settlement. Any effort to settle civil disputes and
claims, which do not involve any criminal offence, by applying pressure through
criminal prosecution should be deprecated and discouraged. In G.Sagar Suri v.
State of U.P. (2000) 2 SCC 636 : 2000 SCC (Cri) 513 this Court observed: (SCC p.
643, para 8) "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"

 14. While no one with a legitimate cause or grievance should be prevented from
seeking remedies available in criminal law, a complainant who initiates or
persists with a prosecution, being fully aware that the criminal proceedings are
unwarranted and his remedy lies only in civil law, should himself be made
accountable, at the end of such misconceived criminal proceedings, in accordance
with law. One positive step that can be taken by the courts, to curb unnecessary
prosecutions and harassment of innocent parties, is to exercise their power
under Section 250 CrPC more frequently, where they discern malice or
frivolousness or ulterior motives on the part of the complainant. Be that as it
may."

 9. (2007) 7 Supreme Court Cases 373 (VIR PRAKASH SHARMA v. ANIL KUMAR AGARWAL).
In the said decision, the Apex Court has referred to a decision reported in
(2000) 4 SCC 168 : 2000 SCC (Cri) 786 (Hridaya Ranjan Prasad Verma v. State of
Bihar) and has observed as under:-

"12. In (2000) 4 SCC 168 (referred to supra) this Court held (SCC pp.176-77,
paras 14-15)

 "14. On a reading of the section it is manifest that in the definition there
are set forth two separate classes of acts which the person deceived may be
induced to do. In the first place he may be induced fradulently or dishonestly
to deliver any property to any person. The second class of acts set forth in the
section is the doing or omitting to do anything which the person deceived would
not do or omit to do if he were not so deceived. In the first class of cases the
inducing must be fradulent or dishonest. In the second class of acts, the
including must be intention but not fradulent or dishonest.

 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". (See also
Indian Oil Corpn. v. NEPC India Ltd. (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188.

 13. The ingredients of Section 420 of the Penal Code are as follows:

 (i) Deception of any persons;

 (ii) Fradulently or dishonestly inducing any person to delivery any property;
or

 (iii) To consent that any person shall retain any property and finally
intentionally inducing that person to do or omit to do anything which he would
not do or omit.

No act of inducement on the part of the appellant has been alleged by the
respondent. No allegation has been made that he had an intention to cheat the
respondent from the very inception."

Learned counsel for the petitioners submitted that no act of inducement on the
part of the petitioners have been alleged by the respondent and no allegation
has been made that the petitioners had an intention to cheat the respondent from
the very inception.

 10. Countering the said submissions, the learned counsel for the second and
third respondents / the defacto complainant and his father, submitted that
though the charge sheet has been filed for the offence under Section 420 read
with 34 IPC, the allegations contained in the complaint do reveal the commission
of offence under Section 406 IPC also. He further submitted that though the
petitioners were prompt in making payments at the beginning of the transaction,
subsequently they made a representation that they got an export order worth
Rs.1.50 crores and once the sale proceeds are realised, the same will be paid to
the defacto complainant and believing such representation to be true, the
defacto complainant supplied the goods and on that account a sum of
Rs.1,41,91,408/- is due from the petitioners, but contrary to the promise the
petitioners had not exported the fabrics supplied by the defacto complainant but
had sold the same in the local market which according to the second respondent
amounts to not only cheating but also to criminal breach of trust. In support of
the said contention, the learned counsel for the second respondent relied upon a
decision of the Apex Court reported in 2009 (1) Crimes 370 (SC) (State of Punjab
v. Pritam Chand and Ors.). In the said decision, in paragraph 4, it is observed
as under:- "4. Section 406 IPC deals with punishment for criminal breach of
trust. In a case under Section 406 the prosecution is required to prove that the
accused was entrusted with property or he had dominion over the property and
that the accused misappropriated or converted the property to his own use or
used or disposed of the property or willfully suffered any person to dispose of
the property dishonestly or in violation of any direction of law prescribing the
mode in which the entrusted property should be dealt with or any legal contract
express or implied which he had entered into relating to carrying out of the
trust". In the aforesaid decision, the Apex Court has referred to a decision
reported in (1999) 3 Supreme Case Cases 259 (Rajesh Bajaj v. State of NCT of
Delhi). In the said decision, the Apex Court has observed as under:-

"It is not necessary that a complainant should verbatim reproduce in the body of
his Complaint all the ingredients of the offence he is alleging. Nor is it
necessary that the complainant should state in so many words that the intention
of the accused was dishonest or fraudulent..... The crux of the prostulate is
the intention of the person who induces the victim of his representation and not
the nature of the transaction which would become decisive in discerning whether
there was commission of offence or not. The complainant has stated in the body
of the Complaint that he was induced to believe that respondent would honour
payment on receipt of invoices, and that the complainant realised later that the
intentions of the respondent were not clear. He also mentioned that respondent
after receiving the goods have sold them to others and still he did not pay the
money. Such averments would prima facie make out a case for investigation by the
authorities."

 11. I have considered the aforesaid submissions made by the learned counsel on
either side and perused the materials available on record.

 12. A reading of the allegations contained in the complaint and in the
statement of L.W.1 and L.W.2 recorded during the course of investigation do not
reveal the ingredients of the offence under Section 406 IPC. Nowhere in the
complaint or in the statement of witnesses it has been stated that the
petitioners with a dishonest intention misappropriated the goods entrusted to
them. A reading of the allegations contained in the complaint and the statement
of L.W.1 and L.W.2 clearly show that the petitioners herein had a running
account with the defacto complainant / the second respondent herein and
admittedly the petitioners were prompt in making payments at the beginning of
the transaction. Thus, it could be seen that at the beginning of the transaction
it could not be said that the petitioners had any dishonest intention to deceive
the defacto complainant which is the main ingredient of the offence (under
Section 420 IPC) of cheating as defined under Section 415 IPC.

 13. A careful reading of the allegations contained in the complaint as well as
in the statement of witnesses only show that in the course of commercial
transaction the defacto complainant had supplied fabrics on several occasions
and the petitioners were also making payments towards such purchases made by
them and ultimately the petitioners paid certain amounts to the defacto
complainant, which amounts were not paid, according to the defacto complainant.
It is also alleged in the complaint that at one stage the petitioners had
represented to the defacto complainant that they had got an export order worth
Rs.1.50 crores and if the fabrics are supplied by the defacto complainant the
sale price will be settled on realisation of the value of the export of the
goods. The further allegation is that contrary to the said representation the
petitioners are said to have sold the goods supplied by the defacto complainant
in the local market instead of exporting them which according to the defacto
complainant amounts to cheating.

 14. L.W.1 in his statement has stated as under:-

"fpuz;Fkhh; Yy;yh. kndh$; Fkhh; Yy;yh. ,uhzp Fkhh; Yy;yh K:tUk; xd;W nrh;e;J
Kjypy; ek;gpf;if Vw;gLk;go tpahghuk; bra;J jpl;l kpl;L bfh";rk; bfh";rkhf
gzghf;fp itj;J Vwj;jhH U:/1/5 nfho kjpg;g[s;s Jzpfis Vw;Wkjp bra;tjhf Vkhw;wp
v';fsplk; th';fpa Jzpfis cs;Sh; khh;f;bfl;oy; tpw;W j';fs; Rayhgj;ij njor;
bfhz;L v';fis nkhro bra;Js;sdh;/////"

 15. L.W.2 in his statement has stated as under:-

"fpuz;Fkhh; Yy;yh. kndh$; Fkhh; Yy;yh. ,uhzp Fkhh; Yy;yh K:tUk; jpl;l kpl;L
Kjypy; ey;ygoahf tpahghuk; bra;J ey;y tpahghhp vd;W v';fis ek;g itj;J. gog;goahf
rhp tu gzk; bfhLf;fhky; U:/1/5 nfho tiu Jzpfis th';fp bfhz;L v';fis. Vkhw;wp
nkhro bra;J tpl;llhh;fs;/////"

 16. The aforesaid statements of L.W.1 and L.W.2 reveal that during the course
of the commercial transaction between the petitioners and the defacto
complainant, the defacto complainant had supplied fabrics and the petitioners
were making certain payments and ultimately a huge amount was due from the
petitioners to the defacto complainant. Whether the above said failure on the
part of the petitioners to pay the amounts towards the purchases of fabrics in
the course of commercial transaction will amount to cheating or criminal breach
of trust has to be considered in the light of the law laid down by the Apex
Court in the various decisions relied upon by the learned counsel for the
petitioners.

 17. As laid down in the decision reported in AIR 2001 SUPREME COURT 2960
(referred to supra) in order to constitute an offence of cheating, the intention
to deceive should be in existence at the time when the inducement was made. It
is necessary to show that a person had fraudulent or dishonest intention at the
time of making the promise to say that he committed an act of cheating. A mere
failure to keep up promise subsequently cannot be presumed as an act leading to
cheating. If, in the light of the above said legal principle laid down by the
Apex Court, the allegations contained in the complaint and in the statement of
witnesses L.W.1 and L.W.2 are considered, it could be seen that admittedly even
as per the allegations contained, the petitioners were prompt in making payments
for the purchases made by them at the beginning and they have committed default
in making the payment for the purchases made by them only during the course of
commercial transaction between them. Thus, it is clear that there is an amount
due between the petitioners and the defacto complainant, the second respondent
herein. If, during the course of commercial transaction, there is any default on
the part of the petitioners in making the payment of the price of the fabrics
supplied by the defacto complainant, it cannot be said that they have committed
an offence of cheating. The allegations contained in the complaint and in the
statement of witnesses, L.W.1 and L.W.2, do not disclose that the petitioners
had an intention to deceive at the time when the commercial transaction
commenced. At best, it could be seen that there was a failure on the part of the
petitioners to keep up the promise subsequently and that cannot be presumed to
be an act leading to cheating.

 18. 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. Therefore,
when there are no allegations either in the complaint or in the statement of
L.W.1 and L.W.2 to show that the petitioners had fraudulent or dishonest
intention at the time of making the promise, it has to be held that the
ingredients of the offence under Section 420 IPC are not made out. Therefore,
the said contention of the learned counsel for the petitioners has to be
accepted.

 19. As far as the contention of the learned counsel for the defacto complainant
/ the second respondent herein that the allegations contained in the complaint
do reveal the ingredients of the offence under Section 406 IPC is concerned, it
has to be pointed out that nowhere in the complaint or in their statements, the
defacto complainant has stated that the petitioners committed breach of trust.

 20. It has to be pointed out that once the goods namely the fabrics are sold by
the defacto complainant to the petitioners, then, the title of the goods passes
to the petitioners and therefore it cannot be said that the title or dominion
over the fabrics supplied by the defacto complainant confirmed to vest with the
defacto complainant. Therefore, the question of entrustment or misappropriation
does not arise in a sale transaction. The facts of the case relied upon by the
learned counsel for the second respondent are totally different from the facts
of the case on hand. Therefore, the contention of the learned counsel for the
second respondent cannot be countenanced.

 21. For the aforesaid reasons, the above Criminal Original Petition is allowed
and all further proceedings in C.C.No.17397 of 2003 on the file of the Chief
Metropolitan Magistrate, Egmore, Chennai, is hereby quashed. Consequently, the
connected Crl.M.Ps are closed.

17.09.2009

Index : Yes / No

Web : Yes / No

srk

To

1.The Inspector of Police, E.O.W.II, Chennai  2

2.The Chief Metropolitan Magistrate, Egmore, Chennai

K.MOHAN RAM, J.,

srk

Crl.O.P.No.10765 of 2004 and

Crl.M.P.Nos.3649 and 3650 of 2004

17.09.2009