IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CRIMINAL MISC.APPLICATION No 422 of 2001 For Approval and Signature: HON'BLE MR.JUSTICE D.P.BUCH ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the concerned : NO Magistrate/Magistrates,Judge/Judges,Tribunal/Tribunals? -------------------------------------------------------------- DCM HYUNDAI LIMITED Versus STATE OF GUJARAT -------------------------------------------------------------- Appearance: 1. Criminal Misc.Application No. 422 of 2001 SINGHI & CO for Petitioner No. 1-8 MR VM PANCHOLI A.P.P for Respondent No. 1 NANAVATI ASSOCIATES for Respondent No. 2 NOTICE SERVED BY DS for Respondent No. 2 -------------------------------------------------------------- CORAM : HON'BLE MR.JUSTICE D.P.BUCH Date of decision: 07/11/2003 JUDGEMENT This is a petition under section 482 of the Criminal Procedure Code, 1973, (for short, 'the Code') for quashing a complaint being criminal case No.360 of 2000 filed by respondent no.2, herein, against the petitioners for an offence punishable under section 420 read with section 114 of IPC. The said complaint has been placed at page no.27 at Annexure 'B' to the petition. The second respondent has been shown as the complainant and the petitioners herein have been shown as accused persons in the said complaint. There it has been alleged that the complainant being the second respondent herein is a Body Corporate carrying on business as manufacturer of various Hot Rolled Coils/sheets/plates etc. at its workplace at Hazira, in District Surat of Gujarat State. That it has its registered office at the same place. The second respondent has also alleged in the complaint that the first petitioner is a limited company and other petitioners are responsible officers and Directors of the said company. In order to appreciate the said contentions, both factual and legal, it would be appropriate to reproduce paras 3 to 8 hereinbelow: "(3). The accused no.1 is a limited company carrying on business at the address mentioned in the cause title. Accused no.2 is a Chairman. Accused no.3 is a Managing Director, accused no.4 is Whole-time Director and accused nos. 5, 6, 7 and 8 are Directors of accused no.1-company. They all are/were at all relevant time in-charge or responsible to the company for conduct of its business and as such all of them are liable to be convicted and for punished for aforesaid offence on following main grounds. (4) The accused persons against various Bills of Exchange purchased Hot Rolled Coils/sheets/plates from the complainant company at Hazira District Surat and the accused persons have accepted for payment, those Bills of Exchange each of 90 days, drawn by the complainant and the accused have received the required materials with invoices thereof during the period from February 1997 to December, 1997. (5) While purchasing the materials from the complainant, accused persons had promised to make its payment on due date of Bills of Exchange and thereby the accused had induced the complainant company to supply to them, the required materials and accordingly the complainant actually supplied to them the required materials and invoices thereof and having received the materials, accused did not make its payment and without any valid reason, Bankers of the accused dishonoured, the Bills of Exchange which were sent to them for payment by Allahabad Bank, Nanpura Bank, Surat, as Banker of the complainant. (6) The complainant company keeps Books of Account in regular course or business and as per books of accounts of the complainant, balance outstanding against the accused persons is of Rs.72,92,906.34 paise plus over due interest @ 24% per annum from 1.1.1998 to 31.10.2000 which comes to Rs.71,95,577.97 ps. So, total outstanding against the accused comes to Rs.1,44,88,483.31 ps. The accused persons have confirmed the balance of Rs.61,45,885.31 ps. on 30.10.1998 in writing as payable to the complainant. Even then the accused persons have not paid even that much amount. (7) The complainant have written various letters to the accused persons and had demanded their dues but the accused persons did not pay it and went before the Board of Industrial and Financial Reconstruction, New Delhi by lodging case no.151/98. The complainant has got noted their claim before the said Board and has requested the Board to join them as a party. (8) Above conduct of the accused persons in inducing the complainant company to deliver to them required materials on the strength of false promises of making payment on due dates and in accepting for payment on due dates, various Bills of Exchange and after receipt of the materials backing out from their promises and in dishonouring the Bills of Exchange through their Bankers without any valid reason, clearly indicate that right from inception the accused had no intention to fulfil their promises and to pay aforesaid dues of the complainant even then they obtained valuable materials from the complainant by fraudulent means and thereby all the accused persons in abatement of each other have cheated the complainant and thereby they have committed an offence punishable under section 420-114 of Indian Penal Code." 2. Therefore, according to the allegations made in the complaint, the second respondent was induced to part with the goods stated in the complaint on a promise of payment of the value thereof and since the second respondent was induced as aforesaid by the petitioners herein, the second respondent parted with the goods stated in the complaint and thereafter the payment was not made and, therefore, according to the case of the second respondent, the second respondent was cheated jointly by the petitioners herein and thereby the petitioners are said to have committed an offence punishable under section 420 and read with section 114 of IPC. On receiving the said complaint, process of summons appears to have been issued by the learned Judicial Magistrate First Class at Surat. The petitioners - original accused persons have produced on record copies of summons at Annexure 'C' (colly.). 3. The petitioners-original accused persons in the aforesaid criminal complaints have come forward with this petition under section 482 of the said Code stating that no offence has been made out on a bare reading of the said complaint that there is only a civil dispute and no elements or ingredient of criminality has been shown in the complaint. That it is simply a contract of sale and purchase of goods on credit wherein even if it is accepted that the goods were delivered on credit by the second respondent to the petitioners and that the petitioners failed in paying the value of the said goods, then also it may amount to non-payment of goods received and consequently it would not amount to an offence of cheating. It is also contended that there is no element of inducement in the complaint but there is a case of genuine sale and purchase between the parties. Therefore, the question of inducement does not arise and consequently it would not be an offence of cheating. It is further contended that for the purpose of committing an offence of cheating, it is always necessary that there is dishonest intention on the part of the accused person right from the inception. That in the present case, the parties were at contract for sale and purchase of goods. Some goods were delivered to the petitioners on credit and thereafter, payments were made. However, at subsequent stage, because of the adverse financial condition of the petitioners, payments could not be made and, therefore mere non-payment in respect of the goods purchased on credit and received by the petitioner company would not amount to an offence of cheating. That there would also be a matter of civil dispute between the parties without any element of criminality. It is further contended that the second respondent had supplied goods to the petitioners valued at more than Rs. 4 crores during the year 1995-97, in ordinary course of business and had raised various invoices on the first petitioner for the supplies so made. However, the first petitioner, against the said supplies made by the second respondent, had paid on various dates, a total amount of more than Rs. 3,00,50,000 to the second respondent. That these dealings make it clear that the petitioners did not possess fraudulent intention at any point of time. That on account of adverse financial condition the first petitioner was required to file an application before the Board of Industrial and Financial Reconstruction (for short, 'the BIFR') under the Sick Industrial Companies (Special Provisions) Act, 1985. That the said revision was registered as Case No.151/98 and that since the BIFR was satisfied with the net worth of the first petitioner company it has declared the first petitioner company as a sick industrial company under the provisions of Section No.3(i) of the said Act and appointed Industrial Finance Corporation of India Limited which has been named as IFCI limited as he operating agency under section 17(3) of the said Act for formulating and considering the viability of rehabilitation scheme and to suggest measures for reconstructing the first petitioner company. That the learned Judicial Magistrate did not apply his mind to the facts and circumstances of the case and has straight way issued process mechanically on the complaint. That in that view of the matter, the complaint also suffers from infirmity of non-application of mind. That on the one hand there may be civil dispute between the parties, on the other hand, mere non-payment of the value of the goods purchased on credit may amount to criminal offence. Thirdly, it is contended that there is no case of fraudulent or dishonest inducement. That there is also no element of cheating on the part of the petitioners and, therefore, no offence is made out even on a bare reading of the complaint in question. In above view of the matter, the petitioners have come with this petition under section 482 of the said Code for quashing the said complaint being criminal complaint No.360 of 2000 pending before the learned Judicial Magistrate First Class, Surat. 4. It seems that urgent notice as to show cause was issued on 22.1.2001 at the first instance and rule was issued by consent on 4.4.2003. In response to the service of notice of rule, Mr S J Dave, learned APP appeared on behalf of the state whereas Mr K S Nanavati, learned Senior Advocate appearing for M/s. Nanavati Associates has appeared on behalf of respondent No.2 the original complainant. 5. I have heard Mr N D Nanavati, learned Sr.Counsel appearing for Singhi & Co. for the petitioners, Mr V M Pancholi, learned APP for the State and Mr K S Nanavati, learned Sr.Advocate for M/s. Nanavati Associates for respondent No. 2 original complainant. Incidentally, they have taken me through the complaint and other materials on record. 6. Learned Sr.Advocate appearin for the petitioners has argued at length that there being civil disputes for non-payment of goods said to have been supplied by the second respondent to the petitioners and there being no element or ingredient of criminal offence, the trial court ought not to have issued process on registration of the complaint of the second respondent. On the other hand, Mr K S Nanavati, learned Sr. Advocate appearing for the contesting respondent has argued at length that thee was a clear case of inducement and dishonest intention on the part of the petitioner and, therefore, the trial court was justified in issuing process against the petitioners. 7. From the complaint of the contesting respondent as well as from the oral arguments of M/s.Nanavati Associates following points emerge: (1) The first petitioner is a limited Company and the remaining petitioners are the Directors thereof. The second respondent is also a limited Company. (2) The second respondent has supplied certain goods on credit to the first petitioner Company and as per the case of second respondent an amount of Rs.72,92,905.34/shown as outstanding in the said account. Interest at the rate of 24% has been calculated by the second respondent. (3) As per the case of the second respondent, the petitioners have confirmed the balance of Rs. 61,45,885.31/- as on 30th October 1998. (4) The goods in question was received by petitioner no.1 and there is no dispute about the quality and quantity thereof. (5) The petitioners have not paid the balance due to the contesting respondent. (6) The petitioners feel that they are financially weak and therefore, have made a reference under Section 15 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, "the Act") for determining of measures under the said Act before the Board of Industrial and Financial Reconstruction and it has been registered there as Case No. 161 of 1998. (7) The contesting respondent has made efforts to get the amount back and the said respondent was unsuccessful in getting the money being the value of goods from the petitioners. (8) Therefore, the second respondent filed the aforesaid complaint against the petitioners for an offence punishable under section 420 of IPC and the trial Court directed to issue process of summons against the petitioners. 8. The above aspects have not been seriously disputed even during the course of arguments advanced by the Learned Advocates for the parties. 9. As said above, the learned Sr.Advocate for the petitioners has argued that there was a business contract between the parties and in connection with the said contract, the petitioners have purchased some goods from the second respondent on credit and the petitioners could not pay the full value thereof, on account of financial constraints and, therefore, there is, at the best, a civil dispute between the two parties without involving any criminal element. That, therefore, there is no case of any sort of criminal ingredient including inducement and dishonest intention on the part of the petitioners. That, therefore, the Trial Court has over looked this aspect while issuing process of summons against the petitioners. Therefore, the process issued by the Trial Court is required to be quashed. 10. On the other hand the learned Sr.Advocate for the contesting respondent has argued at length that the complaint clearly contains allegations of criminal mind on the part of the petitioners. That, even in the complaint itself it has been alleged that the petitioners had induced the second respondent to part with the goods of huge amount and yet the petitioners did not pay the amount being the value of the said goods received on credit from the second respondent. That there was initial dishonest intention on the part of the petitioners and, therefore, the offence punishable under Section 420 of IPC is prima-facie made out against the petitioners even on a bare reading of the complaint. 11. In support of their rival contentions the learned advocates for the parties have referred to certain decisions. (1) In Smt. Chitra Nandlal v. Bachubhai Chhaganlal & Ors. reported in 1980 Gujarat Law Times 103 it has been observed that the Courts should closely scrutinize the evidence and materials before taking cognizance of an offence. (2) In Hari Prasad Chamaria v. Bishun KUmar Surekha and Others reported in AIR 1974 Supreme Court 301, the facts were little different. The appellants intended to start business and, therefore, needed a large amount which was parted by the appellant, for the said purpose. The respondent started business in their own names. There was nothing to show that the respondent had dishonest or fraudulent intention at the time when the appellant parted with money nor was it shown that the appellant was induced by the respondent. There was no allegation that the respondent made some representation to the appellant at the time when the money was parted with. There it was observed by the Hon'ble Supreme Court that there was no criminal liability on the part of the accused persons. (3) In Ashok Chaturvedi and Others v. Shitul H. Chanchani and Another reported in 1998 Vol. (94) Company Cases P. 401 the complaint was made against the officer of a public company with respect to cheating in respect of transfer of shares. There were allegations about forged and fabricated signatures. The petition was quite different and the ingredients of offence were not made out against the accused person. (4) In the State of Haryana v. Brij Lal Mittal and Others reported in 1998 Company Cases 329 it has been observed that the Directors must be shown to be incharge and responsible to a Company for its business under Section 31 (1) of the Drugs and Cosmetics Act, 1940. (5) In Gopi Shanker v. State of Gujarat reported in 271 (1) GLR 267 the matter related to an offence under the Prevention of Food Adulteration Act, 1954. The Company had nominated one particular Director under Section 17 (2) of the said Act. There it was observed that other Directors were not required to be prosecuted unless it is shown that there was consent or connivance on their part. (6) In State of Haryana v. Bhajan Lal reported in 1992 SC 604 certain guidelines were issued by the Hon'ble the Supreme Court. The learned Sr.Advocate for the petitioners has relied upon Guideline No.5 which may be reproduced for ready reference as follows: "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. (7) In Tarun K. Shah v. C.R. Alimchandani and Others reported in (2001) 9 SCC 728 it has been observed that when allegations have been made in the complaint that all the three accused persons were involved in forgery then it would not be necessary that there should be separate allegation against accused no. 2. In that case a complaint cannot be quashed under Section 482 of the said Code. (8) In Medchl Chemicals & Pharma (P) Ltd reported in (2003) 3 Supreme Court Cases 269 it has been observed that simply because a transaction is a criminal transaction, it cannot be said that it would not involve any offence of cheating or misappropriation. It has also been observed that the Court has to consider as to whether on fact situation, civic profile outweighs criminal outfit or whether it is vice-versa. (9) In Mahavir Prashad Gupta and Another v. State of National Capital Territory of Delhi and Others reported in (2000) 8 SCC 115 the facts were like this: "9.1 Goods was entrusted to accused transporter, lorry receipt was issued. However, the goods was not delivered at the destination as per the contract and as per the lorry receipt. There was an allegation in the complaint about criminal breach of trust. In that case it was observed that the police was required to investigate the FIR and therefore, such FIR could not be quashed under Section 482 of the said Code." (10) In Lalmuni Devi v. State of Bihar reported in (2001) 2 SCC 17 it has been observed that merely because there was a civil wrong, the complaint cannot be quashed under Section 482 of the said Code. (11) In Rajesh Bajaj v. State NCT of Delhi and Others reported in (1999) 3 Supreme Court Cases 259 it has been observed that if an offence is prima-facie made out then the complaint cannot be quashed under Section 482 of the said Code on the ground that there is a commercial dealing between the parties. 12. So far the decision in AIR 1992 Supreme Court Cases 604 (supra) is concerned the learned Sr.Advocate for the contesting respondent has also relied upon an observation made therein as follows: "Where allegations in the complaint did constitute a cognizable offence justifying registration of a case and investigation thereon and did not fall in any of the categories of cases enumerated above, calling for exercise of extraordinary powers or inherent powers, quashing of FIR was not justified". 13. On the strength of the aforesaid citations the learned Sr.Advocate for the petitioners has again argued that there is a simple civil dispute arising out of a civil and commercial contractual transaction. That, it is a simple case of delivery of goods on credit and non payment of value thereof. That in that case it may be open to the contesting respondent to file a civil suit for the recovery of the value of the goods said to have been supplied by the second respondent to the petitioners. That, however, it is not open to such a party to go for a criminal litigation since there is no criminality. There is no inducement. There is no dishonest intention on the part of the petitioners. That there is a simple case of inability to pay the value of goods on account of financial constraints. That, therefore, the complaint is required to be quashed on a simple ground that there is a simple civil dispute of non payment of value of goods, on account of inability to pay the same because of financial constraints on the part of the petitioners. 14. Now, so far the ingredients of the complaint are concerned, it is required to be considered that the relevant allegations of the complaint have been reproduced hereinabove for ready reference. It is required to be considered that in para 3 of the complaint, it has been specifically alleged that the first petitioner is a limited Company. That accused no.2 is the Chairman, accused no.3 is the Managing Director, accused no.4 is the whole time Director and accused Nos.5 to 8 are the Directors of petitioner no.1 and that they were all, at all relevant time, incharge or responsible to the Company for the conduct of its business and as such all of them are liable to be convicted and punished for the aforesaid offence on the grounds stated in the complaint. 15. It is, therefore, clear that the involvement of all the petitioners in the commission of offence has been alleged in the complaint. Therefore, it cannot be said that petitioner no. 2 onwards are simply the Directors and, therefore, no offence can be said to have been made out against them. When allegations have been made that these are all the Directors who are incharge or responsible to the Company for the conduct of its business, then in that case, it has to be accepted that allegations have been made in the complaint regarding the involvement of all the petitioners in the commission of the offence in question. 16. Now, whether or not they are or they were really in charge or responsible to the company for the conduct of its business, is a question of fact, which can be dealt with and decided by the trial Court on appreciation of evidence which may be produced before it at the stage at which the trial may proceed. At present, we are not concerned as to whether the allegations are correct and genuine. We cannot decide, at this stage, the truthfulness of the allegations made in the complaint. While considering an application for quashing a complaint under Section 482 of the said Code, the only requirement is to ascertain as to whether the allegations made in the complaint, if stand uncontroverted, would lead to some offence. Applying the said ratio to the facts in hand, it would be quite clear that there are allegations against the petitioners regarding their involvement in the complaint and, therefore, the second respondent has to be given an opportunity to proceed ahead with the complaint and to prove the allegations made in para 3 of the complaint. It may be that the second respondent may be able to prove the said allegations qua the petitioners. The second respondent may not be able to prove the said allegations against petitioner no.2 and onwards. The second respondent may be