IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD WEDNESDAY, THE EIGHTEENTH DAY OF NOVEMBER TWO THOUSAND AND NINE PRESENT THE HON'BLE SRI JUSTICE P.SWAROOP REDDY CRIMINAL PETITION NO : 1495 of 2009 Between: 1 M/s. Vedanta Aluminium Limited, SIPCOT Industrial Complex, Madurai By pass Road, TV Puram, PO Tuticorin -628002, Tamil Nadu, Rep by its Authorized Signatory Mr.Somashis Mohapatra, S/o. Sisir Kumar Mohapatra. 2 Mr. Anil Agarwal, S/o. Dwarka Prasad Agarwal, Vedanta Aluminium Ltd., Vedanta 75, Nehru Road, Vileparle (E) , Mumbai. 3 Mr. Navin Agarwal, S/o. Dwarka Prasad Agarwal, Vedanta Aluminium Ltd., Vedanta 75, Nehru Road, Vileparle (E) , Mumbai. 4 Mr.Venkat , S/o. Shri JLK Prasad, 232, Solitair Corporate Park, Andheri Ghatkopar, Link Road, Chakala Andheri(E), Mumbai -400 093. 5 Mr.Sudheer Kumar Agarwal, S/o. Shri Laxmi Chand Agarwal, 232, Solitair Corporate Park, Andheri Ghatkopar, Link Road, Chakala Andheri(E), Mumbai -400 093. 6 Mr.Mukesh Kumar, S/o. Shri Laxmi Chand Agarwal, 232, Solitair Corporate Park, Andheri Ghatkopar, Link Road, Chakala Andheri(E), Mumbai -400 093. 7 Mr. R.K. Singh, S/o. Shri Laxmi Chand Agarwal, 232, Solitair Corporate Park, Andheri Ghatkopar, Link Road, Chakala Andheri(E), Mumbai -400 093. 8 Mr. Vikas Makharia, S/o. Late Arun Kumar Makharia, 232, Solitair Corporate Park, Andheri Ghatkopar, Link Road, Chakala Andheri(E), Mumbai -400 093. 9 Mr. Saroj Padhi, S/o. Dr.Sasi Bhushan Padhi, 232, Solitair Corporate Park, Andheri Ghatkopar, Link Road, Chakala Andheri(E), Mumbai -400 093. ..... PETITIONER(S) AND 1 State of Andhra Pradesh, rep by its Public Prosecutor, High Court of Andhra Pradesh, Hyderabad. 2 M/s. Maytas Infra Limited, registered office at 6-3-1186/5/A, III Floor Amogh Plaza begumpet, Hyderabad Rep by its Dy. Manger (Legal) Mr.Y.Tagore S/o. Y.Narasimham .....RESPONDENT(S) Petition under Section 482 of Crl.P.C praying that in the circumstances stated in the grounds filed therewith, the High Court will be pleased to quash all further proceedings including the complaint in Crime No.195/2009 of P.S.Punjagutta, Hyderabad. The Petition coming on for hearing, upon perusing the Petition and the grounds filed in support thereof and upon hearing the arguments of Mr.SURENDER, Advocate for the Petitioner and of the Public Prosecutor, on behalf of the Respondent. The Court made the following: ORDER PSR, J. Crl.P.No. 1495 of 2009 O r d e r: This petition is filed by the accused in Cr.No. 195 of 2009 of Panjagutta Police Station, Hyderabad. The complainant is the second respondent - M/s. Maytas Infra Limited. 2. (a) A private complaint was filed by the second respondent herein before XIV Additional Chief Metropolitan Magistrate, Hyderabad, which was referred to the police under section 156 (3) Cr.P.C. (b) The contention of the complainant is that the present – A-1 is M/s. Vedanta Alluminum Limited; A-2 is the Chairman; A-3 is the Vice-Chairman; A-4 is the Chief Finance Officer; A-5 is the Vice President; A-6 is the General Manager (Projects); A-7 is the Vice President (Power); A-8 is the Assistant General Manager (Commercial) and A-9 is the Officer in A-1 project and all these are in- charge and responsible for the works of Aluminum Smelter and Captive Power Plant of Jharsuguda in Orissa State. All the accused have conspired to commit the offences of criminal misappropriation; criminal breach of trust and cheating for causing wrongful loss to the complainant and to have wrongful gain for themselves. In pursuance of the same A-1 induced the complainant to take up the construction of township near VAL Project at Jharsuguda, Orissa State. Prior to November, 1997, A-2 to A-9 had meetings at the office of the complainant at Begumpet, Hyderabad, with the complainant, through one Anand Jevalkar and Rama Subramanyam for construction of the township at a cost of Rs.232.00 Crores. The accused have represented that the contract will be on the basis of Engineering, Procurement and Construction and the time schedule for completion of the project was eighteen months. The accused also represented that the complainant will be provided with mobilization advance of Rs.23,26,89,105.00 i.e., 10% of the contract value against the bank guarantee to be furnished by the complainant; that amount would be adjusted against the bills to be raised by the complainant and accordingly bank guarantee was issued by the bankers of the complainant – Axis Bank, Hyderabad on 09.05.2008 valid till 18-11- 2009 with a claim period of further six months. Another bank guarantee was also submitted against performance of the contract issued by the ICICI Bank, Hyderabad which was valid till January, 2001, with a claim period till 2010. Later, the accused informed that there was change in the location of the site for the township and other infrastructure development and the new site was yet to be identified. On 20.3.2008 the accused issued work order signed by A-9 which superseded the earlier MOU and further amended on 3.5.2008 contemplating completion of the project in two phases – first phase in twelve months and the second phase in eighteen months. The accused with a dis-honest intention and criminal conspiracy en-cashed the bank guarantees against the specific mode of discharge of the trust by misrepresenting and by converting the amount for its own use. c) Thus the grievance of the complainant is that the accused have encashed the bank guarantees against the terms of contract. (d) On reference from the Court, the said complaint was registered as Cr.No. 195 of 2009 at Police Station, Panjagutta, Hyderabad and investigation was taken up. Thereafter the present petition is filed. 3) (a) The contention of the petitioners-accused is that the MOU was entered on 01-11-2007 for the execution of the contract; the work order was signed on 20.3.2008 and the delay in execution of contract was on account of change in the site which was uneven and needed leveling work to be done. The petitioners deliberately kept the drawings with them and handed over only in the month of September, 2008. The first petitioner had by open tender invited offers for construction of a township in its premises at Jharsuguda. The complainant submitted the offer on 13.8.2007 for undertaking the job of construction of township. The complainant represented to the first petitioner that it has the technical expertise, experience, manpower and monetory resources to undertake large scale construction contracts and undertake turnkey projects and provide world class quality civil construction. On the basis of various representations of the complainant and after discussions the work was awarded by the petitioners to the complainant vide order dated:20.3.2008. The complainant was required to execute the work within the time limit prescribed therein at fixed price. The performance of the complainant in executing the work was to be regularly reviewed and certified by the Engineer-in-Chief of the first petitioner and contract price for execution of the contract was to be paid based on achieving the various mile stones provided in the work order. The contract became effective from the date of handing over of master plan and first construction drawings to the contractor. The project was to be completed within eighteen months. 10% of the value of the contract was to be given as advance against bank guarantee and the contractor was also to give performance bank guarantee equivalent to 10% of the contract price. There was a provision for liquidated damages also in case of delay in completion of the work. The liquidated damages were to be deducted from any payment due or becoming due to the complainant or by encashing the bank guarantee. The petitioners were also entitled to terminate the work by giving seven days notice at the risk and cost of the complainant and was entitled to receive all the excess amount paid to the contractor. The master-plan and first construction drawing was handed over to the complainant on 4-4-2008 and 25-4-2008 respectively in terms of the work-order. The complainant received a sum of Rs.23,26,89.105.00 vide Demand Draft dated: 27.5.2008 as an advance against furnishing bank guarantee for the same amount. The complainant also submitted performance guarantee for similar amount. Both the bank guarantees were unconditional which gave right to the petitioners to invoke the same and for the bank to make payment for the same without demur or protest. In terms of the work- order the petitioner had right to deduct the liquidated damages from any amount due or becoming due; or by encashing any of the bank guarantees and on termination of the work order the petitioners are entitled to get the work completed at the risk and cost of the complainant. b) The petitioners vide communications dated: 4-6-2008; 8.7.2008; 19.7.2008; 24.7.2008; 20.08.2008; 23.09.2008; 27.09.2008 and 6.10.2008 had pointed out the tardy work progress and poor quality of construction by the complainant, which according to the petitioners was blatant breach of the contractual obligations by the complainant. The petitioners vide letters dated:3.11.2008 and 8.12.2008 pointed out various breaches committed by the complainant in total disregard to the completion schedule and other obligations under the contract. The complainant utterly failed to perform its obligations under the work order and had even failed to make payments to its sub-contractors, its workers and its vendors engaged for execution of the work-order, which besides delaying in vital township project of the petitioners, critical for its employees and also created serious law-and-order situation at the project due to non- payment of money to its local sub-contractors, workers and vendors. Under the above circumstances, the petitioners, in order to protect, themselves, their liabilities arising out of the breaches committed by the complainant and in order to secure the payments to sub- contractors, workers and vendors engaged by the complainant invoked the advance bank guarantee on 15.1.2009. Later, both reached at an under-standing to arrive at a full and final settlement of all the issues arising under the contract for the township project upto 16-1-2009, as per which within fifteen days from that date payments will be finalized and the complainant will not prefer any further claim; the complainant will forward certified list of outstanding dues to each of its vendors, labour sub-contractors upto 16.1.2009. But, the complainant instead of implementing the settlement disputed the understanding and the minutes of the settlement signed on 17.1.2009 and made reckless allegations against the first respondent. On 6.3.2009 the petitioners invoked arbitration proceedings. The main contention of the petitioners is that it was absolutely civil transaction and the civil disputes were subject to arbitration and the arbitration already commenced, there is no case for any criminal action. The bank guarantees were invoked as per the terms of the contract and continuation of the criminal proceedings is abuse of process of law. 4. The learned senior counsel, Sri Soli Sorabjee, appearing for the petitioners contends that there is absolutely no material for initiating criminal action; the transaction is purely civil in nature; as such the proceedings have to be quashed. 5. The learned Senior Counsel, Sri D. Prakash Reddy appearing for the complainant contends that merely because the subject matter arises out of a contractual obligation, it cannot be said that no criminal element is involved. The learned Senior counsel further contends that as held by the Hon’ble Supreme Court in Trisuns Chemical Industry v. Rajesh Agarwal[1] many cheatings are committed in commercial and money transactions. 6. Now the point for consideration is whether there are any grounds for allowing the petition. 7. Most of the facts – there being a contract between the two parties for development of a town ship for the petitioners at Jharsuguda in Orissa State; the parties entering into an agreement; there being a contract for development; payment of advance of Rs.23,26.891.05 for which bank guarantee was to be furnished and, which, in fact, was furnished and further performance bank guarantee was given for 10% of the total contract amount and both the guarantees were invoked are not in dispute. 8. The main question is whether invocation of bank guarantees, under the circumstances, amounts to criminal breach of trust or cheating or any other offence. 9. (a) In Paragraph (4) of the complaint, it is stated that the petitioners represented that the complainant will be provided with mobilisation advance of Rs.23,26,89,105.00 i.e., 10% of the contract value against bank guarantee, which can be adjusted against the bills to be raised by the complainant from time to time, during the progress of the work of the project. It was also agreed that the complainant has to furnish performance bank guarantee equivalent to 10% of the contract cost i.e., Rs.23,26,89,105.00, which shall be invoked only when there was substantial failure of performance of the contract on the part of the complainant. Basing on the above said representation the complainant agreed to take up the project. The bank guarantees have to be invoked only in the event of the complainant’s failure to perform within the defect liability period after completion of the contract. b) In paragraph-5 of the complaint, it is stated that the complainant was later informed that there would be change in the location of the site of the township and other infrastructure development; new site was yet to be identified and the complainant agreed for the conditions mentioned in MOU basing on the site shown and other terms represented by the petitioners. c) As per paragraph-6 of the complaint, on 20.3.2008 the accused issued work order duly signed by A-9; that was further amended on 3.5.2008 in which it was mentioned that the schedule for completion of the work would be in two phases - first phase by the end of twelve months and the second phase by eighteen months to be effective from the date of issuance of the work order. It is alleged that the accused in furtherance of their criminal intention did not provide any drawings to the complainant for commencement of work at the site, after retaining the plans and drawings submitted by the complainant. In accordance with the contractual terms, the accused deliberately kept the plans and drawings with them for long time and thereafter informed the complainant that the drawings would be provided by their consultant thereby changing the minutes of the Contract. The drawings were handed over to the complainant only on 23.9.2008. As such the project completion date was valid till 23.3.2010. Excavation work started in accordance with the Master plan in the changed site that was handed over only on 27.3.2008. d) As per paragraph-7 of the complaint, at that stage, the accused informed the complainant that Master plan elevation and detailed engineering drawings would be worked out by their consultants and will be handed over to the complainant. These were the defaults deliberately made by the accused in furtherance of their criminal conspiracy and the same was pointed out by the complainant which were reduced into minutes in a meeting held on 27/28-3-2008. Later estimates were prepared by the complainant basing on the land shown. Subsequent change of site to another location required extensive leveling work. There was also change in the cost of construction due to delay on the part of the accused, which was also informed to the accused by the complainant vide letter dated:7.5.2008. The accused, in spite of repeated requests of the complainant, to have an understanding as to the escalation of price in the contract, in the changed circumstances, went on postponing the same. e) In paragraph-8 of the complaint, it is stated that only in the month of September, 2008, the accused gave drawings to the complainant and after commencement of the construction activity in accordance with the drawings supplied by the accused, the accused wanted revision in the contract. The accused deliberately defaulted in handing over the project site and finalization of drawings knowing fully well that in the approaching monsoon season it would be difficult to carry out the works at the project site, especially in view of the geographical features of the site. On account of monsoon, there were excessive rains and floods during July to September, 2008 and in view of the same progress of the works and other activities were affected. Even otherwise, as per the revised work order, the first phase of the work was to be completed by September, 2009. f) As per paragraph-9 of the complaint, the accused who conspired to induce the complainant to furnish the bank guarantee and to knock away the said bank guarantee, from the beginning created hurdles in the execution of the contract and at no point of time, the accused were bona fidely interested in execution of the project. g) In paragraph-11 of the complaint, it is further stated that the accused in furtherance of their criminal conspiracy started blaming game in order to misappropriate the amounts entrusted by the complainant by way of the two bank guarantees and started complaining that progress of the work was not in accordance with the schedule; in spite of the fact that the same is due to deliberate and willful default on their part. Finally on 17.1.2009 in pursuance of their criminal conspiracy the accused, Manager and representative of the complainant stationed at the work site were illegally confined and coerced to sign on a document “Full and Final of M/s.Maytas Infra Ltd., Contractor Vedanta Township, Jharsuguda” under which it was recorded as if there was a mutual agreement towards full and final settlement in relation to the above said project. Sri V. Chandra Sekhar, who signed the above document was not at all authorized, he was only a Manager, taking care of the execution of the work. On coming to know about the above said letter, the complainant, on 20.1.2009 addressed a letter to the accused informing that the document dated:17.1.2009 is obtained by putting the complainant’s manager under duress and coercion and that document was not acceptable to the complainant. The complainant also lodged a FIR before the local police against the illegal confinement etc. h) In paragraph-12 of the complaint, it is stated that the conspiracy to knock away the amounts of the complainant by committing criminal breach of trust, is evident from the fact that by letter dated:12.1.2009 the accused requested the complainant to give a detailed plan of action for achieving the targets of the township project etc., within seven days; the complainant by its letter dated:16.1.2009 replied the same and the accused by letter dated:14.1.2009 addressed to the Axis Bank invoked the bank guarantee furnished by the complainant without even waiting for the response from the complainant to their letter dated:12.1.2009. The accused also gave a letter to ICICI Bank and invoked the performance bank guarantee given by the complainant which, according to the specific understanding between the complainant and the accused, has to be invoked only in the event of failure to perform the contract by the complainant. i) As per paragraph-14 of the complaint, the accused in pursuance of the criminal conspiracy after inducing the complainant to part away with the amount by way of entrustment of the amounts, with a dishonest intention encashed the bank guarantees contrary to the mode of discharge of the trust in which said bank guarantees were furnished by the complainant and misappropriated the same by converting the same to the own use of the accused. 10) Thus, in the above circumstances, the question is whether encashment of the bank guarantee would amount to criminal breach of trust or any other offence. 11) The learned senior counsel, Sri D.Prakash Reddy, appearing for the complainant relying on the decision in Trisuns Chemical Industry (1 above) contends that the offence alleged is constituted; in spite of there being Arbitration clause there is no impediment in criminal proceedings continuing. The facts in the above case are - the accused offered to supply good quality Toasted Soyabean Extractions” at certain price and on supply, it was found that the goods supplied were of far inferior quality, on account of which the complainant sustained substantial loss. In such circumstances, it was held that though that was a commercial transaction, criminal action is maintainable. The facts in the present case are completely different. 12. In this case, as already referred most of the facts are not in dispute. One of the bank guarantees was for the security for the advance paid and another bank guarantee equivalent to the 10% of the amount was towards performance guarantee. As far as the first bank guarantee towards security for the advance paid, is concerned, perhaps, there cannot be any doubt all, that no offence would be constituted; as what was paid by the accused to the complainant only was recovered. If there is material to show that in spite of the complainant completing substantial part of the work, the entire bank guarantee was invoked, there might be scope for complaint. But, there is no material to know as to what exactly was the quantity of work completed and what was the amount due towards part of that work completed. 13. As far as the performance bank guarantee is concerned, undisputedly, there were disputes with regard to the quality of work; schedule of work and there were exchange of communications. Even according to the complaint, as already referred, as per paragraph-8 of the complaint, for various reasons, there was delay in execution of the work. There was delay in handing over the drawings and on account of monsoon there was hindrance for progress of the work. There is correspondence between the parties to show that there were allegations and counter allegations and there was, undisputedly, delay in completion of the work. Thus, it is not a case where there was no commencement of the work, but, undisputedly, there was delay and the work was not going on, as per the schedule. The contentions of the complainant that the second bank guarantee given as performance bank guarantee could have been invoked only after the completion period of the contract, cannot be accepted, as it was un-conditional bank guarantee and there was undisputedly delay in the progress of work and there was obviously no possibility of completion of the work, as per schedule though according to the complainant, the delay was on account of the laches on the part of the petitioners/ accused, in changing the site, delay in handing over drawings etc. - some of which are disputed facts. 14. The contention that since inception the accused had intention of cheating the complainant and conspired for the same, can by no stretch of imagination be accepted to be true, as the petitioners wanted to construct the township for their project, at the project site and wanted to award the work to a contractor and the complainant was selected for that work. It is unimaginable to think that only for cheating the complainant, the accused have selected them. 15. The contention that invocation of the bank guarantee would amount to criminal breach of trust, in the circumstances, is difficult to accept. In case, immediately after execution of the bank guarantee, if the same was invoked without any reason, then the question of criminal breach of trust may arise. In this case, first of all, the accused have paid substantial money i.e., Rs.23,26,819.05 as mobilization advance for the work, for that bank guarantee was taken and as already referred to, encashment of the above guarantee would not amount to criminal breach of trust under any circumstances. With regard to the encashment of the other bank guarantee also, as already referred to, undoubtedly, there was delay in the progress of the work. The correspondence reveals that there were serious disputes between the parties. Even things went to the extent of giving police complaints and there is allegation of extraction of documents from the complainant’s representatives about which a police complaint was also given. According to the accused, even there was law-and-order problem, as the complainant failed to pay to the sub-contractor and workers for the work done by them and they were to be paid. In such circumstances, invoking of the bank guarantee executed towards performance guarantee, would not, prima facie, give rise to any criminal action. 16. The contention of the learned Senior Counsel, Sri D. Prakash Reddy appearing for the complainant