IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 17.09.2009 CORAM: THE HONOURABLE MR.JUSTICE R.REGUPATHI Crl.O.P.Nos.12646 of 2007 & 18297 of 2009 and M.P. Nos. 1 & 3 of 2007 in Crl.O.P. No. 12646 and M.P. No. 1 of 2009 in Crl.O.P.No.18297 1. K. Mahamuni .... Petitioner / Accused in Crl.O.P.No.12646 1. Dharani Senthil @ M. Senthil Kumar 2. M. Sanjay 3. S. Muruganandam 4. K. Murali @ K.M.M.Murali .... Petititioners / Accused 1 & 4 in Crl.O.P.No.18297 Versus 1. State through the Deputy Superintendent of Police District Crime Branch,Coimbatore 2. Tamil Nadu Mercantile Bank Ltd Rep. by its Chief Manager Mr. Thangapandian Having Office at Tiruppur Branch Tiruppur .... Respondents 1 & 2 in both the petitions Prayer in both the petitions: Petitions filed under Section 482 Cr.P.C seeking for a direction to call for the records in C.C. No. 462 of 2004 on the file of the Judicial Magistrate-II, Tiruppur and to quash the same. For petitioners : Mr.K. Sukumaran For R1 : Mr.N.R. Elango Addl. Public Prosecutor For R2 : Mr. Silambanan-S.C For Mr. P.H.Manoj Pandian C O M M O N O R D E R The petitioners in both the Criminal Original Petitions, who are A1 to A5 among 10 accused in C.C. 462 of 2004 taken on file by the learned Magistrate-II, Tiruppur, for offences punishable under Sections 406, 409, 420 & 120(b) IPC seek to quash the said proceedings. 2. The 1st accused is the Managing Director of Shree Dheepadharani Yarn Private Limited and the Managing Partner in Bagavathyamman Traders, A2 is one of the Directors of Shree Dheepadharani Yarn Private Limited, A3 is the Proprietor of Sidharth Creations, A4 is the partner of Mookambika Textiles and A5 is one of the Directors of Shree Dheepadharani Yarn Private Limited as well as https://hcservices.ecourts.gov.in/hcservices/ Managing Director of Sree Karuv Spinners Private Limited and Proprietor of Preetha Cotton Traders. A1 & A2 are brothers and A4 is the brother-in-law of A1. A3 & A5 are family friends of A1 & A2. A6 to A10 are Managers and Officials of Tamil Nadu Mercantile Bank Limited (hereinafter referred to as "Bank"), Tiruppur. 3. The petitioners / accused were operating current account and had money transactions with the Bank from the year 2000 and between the period 02.09.2002 and 29.05.2003, 1278 cheques were deposited for encashment. In view of the understanding and arrangement with the Bank, the accused availed "Local Bill Discounting" (LBD) and thereby, on deposit of cheques, credit was given "Against the Bill". Under such circumstances, it is alleged that the petitioners A1 to A5, in collusion and conspiracy with A6 to A10, who are Bank officials, during operation of the account as aforementioned, committed the following offences as reflected in the final report filed by the 1st respondent police. "On or prior to 02.09.2002, the accused committed Criminal Conspiracy at Tiruppur by agreeing to do a serial offences of cheating of the said Tiruppur branch of Tamilnadu Mercantile Bank by presenting cheques at this branch bank, without sufficient cash balance in the accounts of the respective cheques and including the branch bank to deliver the amounts mentioned in the cheques to the benefit of the above said business concerns of A1 to A5, with the abetment of A6 to A10." 4. Learned counsel for the petitioners, by pointing out that the petitioners, who are account holders and long standing customers of the Bank from 2000 onwards, presented 1278 cheques and most of the cheques were honoured, would submit that, in the charge sheet filed, invariably particulars about the entire transaction of 1278 cheques were listed without segregating the cheques defaulted in question and that the petitioners entered into an agreement and arrangement with the Bank to avail the facility called "Local Bill Discounting", which is prevailing and in vogue in the Banking business, and in terms of such facility, on receipt of a cheque, credit will be given by the Bank "Against the Bill"; in other words, the Bank, in fact, purchases the cheque presented for collection with certain conditions based on the arrangement with the customer viz, charges would be levied for granting "Temporary Over Draft" (TOD) for one day and at the maximum for three days and in lieu of the petitioners availing such credit facilities, interest @ 44% was levied apart from commission charges for each day. The Bank extends LBD facility for the purpose of encouraging the businessmen to promote the business as well as to gain profit for the Bank by way of interest and commission from the account holders. In order to substantiate that such practice has been recognized and permitted in the banking business, learned counsel for the petitioners relied on a Circular issued by the complainant / Bank to all its Branches wherein it is conveyed thus: "It may be permitted to those whose accounts are otherwise in order and track record is good. For such parties this may be permitted for meeting unforeseen eventualities, more particularly for purchase of demand drafts/telegraphic transfers. (Those who are maintaining a flimsy balance in their account and those who are in the practice of issuing cheques without sufficient balance in the account etc., cannot be considered as "Parties having good https://hcservices.ecourts.gov.in/hcservices/ track records". and submitted that, in lieu of such facility availed by the accused, the Bank derived interest and commission to the tune of Rs.60 lakhs and in such course, even if a cheque deposited in the bank was dishonoured, it will not amount to cheating as alleged by the prosecution since dishonest intention at the inception is totally absent. Admittedly, during the course of transaction, though some of the cheques were dishonoured, major portion of the liability was settled by the accused. In the light of the arrangement with the Bank, the only reasonable presumption is, the cheques, deposited in terms of LBD facility become the property of the Bank, for, in respect of the amount credited after collection, interest and commission are levied and equally, if, due to unforeseen circumstances, a cheque is returned, the offences alleged cannot be made out, since dishonest or fraudulent intention on the part of the accused is absent and an agreement-cum-understanding is in existence. Under such circumstances, the liability to the tune of Rs. 2,51,55,000/- being recoverable through civil forum; by initiating present proceedings, a criminal colour and flavour has been given to the civil dispute. Soon after the liability with accumulated interest and penal interest as against the petitioners came to be known, the Bank received property securities from the accused and based on that, initiated Debt Recovery proceedings before DRT and ultimately received a decree for Rs.4,80,81,704/-. 5. It is next submitted that the Manager, who took over charge of the Bank preferred the complaint against the former Manager of the Bank on 20.06.2003 resulting in the criminal case. When admittedly the Bank Managers and Higher Officials, during the relevant time, encouraged and promoted such practice of banking business and thereby derived profit of Rs.60 lakhs and further, after default, attachment and recovery proceedings through DRT have been initiated, it is unfortunate that a criminal case also has been initiated against the petitioners. It is further submitted that the company viz. Shree Dheepadharani Yarn Private Limited, registered under company act, was not impleaded as an accused in the case. All the operations having been performed in the name of the company, it is mandatory to include the company in whose name, the transactions were made. Without impleading the company, inclusion of its Directors viz. A1, A2 & A5 in the case, is against the procedure, under such circumstances, the prosecution is erroneous and should not be allowed to continue. Further, there must be specific allegations and averments as against the petitioners / Directors, who are in-charge and responsible to the business and affairs of the company, but the charge sheet seemingly does not reflect any allegation against them. In the above circumstances, the proceedings, pending as against the petitioners are liable to be quashed. 6. In support of the submission made, learned counsel for the petitioners relied on several case laws, touching the issue on hand, and relevant observation from those precedents are highlighted below: (2000) 3 Supreme Court Cases 693 (G.V.Rao Vs. L.H.V. Prasad) "Cheating is defined in Section 415 of the Indian Penal Code which provides as under:"415.Cheating-Whoever, by deceiving https://hcservices.ecourts.gov.in/hcservices/ 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 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." The High Court quashed the proceedings principally on the ground that Chapter XVII of the Indian Penal Code deals with the offences against properties and, therefore, Section 415 must also necessarily relate to the property which, in the instant case, is not involved and, consequently, the FIR was liable to be quashed. The broad proposition on which the High Court proceeded is not correct. While the first part of the definition relates to property, the second part need not necessarily relate to property. The second part is reproduced below: "415-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'." This part speaks of intentional deception which must be intended not only to induce the person deceived to do or omit to do something but also to cause damage or harm to that person in body, mind, reputation or property. The intentional deception presupposes the existence of a dominant motive of the person making the inducement. Such inducement should have led the person deceived or induced to do or omit to do anything which he would not have done or omitted to do it he were not deceived. The further requirement is that such act or omission should have caused damage or harm to body, mind, reputation or property. As mentioned above, Section 415 has two parts. While in the first part, the person must "dishonestly" or "fraudulently" induce the complainant to deliver any property; in the second part, the person should intentionally induce the complainant to door omit to do a thing. That is to say, in the first part, inducement must be dishonest or fraudulent. In the second part, the inducement should be intentional. As observed by this Court in Jaswantrai Manilal Akhaney V. State of Bombay a guilty intention is an essential ingredient of the offence of cheating. In order, therefore, to secure conviction of a person for the offence of cheating, "mens rea" on the part of that person, must be established. It was also observed in Mahadeo Prasad V. State of W.B. That in order to constitute the offence of cheating, the intention to deceive should be in existence at the time when the inducement was offered. 8. Thus, so far as the second part of Section 415 is concerned, "property", at no stage, is involved. Here it is the doing of an act or omission to do an act by the complainant, as a result of intentional inducement by the accused, which is material. Such inducement should result in the doing of an act or omission to do an act as a result of which the person concerned should have suffered or was likely to suffer damage or harm in body, mind, reputation or property." https://hcservices.ecourts.gov.in/hcservices/ (2003) 5 Supreme Court Cases 257 (Hira Lal Hari Lal Bhagwati Vs. CBI, New Delhi) "30.In our view, under the penal law, there is no concept of vicarioius liability unless the said statute covers the same within its ambit. In the instant case, the said law which prevails in the field i.e. The Customs Act, 1962 the appellants have been thereinunder wholly discharged and the GCS granted immunity from prosecution. It is a well-established principle of law that the matter which has been adjudicated and settled need not be dragged into the criminal courts unless and until the act of the appellants could have been described as culpable. 31. In our view, there is no prima facie case made out in respect of the alleged offence under Section 120-B read with Section 420 of the Indian Penal Code and, therefore, the charge-sheet and the process issued thereunder has to be quashed. 32. To bring home the charge of conspiracy within the ambit of Section 120-B of the Indian Penal Code, it is necessary to establish that there was an agreement between the parties for doing an unlawful act. It is difficult to establish conspiracy by direct evidence. 33. Likewise the ingredients of Section 420 of the Indian Penal Code are also not made out. There is no reason as to why the appellants must be made to undergo the agony of a criminal trial as has been held by this Court in the case of G. Sagar Suri V. State of U.P. In this case, this Court held that:(SCC pp.642-43, paras 7-8) 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. 34. Section 415 of the Indian Penal Code deals with cheating. To hold a person guilty of cheating as defined under Section 415 of the Indian Penal Code, it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise with an intention to retain the property.In the first class of cases, the inducing must be fraudulent or dishonest. In the second class of acts, the inducing must be intentional but not fraudulent or dishonest. 40. It is settled law, by a catena of decisions, that for establishing the offence of cheating, the complainant is required to show that the accused and fraudulent or dishonest intention at the time of making promise or representation. From his making failure to keep promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed. As there was absence of dishonest and fraudulent intention, the question of committing offence under Section 420 of the Indian Penal Code does not arise. We have read the charge sheet as a whole. There is no allegation in the first information report or the charge-sheet indicating expressly or impliedly any intentional deception or fraudulent/dishonest intention on the part of the appellants right from the time of making the promise or misrepresentation." https://hcservices.ecourts.gov.in/hcservices/ (2006) 6 Supreme Court Cases 736 Indian Oil Corporation Vs. NEPC India Ltd) "The essential ingredients of the offence of "cheating" are: (i) deception of a person either by making a false or misleading representation or by other action or omission, (ii) fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person to do or omit to do anything which he would not do or omit if he were not so deceived and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property." (2008) 13 Supreme Court Cases 678 (Suryalakshmi Cotton Mills Limited Vs. Rajvir Industries Limited) "25.Ingredients of cheating are: (i) deception of a person either by making a false or misleading representation or by other action or omission; and (ii) fraudulent or dishonest inducement of that person to either deliver any property to any person or to consent to the retention thereof by any person or to intentionally induce that person to do or omit to do anything which he would not do or omit if he were not so deceived and which act or omission causes or is likely to cause damage or harm to that person in body, mind reputation or property. 29. Filling up of the blanks in a cheque by itself would not amount to forgery. Whereas in the complaint petition, allegations have been made that it was Respondents 2 and 3 who had entered into a conspiracy to commit the said offence as indicated hereinbefore, in the counter-affidavit, it has been alleged that the employees of the respondent Company did so. 30. Although, Section 120-B of the Code has been added, there does not exist any averment that Respondents 2 and 3 have entered into any conspiracy with their employees. No case for proceeding with the offence of forgery against the respondents has, thus, also been made out." JT 2009 (10) SC 442 (State of Maharashtra Vs. Sayed Mohammed Masood & Anr.) "15.7...It is well settled that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In the present case it has nowhere been stated that at the very inception there was any intention on behalf of the accused persons to cheat which is a condition precedent for an offence under Section 420 IPC. 15.8. Hence the petition of complainant did not disclose any criminal offence at all much less any offence either under Section 420 or Section 120B of the Indian Penal Code. It was purely civil in nature." https://hcservices.ecourts.gov.in/hcservices/ (2009) 1 Supreme Court Cases 516 (R. Kalyani Vs. Janak C. Mehta) "It is furthermore well known that no hard-and-fast rule can be laid down. Each case has to be considered on its own merits. The Court, while exercising its inherent jurisdiction, although would not interfere with a genuine complaint keeping in view the purport and object for which the provisions of Sections 482 and 483 of the Code of Criminal Procedure had been introduced by Parliament but would not hesitate to exercise its jurisdiction in appropriate cases. One of the paramount duties of the superior courts is to see that a person who is apparently innocent is not subjected to persecution and humiliation on the basis of a false and wholly untenable complaint." (2009) 2 Supreme Court Cases (Cri) 941 (S.V.L.Murthy Vs. state rep. by CBI, Hyderabad) "26.We have noticed hereinbefore the charges levelled against the appellants. So far as the principal accused, namely, Accused 1 to 3 are concerned, they having not been charged for entering into a criminal conspiracy with the Bank officials for commission of offences under the Prevention of Corruption Act, it was necessary only to see as to whether a case of cheating has been made out. The fact that Accused 1 had a long-standing business relationship with the Bank is not in dispute. 27.The officers of the Bank particularly PW2, PW19 and PW20 in their deposition clearly stated that the banking practice allows grant of such discounting facility. In fact, Reserve Bank of India circular whereupon reliance has been placed by the courts below clearly points out existence of such a practice. Reserve Bank of India, however, laid down certain guidelines with a view to safeguarding the interest of the Bank. It is also not in dispute that for the said purpose, a circular had also been issued. 41. An offence of cheating cannot be said to have been made out unless the following ingredients are satisfied: "(i) deception of a person either by making a false or misleading representation or by other action or omission; (ii) fraudulently or dishonestly inducing any person to deliver 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." For the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making initial promise being absent, no offence under Section 420 of the Penal Code can be said to have been made out." In view of the principles evolved in the above case laws, according to the learned counsel, taking note of the fact that trial of the case is not yet commenced, that the petitions to quash the https://hcservices.ecourts.gov.in/hcservices/ proceedings have been preferred before this Honourable court at the earliest point of time and that the allegations being purely civil in nature and just by filing a complaint, criminal colour has been given to the civil dispute, the prayer sought for deserves acceptance. 7. Per contra, learned Senior counsel for the 2nd respondent herein namely the defacto complainant / Bank submits that the petitioners A1 to A3, who operated accounts with the Bank, in collusion and conspiracy with the Manager and other staff of the Bank committed the offences. According to him, despite dishonour of several cheques, accused / Bank officials allowed the petitioners to continue such operations and in the light of the Circular which states that "Those who are maintaining a flimsy balance in their account and those who are in the practice of issuing cheques without sufficient balance in the account etc.", the petitioners should not have been concluded as "Parties having good track records.". He further submits that the particulars of entire transactions that had taken place including the one relating to the cheques in question have been produced before the investigating agency and that is the reason why, all the cheques were listed in the charge sheet, reflecting the total liability as Rs.2,51,55,000/-. While disputing the contention that the property security of the accused was received during the course of banking transaction, he states that only after huge liability on the part of the petitioners came to light, the Bank insisted for property security and issued notice for recovery of the liability and based on that, Debt Recovery proceedings came to be initiated; under such circumstances, it cannot be contended that the recovery proceedings, which were initiated subsequently will defeat the criminal prosecution. Accused 1 to 5, with the company and firms run by them adopted a modus operandi, by which, amounts got released, and ultimately huge loss was caused to the Bank. In spite of Debt Recovery proceedings and attachment of properties, considerable amount is yet to be realized since the value of the property, as of today does not meet the requirement. Only after realization of the entire amount due from them, the present contention of the petitioners can be taken into consideration. Till then, the Bank has got every right to proceed against the accused persons since both criminal and civil remedies are available. Prima facie materials both oral and documentary, collected during the course of investigation, are available to constitute the offences alleged, that is why, rightly, the learned Magistrate taken cognizance. All the grounds, put forth by the petitioners before this court may have to be agitated only before the trial court and the same cannot be appreciated now in view of the huge liability on the part of the petitioners / accused. To substantiate his submissions, learned Senior Counsel relied on the following case laws:- (2009) 6