AJN 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL APPELLATE JURISDICTION CRIMINAL WRIT PETITION NO.442 OF 2009 Prashant Jhunjhunwala s/o. Late Shri Rajkumar Jhunjhunwala, R/o. J-1/76, Gupta Colony, Khirki Extension, Malviya Nagar, New Delhi. ) ) ) ) ) ... Petitioner Versus 1. Union Territory of Daman & Diu, through its Secretary, Daman & Diu at Daman. ) ) ) 2. State of Maharashtra ) 3. Police Sub-Inspector, Daman Police Station, Nani, Daman. ) ) 4. Shri Kamal Kumar Bagla, Age 40 years, Occu. Service, Power of Attorney Holder of M/s. Century Pulp & Paper Division of M/s. Century Textile & Industries Limited, having its marketing office at 411-413, 4th Floor, Laxmi Deep Building, Laxmi Nagar, District Center, Delhi – 110 092. ) ) ) ) ) ) ) ) ) ) ) .... Respondents Mr. Niteen Pradhan i/b Mr. S.D. Khot and Mr. M. Pradhan for the petitioner. AJN 2 Ms. P.H. Kantharia, A.P.P. for the State. Mr. D.A. Nalawade for respondent. Mr. S. Malik with Mr. Santosh Mishra i/b Mr. B.D. Chauhan for the original complainant. CORAM : SMT. RANJANA DESAI & R.G. KETKAR, JJ. DATE ON WHICH THE JUDGMENT IS RESERVED : 28TH APRIL, 2009. DATE ON WHICH THE JUDGMEMT IS PRONOUNCED : 9TH JUNE, 2009. JUDGMENT.:- (Per Smt. Ranjana Desai, J.) 1. Rule. Rule made returnable forthwith. Respondents waive service. By consent of the parties, taken up for hearing and final disposal. 2. In this petition filed under Article 226 of the Constitution of India and under Section 482 of the Criminal Procedure Code, 1973 (for short, “the Code”), the petitioner has prayed that First Information Report AJN 3 bearing Crime No.M/01/06 dated 8/2/2006 registered at P.S. Daman (for short, “the said complaint”) be quashed and set aside. He has also prayed for certain consequential reliefs. 3. Since the petitioner is seeking quashing of the said complaint, it is necessary to examine its contents. Gist of the said complaint is as follows: a) The 4th Respondent in the petition is the complainant and is the power of attorney holder of M/s. Century Pulp & Paper Division of M/s. Century Textile & Industries Limited (for convenience, “the complainant company”). M/s. Shiv Ganga Paper Converters Private Limited is the 1st accused in the complaint (for short, “the accused company”). It is a private limited company, having its industrial units at Daman, Kota (Rajasthan) and Rudrapur AJN 4 (Uttaranchal). The 1st accused manufactures note books and, hence, requires paper. The petitioner is the 2nd accused. He is the director of the accused company. The 3rd accused - Arun Kejariwal, the 4th accused - Smt. Usha Kejariwal and the 5th accused - Nikhil Kejariwal are the directors of the accused company. They are related to each other. The 6th Accused - B.K. Mehta and the 7th accused - Vinod Tiwari are the managers of both the units of the 1st accused at Daman. M/s. Narsingh Das & Co. is the authorised dealer of the complainant company. b) The complainant company entered into an agreement with the accused company to sell to the latter 4000 M.T. of paper over a contractual period beginning from 1/4/2005 and ending on 31/3/2006. As per the AJN 5 agreement, payments were to be made within 30 days of the goods being dispatched, in default of which interest was to be charged. c) Initially, the accused company was regular in payments. In the first week of January, 2006, instead of depositing three cheques in the Corporation Bank, the accused company deposited only one cheque and other two cheques were deposited later. The balance amount of Rs.1,73,73,212/- was outstanding from the accused company till 22/12/2005 which the accused company ought to have paid before 22/1/2006. As the accused company was not making the payment, the complainant company approached the accused company on 28/1/2006. The petitioner gave an excuse that there were disputes AJN 6 between the directors and he was not able to make any payment. After long pursuation, the 3rd accused i.e. Arun Kejariwal promised to make part payment. He handed over two cheques of Rs.10 lakhs one dated 31/1/2006 and another dated 2/2/2006 and authorization for return of 100 M.T. paper of the value of Rs.35 lakhs. He asked the complainant company to approach the 4th respondent for the outstanding amount. There was express promise to make payment of the dues in the first week of February, 2006. When the complainant approached the 2nd accused, he promised to make the payment in kind by returning 250 M.T. paper from Daman and 100 M.T. paper from Rudrapur (Uttaranchal). On 3/2/2006, he authorised the complainant and M/s. Narsingh Das & Co. to receive the said paper. The value of AJN 7 350 M.T. paper was about Rs.1,15,00,000/-. d) On 6/2/2006, the complainant went to Daman to receive 250 M.T. of paper from the units of Bhimpore, Nani Daman. The complainant learnt that there are number of creditors of the accused to whom the accused had not made payment. The complainant contacted the 6th accused, that is, B.K. Mishra, General Manager of the accused company for delivery of paper. However, he refused to give delivery by saying that he will not accept the order of the 2nd accused. When the 2nd accused was contacted on phone, he replied that he had never consented for delivery of paper. e) The complainant learnt that the accused who are from one family and who claim to be directors of the accused company had AJN 8 diverted all their funds in benami transactions since last few months. They had purchased properties in the name of their relatives at Faridabad – Gurgaon Road and formed another company by name M/s. Aastha Agriculture Private Limited in Gauhati (Assam). The 5th accused had wound up all his Daman units and shifted to Kota with his family. f) Though there was no business and the accused had not paid money to the suppliers, the accused purchased large quantity of paper. They made the complainant believe that they had purchased crores of rupees worth paper. Just to avoid payment and to make a show that they had honest intentions, the accused gave authorization dated 3/2/2006 to receive 250 M.T. paper which was not AJN 9 honoured by them. They diverted their funds and formed another company. All the accused are thus party to a criminal conspiracy. They have committed offence under Section 420 read with Section 120-B of the Indian Penal Code (for short, “the IPC”). 4. The said complaint was registered under Section 420 read with Section 120-B of the IPC at P.S. Daman against the petitioner and five other accused. 5. We have heard Mr. Pradhan, learned counsel appearing for the petitioner. He submitted that a purely civil dispute has been given the colour of a criminal offence. He submitted that this is a dispute about goods sold and delivered and payments allegedly not received for the same. Criminal law could not have been set into motion on these facts. Mr. Pradhan submitted that, after filing of the said complaint, on 20/6/2006, the AJN 10 complainant-company has filed a suit in the Delhi High Court, which is pending adjudication. The civil suit must, therefore, be allowed to be prosecuted and the criminal complaint ought to be quashed. In support of his submissions, learned counsel relied on the judgments of the Supreme Court in Alpic Finance Ltd. v. P. Sadasivan & Anr., (2001) 3 SCC 513, Hridaya Ranjan Prasad Verma & Ors. v. State of Bihar & Anr., (2000) 4 SCC 168, Vir Prakash Sharma v. Anil Kumar Agarwal & Anr., (2007) 7 SCC 373, Ajay Mitra v. State of M.P. & Ors., (2003) 3 SCC 11, G. Sagar Suri & Anr. v. State of U.P., (2000) 2 SCC 636 and Indian Oil Corpn. v. NEPC India Ltd. & Ors., (2006) 6 SCC 736. 6. Learned counsel then urged that, in fact, the complainant-company and the accused had settled the dispute. He drew our attention to the annexures to the petition. He pointed out that on 8/5/2006, a pursis came to be filed in the Court of Chief Judicial Magistrate, AJN 11 Daman, which stated that the accused had accepted the liability and consented to give delivery of 227 M.T. of paper and, in the circumstances, the complainant- company consented that “the prosecution may be disposed of, even though the civil liability is not affected”. Learned counsel pointed out that this pursis is signed by the advocate for the accused and advocate for the complainant-company. It is also signed by Mr. Pradeep Gupta for M/s. Narsingh Dass & Co., who is the authorized dealer of the complainant-company. The pursis is also signed by the 3rd accused. On the same day, affidavit came to be filed by the 3rd accused, inter alia, stating that 227 M.T. of paper is to be delivered to the complainant- company and, he had decided to honour the challan issued by the petitioner. Mr. Pradhan drew our attention to order dated 8/5/2006 passed by I/C. Chief Judicial Magistrate, Daman, in which he has observed that all the parties to the pursis have admitted the contents and they have also agreed to the compromise agreement. Learned Magistrate has further recorded that all the applications AJN 12 are disposed of in terms of pursis (Ex-18). Pursis (Ex-18) is signed by the advocate for the complainant-company and the 3rd accused. Learned counsel submitted that in view of the settlement, this court should quash the complaint as its continuance will be a futile exercise. In this connection, he relied on the Supreme Court’s judgment in Nikhil Merchant v. C.B.I. & Anr. (2008) 9 SCC 677. 7. Learned counsel submitted that in any case, the petitioner had resigned from the directorship of the accused-company on 30/12/2005. He drew our attention to an order passed by the Company Law Board, New Delhi, (for short, “the CLB”), dated 16/1/2009. He submitted that the CLB has accepted that the petitioner has resigned from the directorship of the accused- company. The CLB has observed that he shall continue to be on the Board of the accused-company till the accounts are settled. It is observed that the petitioner was able to make out its case of oppression and mismanagement AJN 13 resulting in gross-misappropriation of funds and stocks despite the CLB’s orders and, therefore, he shall not be liable for any default subsequent to the date of intimation of disassociation with the affairs of the accused-company. Learned counsel submitted that, therefore, in any event, from the date of the petitioner’s resignation i.e. 30/12/2005, the petitioner cannot be held responsible for any mismanagement or offence committed by the accused-company. Mr. Pradhan submitted that this is therefore a fit case where this court should in exercise of its power under Article 227 of the Constitution of India and Section 482 of the Code quash the said complaint. 8. We have also heard Mr. Nalawade, learned counsel appearing for the 1st respondent i.e. Union Territory of Daman and Diu. Mr. Nalawade submitted that it is well settled that a complaint can be quashed only if on the face of it, it does not disclose any offence. Learned counsel submitted that in this case, the said complaint clearly discloses the offence of cheating and, therefore, it AJN 14 cannot be quashed. Mr. Nalawade submitted that on the said complaint, learned Magistrate has passed an order under Section 156(3) of the Code for inquiry and investigation. Relying on the judgment of the Supreme Court in T. Vengama Naidu v. T. Dora Swamy Naidu & Ors., (2007) 12 SCC 93, learned counsel submitted that the FIR is to be taken at its face value for adjudging the same. Where investigation is in progress and the police has not submitted a report to the Magistrate, the FIR can be quashed only if there appears to be no offence spelt out in the complaint. At the stage of investigation, the High Court cannot examine the nature of transaction or whether any offence was actually committed by the accused or not. The High Court cannot quash the FIR, at this stage, by examining the nature of the transaction. Learned counsel drew our attention to the affidavit in reply filed by Mr. D.M. Jadav, HCB, attached to the Daman Police Station wherein it is stated that there are number of cases relating to bouncing of cheques registered against the accused. It is also stated that two similar AJN 15 cases have been filed in Surat and Ahmedabad, and one by Tamil Nadu Print Paper Mills in Chennai Court against the accused-company. He submitted that in the circumstances no case is made out for quashing the said complaint. 9. We have also heard Mr. Malik, learned counsel appearing for the 4th respondent. He submitted that this is not a case where the complaint does not make out any offence at all. He submitted that an offence under Section 420 of the IPC is clearly made out. Learned counsel submitted that the contention that the dispute is of civil nature is totally misconceived. He submitted that no settlement was ever arrived at between the accused- company and the complainant-company and Narsingh Dass had no authority to settle the dispute. Learned counsel relied on the judgments of the Supreme Court in Rajesh Bajaj v. State NCT of Delhi & Ors. (1993) 3 SCC 259, Trisuns Chemical Industry v. Rajesh Agarwal & Ors. (1999) 8 SCC 686 and an unreported AJN 16 judgment of the Supreme Court in State of Punjab v. Pritam Chand & Ors. in Criminal Appeal No.1069 of 2004 dated 11/2/2009 and submitted that the petition deserves to be dismissed. 10. Before we go to the cases cited by Mr. Pradhan, it is necessary to refer to the petitioner’s case that he had resigned from the accused company. Mr. Jadhav, the investigating officer has stated in his affidavit that the petitioner has written a letter on 3/2/2006 in his capacity as the director of the accused company. He has signed the said letter as a director. The complainant has in his affidavit also stated so. Prima facie, this conduct of the petitioner militates against his case that he had resigned from the accused company. His case of resignation, therefore, cannot be accepted at this stage. It requires to be investigated. 11. Reliance placed by Mr. Pradhan on the CLB’s order dated 13/3/2009 is also misplaced. It is pertinent to note AJN 17 that before the CLB, the petitioner who is the 2nd accused had alleged mismanagement of the accused company by accused 3 to 5. It is an internal matter between the directors. Obviously, the complainant company could never have participated in the proceedings before the CLB. The order shows that accused 3 to 5 admitted that the petitioner was not involved in the affairs of the company since November, 2005. It is in these circumstances inter alia on the concession made by accused 3 to 5 that the CLB observed that the petitioner shall not be liable for any defaults subsequent to the date of intimation of disassociation with the affairs of the accused company. At this stage, the petitioner cannot be absolved of the allegations made against him on the basis of this order. 12. We shall now refer to the cases cited by learned counsel. In Hridaya Ranjan Prasad Verma’s case (supra), the Supreme Court was concerned with a petition filed for quashing of the complaint under Section AJN 18 482 of the Code. In that case, the appellants had agreed to sell land to the 2nd respondent. A cheque in the sum of Rs.11,00,000/- was given to the appellants by the respondents. The appellants executed a registered sale deed and delivered possession of the land. The cheques given by the respondents bounced. The appellants made requests to the respondents for payment of the amount. The respondents avoided to make the payment. The appellants lodged a complaint under Sections 406, 420 and 120-B of the IPC. On the facts before it, the Supreme Court observed that the ingredients of intentional deception on the part of the accused at the beginning of the negotiations had not been expressly stated or indirectly suggested in the complaint. Case of dishonest intention was not made out. While quashing the complaint, the Supreme Court stated what should be kept in mind while determining the question whether offence of cheating is disclosed. Following are the relevant observations of the Supreme Court. AJN 19 “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.” 13. In G. Sagar Suri’s case, a Finance Company had lodged a complaint against the appellants and others alleging that as directors of an Automobile Company they had taken a short-term loan of Rs.50 lakhs from the Finance Company. The cheques drawn by them towards repayment were dishonoured by the bank. A criminal complaint under Section 138 of the Negotiable Instruments Act was pending. A complaint was filed by the Finance Company inter alia, alleging that the 1st AJN 20 appellant had got the loan with dishonest intention and misrepresentation. On facts, the Supreme Court found that in the complaint nothing was said as to what was the misrepresentation, what role was played by the appellants and how the Finance Company was duped. All members of the family including the parents of the Managing Director were roped in. A complaint under Section 138 of the Negotiable Instruments Act was pending. In the affidavit, the Finance Company admitted that the appellants were not the directors of the company who had taken the loan. The Supreme Court came to a conclusion that there was an attempt to rope in all the members of the family in the complaint and the complaint was filed with a view to getting back the amount advanced by browbeating and terrorizing the appellants with criminal prosecution. It is against the backdrop of these facts while quashing the complaint the Supreme Court observed that criminal proceedings are not a short cut for other remedies available in law and the High Court has to examine whether matter which is essentially of a civil AJN 21 nature has been given a cloak of criminal offence. 14. In Alpic Finance’s case, the appellant was a non- banking financial company carrying on business of leasing and hire purchase. The 1st respondent was the Chairman and founder Trustee and the 2nd respondent i.e. the wife of the 1st respondent was also a trustee of the trust. The respondents entered into lease agreement with the appellant whereby the appellant agreed to finance the respondent for purchase of dental chairs. As per the agreement, the respondents were liable to pay rentals quarterly and the appellant company was to have exclusive right, title and interest in the dental chairs till the hire purchase amount was paid. The appellant made the payment and the respondents bought dental chairs. According to the appellant, the respondents were not regular in making payments. Certain cheques were dishonoured by the bank. It was their case that certain chairs were found missing and, hence, the respondents had committed offences under Sections 420, 406 and 423 AJN 22 read with Section 120-B of the IPC. The Supreme Court observed that the appellant’s case was that the respondents had failed to discharge their contractual obligations. It was noticed that in the complaint, there was no allegation of fraud or dishonest intention or that the chairs were obtained by any fraudulent inducement or by wilful misrepresentation. On facts, the Supreme Court concluded that it was difficult to discern an element of deception in the whole transaction, whereas it was palpably evident that the appellant had an oblique motive of causing harassment to the respondent by seizing the entire articles through magisterial proceedings. 15. In Ajay Mitra’s case, the complainant bottling company had entered into bottling agreements with M/s. Cadbury Schweppes Beverages India Private Limited (for short, “M/s. Cadbury”). The agreements were to continue for a term of five years. Either party could terminate them at the end of initial term by giving the other party the prescribed notice. One Atlantic Industries (a member AJN 23 of Coca Cola Group of industries) purchased trademarks of M/s. Cadbury upon which the bottling agreements between M/s. Cadbury and the complainant were assigned to Atlantic Industries. Atlantic Industries gave a notice to the complainant that the bottling agreement shall not be renewed. The complainant then filed a complaint against M/s. Cadbury, Coca Cola India and some of its officers (appellants i.e. accused 7 to 11 being some of them) alleging that it is M/s. Cadbury who had approached the complainant and a memorandum of understanding was signed between the two. The complainant was asked to discontinue its brand “Sprint” by M/s. Cadbury. The complainant invested money and modernized its plant to the satisfaction of M/s. Cadbury and thereafter bottling agreement was entered into between the two. It was alleged that Coco Cola India has adopted unfair trade practices and has made wrongful gain. According to the complainant, all the accused had cheated it. Offences were registered against the accused under Section 420 read with Section 34 and Section 120-B of the IPC. The AJN 24 High Court refused to quash the FIR. On facts, the Supreme Court came to a conclusion that the appellants were not in picture when the complainant spent money on its plant on the basis of agreement entered into with M/s. Cadbury, therefore, there was no intention on their part to deceive the complainant. The Supreme Court observed that a guilty intention is an essential ingredient of the offence of cheating. The Supreme Court came to a conclusion that the allegations made in the complaint even if they are taken at their face value and accepted in their entirety do not disclose the commission of any offence. It is in these circumstances, that the Supreme Court quashed the complaint. 16. In Vir Prakash’s case, the parties had entered into a contract of sale and purchase of goods. The appellant had issued two cheques which had bounced. The complainant filed a complaint alleging offences under Sections 406, 409, 420 and 417 of the IPC against the appellant. The High Court refused to quash the AJN 25 complaint. The Supreme Court noted that the allegations in the complaint did not disclose the ingredients of criminal breach of trust. No act of inducement on the part of the appellant had been alleged. The Supreme Court further noted that there were some vague unpalatable allegations about the subsequent conduct of the appellant. It is in this context, while quashing the complaint the Supreme Court observed that the dispute between the parties was essentially a civil dispute and that non-payment or underpayment of the price of the goods by itself does not amount to commission of an offence of cheating or criminal breach of trust. 17. In Indian Oil Corporation’s case (IOC), the IOC had entered into a contract with the NEPC (India) Limited agreeing to supply aircraft fuel. According to the appellant, the respondent committed default