- 1 - IN IN IN THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY THE HIGH COURT OF JUDICATURE AT BOMBAY CRIMINAL CRIMINAL CRIMINAL APPELLATE JURISDICTION APPELLATE JURISDICTION APPELLATE JURISDICTION CRIMINAL CRIMINAL CRIMINAL WRIT PETITION NO.735 OF 2008 WRIT PETITION NO.735 OF 2008 WRIT PETITION NO.735 OF 2008 VCM Polyurethane Pvt.Ltd. ...Petitioner vs. Ashok Y. Chaphekar & Anr. ...Respondents Mr.Nitin Jamdar for the petitioner Mr.D.P.Adsule A.P.P. for State CORAM: CORAM: CORAM: A.S.OKA,J. A.S.OKA,J. A.S.OKA,J. DATE DATE DATE : AUGUST 30,2008 : AUGUST 30,2008 : AUGUST 30,2008 P.C.: P.C.: P.C.: 1. The submissions of the learned counsel for the petitioner were heard yesterday. The petitioner filed a private complaint against the first respondent alleging commission of offence punishable under section 406 of the Indian Penal Code. By an order dated 12th December 2005, the complaint was dismissed by the learned Magistrate by exercising power under section 203 of the Code of Criminal Procedure,1973. A revision application preferred by the petitioner against the said order has been dismissed by the Sessions Court. 2. The case made out by the petitioner in the complaint is that the first Respondent was appointed as an Arbitrator to adjudicate upon the dispute between the petitioner and the Perfect Coating (India) Private Limited (hereinafter referred to as the said Company) of which one Shri Ajay Godbole was the Managing Director. The said company had placed a purchase order dated 17th January 1998 with the petitioner for supply - 2 - of certain material. The terms and conditions as regards the payment of price were incorporated in the said purchase order. According to the case of the petitioner, a sum of Rs.17,81,386.39 was due and payable by the said company to the petitioner. There was three cheques in the amounts of Rs.6,03,390.16, Rs.1,69,482.00 and Rs.2,90,742.98 respectively drawn by the said company in favour of the petitioner which were deposited by the petitioner on 11th August 1998. The said cheques were dishonoured. Therefore, notice was issued by the petitioner to the said company demanding the said amount. The Petitioner-company filed a complaint under section 138 of the Negotiable Instruments Act,1881 on the basis of the dishonoured cheques. 3. As a dispute arose between the petitioner and the said company, the first respondent was appointed as an Arbitrator. The claim made by the petitioner before the Arbitrator was of Rs.17,81,386.39 being the unpaid price of the goods sold. The said company made a counterclaim in the sum of Rs.25,91,037.98. The first respondent entertained an application under section 17 of the Arbitration and Conciliation Act,1996 filed by the said company. A direction sought by the said application against the petitioner for deposit of the three dishonoured cheques with the Arbitrator. On 22nd October 1999, the first Respondent-arbitrator passed an order directing the petitioner to deposit the dishonoured - 3 - cheques with him. According to the petitioner-complainant, a compliance was made with the said order in good faith. The case of the petitioner is that the dishonoured cheques were deposited with the first Respondent to hold them in trust for the petitioner. An award was made by the Arbitrator-first respondent on 11th January 2001. He allowed the claim made by the petitioner as well as the counter claim of the said company. The first respondent handed over the said dishonoured cheques to the said company instead of returning the same to the Petitioner. 4. The allegation made in the complaint is that subsequently, the petition learnt that the first respondent was a shareholder of the said company and infact he had given a personal guarantee to the tune of Rs.63.5 lacs on behalf of the said company to a bank. It is alleged that the first Respondent had business relations with the Managing Director of the said company. The petitioner filed an application under section 34 of the said Act of 1996 and the operation of the Award has been stayed by the District Court pending the said application. The allegation of the petitioner is two fold. The first is that the first respondent did not disclose that that he is a business associate and share holder of the company and secondly, he returned the cheques to the Managing Director of the said company thereby causing wrongful loss to the petitioner and causing wrongful gain to the said company. - 4 - 5. The learned counsel for the petitioner invited my attention to the various averments made in the complaint. He submitted that considering the averments made in the complaint, this was not a case where the complaint could have been thrown out at the threshold. He submitted that there is a prima facie case to hold that from the inception, the first respondent had an intention to cause loss to the petitioner. The first respondent never disclosed his connections with the said company. He submitted that the direction issued by the first respondent against the petitioner to deposit the dishonoured cheques was itself illegal and without jurisdiction. He submitted that a prima facie case of existence of ingredients of section 405 of the Indian Penal Code was made out. He submitted that this was a case where the petitioner ought to have been granted an opportunity of leading evidence and the courts below could not have dismissed the complaint as there was a clear case of entrustment of the cheques made out in the complaint. 6. I have carefully considered the submissions. It is not in dispute that the first respondent acted as an Arbitrator under the said Act of 1996 and an order was passed by him on the application for interim direction under section 17 of the said Act of 1996 directing the petitioner to deposit with him the three cheques issued by the said company which were - 5 - dishonoured and which were in the custody of the petitioner. The said order was complied with by the petitioner. Thus, in compliance with the directions issued by the Arbitrator in exercise of power under section 17 of the said Act of 1996, the dishonoured cheques were deposited by the petitioner with the Arbitrator. The first Respondent was admittedly acting as an Arbitrator and on the basis of the said order, the cheques were deposited with him. It is, therefore, not possible to accept the contention that the cheques were entrusted with the first Respondent within the meaning of section 405 of the Indian Penal Code. While passing the final award, the first Respondent allowed the claim of the petitioner as well as the claim of the said company. As stated earlier, the counter-claim of the said company was more than the claim of the petitioner. While passing the final award, he handed over the dishonoured cheques to the Managing Director of the said company. Whether the award made by the Arbitrator is legal or not and whether it is vitiated by the bias, are the questions to be decided in a pending application under section 34 of the said Act of 1996. On plain reading of the complaint, it cannot be accepted that the action of the first Respondent acting as an Arbitrator of returning the dishonoured cheques to the said company amounts to dishonest use or disposal of the cheques. Obviously, there cannot be any dishonest use, misappropriation or conversion alleged against the first Respondent. Therefore, taking the averments made in the - 6 - complaint for its face value, no prima facie case of criminal breach of trust as defined by section 405 of the Indian Penal Code was made out. Accordingly, the courts below were right in holding that the process could not be issued on the complaint filed by the petitioner. 7. There is no merit in the petition and the same is rejected. It is, however, made clear that the observations made in this order are for limited purpose of considering the merits of the order passed by the courts below by which it was held that no case of a commission of offence was made out against the first respondent. The observations made in this Judgment cannot be construed as any finding on the merits of the arbitral proceeding and the pending application under section 34 of the said Act of 1996 shall be decided without being influenced by the observations made in this order. JUDGE JUDGE JUDGE