IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD PRESENT HON'BLE SRI JUSTICE A.GOPAL REDDY CRIMINAL PETITION No.7607 of 2007 Between: M/s.Mita Cars (Pvt.) Ltd., rep. By it Managing Director and others … Petitioners And The State of A.P., rep. By its public Prosecutor and another … Respondents This Court made the following: HON’BLE SRI JUSTICE A.GOPAL REDDY CRIMINAL PETITION No. 7607 OF 2007 ORDER:- This petition under Section 482 Cr.P.C., is filed by the petitioners to quash the proceedings initiated against them in crime No.177 of 2004 of Central Crime Station, WCO Team-III, police control room, Hyderabad, registered for the offences punishable under Sections 406, 420 and 422 IPC. On the 2nd respondent/complainant lodging a report with the police station, Kasna, Gautambudhanaagar, Uttar Pradesh, crime No.86 of 2003 was registered against the petitioners for the above offences on 05.08.2003. For want of jurisdiction when the same was transmitted to Hyderabad, the above F.I.R. was registered. The complaint allegations go to show that Honda Siel Cars India Limited manufactures cars and other vehicles in the brand name of ‘Honda’. Petitioner No.1-Mita card Pvt. Ltd., represented by petitioner Nos.2 and 3/accused Nos.2 and 3, claiming to be the directors of the said company, approached the complainant representing that Mahalaxmi Motors-A5, represented by its Director Mahendra M.Mehta-A4 and Atlas Home-A6 are also their family concerns. All the accused conspired together and committed the offence alleged by duping the complainant approximately to a sum of Rs.1,22,00,000/- being the principal along with interest and other charges. Petitioner No.2 along with his wife and father approached the complainant for appointment as dealers of Honda Siel Cars India Limited., manufactured by the complainant and accordingly a dealership agreement was signed on 20.05.1997 appointing the petitioners as their dealers for selling and servicing their cars. As per the agreement, petitioner No.2 was under a contractual obligation to form a new company, which has to be promoted in terms of the dealership agreement. Accordingly, accused No.1 Company was formed and the same was confirmed through letter, dated 20.08.1980, of which petitioner Nos.2 and 3 are the directors. After entering into the dealership agreement, they started to commit breach and failed to maintain financial discipline and accused Nos.1 to 3 made false assurances with respect to their experience and properties. The accused represented the complainant that they were facing severe financial crunch and requested to supply the vehicle on credit, assuring that such credit shall be fully secured. Believing on the said representation and request, the complainant agreed to supply cars on credit. In order to furnish security as sought by the complainant towards supply of cars on credit, accused No.2 under the letter, dated 05.11.1999, forwarded original fixed deposit receipt, dated 04.11.1999, drawn in favour of his wife-A3 for a sum of Rs.90,00,000/- drawn on Hongkong & Shengai Bank Corporation at its branch at Banjara Hills, Hyderabad and further confirmed that the fixed deposit receipt was being forwarded to the complainant towards security for the credit facility availed by them. In the said letter, accused No.1 confirmed that in the event he failed to pay the amount within time, the complainant is entitled to encash the fixed deposit and receive their amounts and if there remained any balance, the said balance shall too be taken care and paid by the accused. Believing the assurances made by the accused, the complainant supplied 28 cars on credit, which was duly dispatched by the complainant and received by accused No.1 Company on credit and the same was duly acknowledged. The accused further assured that they would pay the amount along with interest and other charges. Believing the said representations and assurances, they agreed to give credit facility by supplying cars without insisting for payment against delivery, which is a normal practice. The original fixed deposit receipts certifying a sum of Rs.90,00,000/- held in the name of accused No.3 was duly signed on the reverse and delivered to the complainant. The complainant addressed a letter to the Hongkong & Shengai Bank about the original fixed deposit receipt placed with him by the accused towards security stating that the fixed deposit receipt cannot be liquidated without the consent of the complainant. When the accused failed and neglected to repay the amount for the cars dispatched by the complainant on credit, they addressed a letter to the bank demanding the amount of fixed deposit with interest against surrender of the original fixed deposit receipt. The letter addressed by them to the Bank was also communicated to accused No.3 intimating her of the default. On receipt of the said letter, the Bank and the accused were silent and did not reply. Later the bank informed that the fixed deposit receipt had already been liquidated and encashed by accused No.3. Therefore, the accused intentionally, deliberately, with a mala fide motive, with an intention to rob and to cheat the complainant, created the security by entering into a criminal conspiracy along with the banker. Basing upon the said complaint, the crime was registered for the above offence, which is now sought to be quashed on the ground that accused No.3 lawfully encashed the term deposit account after its rejection to accept it as a security by the complainant company. The averments of the F.I.R., are of civil nature and were cleverly twisted as a criminal case. The allegations made in the F.I.R. are patently upsurd and inherently improbable. The statements recorded during the course of investigation also disclose no prima facie case exists against the petitioners. Further, the criminal proceedings are initiated by a third party who has no connection or concern with the dispute between the parties and hence, the proceedings initiated against the petitioners are liable to be quashed. Sri D.Prakash Reddy, learned Senior Counsel appearing for the petitioners contends that to attract the punishment for the offence under Section 420 IPC, no offence was committed by the accused at the inception. Since the last transaction by sending the cars on credit is in September, 1997, the petitioners cannot be proceeded for the offences punishable under Sections 406 and 422 IPC, as the punishment prescribed for the said offence is two or three years, whereas the complaint as such is registered on 17.03.2004 beyond the period of limitation. Since the cars were dispatched earlier on credit basis and security was furnished subsequent to it, mere failure to keep up promise subsequently cannot be presumed to be an act leading to cheating. When there is no inducement at the inception, the petitioners cannot be charged for the offences under Sections 406 and 420 IPC. In support of the said submissions, reliance is placed on S.N.Palanitkar v. State of Bihar[1] and Rajeshwar Tiwari v. Nanda Kishore Roy[2]. He further contended that the complaint is lodged by Honda Siels Cars limited, but M/s.Kotak Mahendra Bank Limited, who are the official financiers to the 2nd respondent and who was authorized to deal and negotiate on behalf of the 2nd respondent Company, cannot initiate legal proceedings against the third parties. Per contra Sri T.Pradyumna Kumar Reddy, learned counsel for appearing the respondents contends that by resolution, dated 26.10.2002, authorising M/s.Kotak Mahendra Bank Limited to recover the money, they are entitled to lodge a complaint on behalf of Honda Siels Cars India Limited . When the fixed deposit receipt was furnished as security on 04.11.1999 for Rs.90,00,000/- by the accused and withdrawn the amounts covered by the said fixed deposit receipt, which amounts to cheating, quashing of the proceedings at the initial stage, that too when the complaint is in half way investigation does not arise. He further contends that unless the investigation is completed and police files a report, the statements of the complainant recorded during the course of investigation under Section 161 Cr.P.C., cannot be looked into and how the said statements came into the hands of the petitioners even before filing of the report also was not known. In the light of the above submissions, it has to be seen as to whether the complaint allegations prima facie disclose an offence of cheating under Section 420 IPC to continue the proceedings for the other offences and whether it is barred by limitation or not. It is not in dispute that the complaint lodged by Rajiv Maheswari on 21.01.2003 with the Deputy Commissioner of Police, Economic Offence Wing, Crime Branch, Qutab Institutional Area, New Delhi, was later registered as a crime No.86 of 2003 by Police Station, Kasna, Gautambudhanagar of Uttar Pradesh on 05.08.2003. The same was transmitted for want of jurisdiction to Hyderabad and on such transfer it was re-registered as crime No.177 of 2004 on 17.03.2004 by the Central Crime Station, Hyderabad. According to the complaint allegations the dealership agreement was entered on 20.05.1997 appointing the petitioners as authorized dealers and the same was confirmed on 20.03.1998. In terms of the dealership agreement the accused formed a new company. After entering into the dealership agreement accused Nos.2 and 3 requested to supply the vehicles on credit representing that the said facility be advanced to them to enable them to supply and deliver the same to their customers, assuring that such credit shall be fully secured. Believing their version, the complainant agreed to supply cars on credit and on supplying of cars, a fixed deposit receipt, dated 04.11.1999, for Rs.90,00,000/- in the name of accused No.3 was forwarded to the complainant on 05.11.1999. The letter addressed by the complainant, which forms part of the complaint, also discloses that the fixed deposit receipt was given as a temporary security for the cars being dispatched on credit. In case M/s.Mita Cars Private Limited, Hyderabad fails to payoff the amount due to Honda Siel Cars India Limited, they can encash the fixed deposit receipts. By a letter dated 11.11.1999 the complainant informed accused No.2 that keeping the original document as security for the credit to be extended to the petitioners for supply of cars, is of no use as the holder of deposit can discharge the deposit by simply giving an indemnity to the Bank, even if he/she is not in possession of the original document; unless the pledging of fixed deposit is officially communicated to the bank and acknowledged by the bank, it is of no value; the bank must agree in writing to pay the amount by due date to the party extending credit, as the nature of the document is “Not negotiable”. As the fixed deposit receipt is only for 60 days for Rs.90,00,000/-, in favour of petitioner No.3 and when the same was not honoured by the Bank on liquidation, the dealership agreement was terminated by the complainant by a notice, dated 20.02.1999, and on such termination, arbitration clause was invoked by the 2nd petitioner, whereas the complainant made a counter claim for due recovery of the amounts for the cars dispatched by it. On referring the matter to the panel of arbitrators viz., three former judges of this Court, the Arbitral Tribunal after hearing the parties passed an award holding that from out of Rs.1,00,71,735/- and Rs.23,65,488/- together with interest upto date of Award two sums have to be deducted. (i) Deposit of Rs.12,50,000/- together with interest till the date of Award and (ii)Rs.10,00,000/- towards damages awarded under Issue No.18 and part of issue No.2 to the claimant. The balance of Rs.1,22,69,118/- shall be paid with future interest at 9% per annum on the principal amount viz., Rs.1,01,87,223/- (i.e., Rs.1,00,71,735/- plus Rs.23,65,488/- minus Rs.22,50,000/-) till payment. Further accused No.3, was made personally liable to the value of the cars supplied to the extent of 1.25 crores (90 lakhs FDR + 35.00 lakhs). The said liability is an addition to the liability of accused No.1. For due execution of the award passed by the Tribunal, E.P.No.68 of 2003 was filed on 01.04.2003 before the XI Additional Chief Judge, (Fast Track Court), City Cviil court, Hyderabad. Section 420 of IPC prescribes punishment for cheating and dishonestly inducing the delivery of property, which is as follows. Section 420: - Cheating and dishonestly inducing delivery of property.-- Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine. Of fraudulent deeds and dispositions of property To attract the commission of the offence under Section 420 IPC, the Act should be done at the inception but not subsequent to it. Admittedly, in the present case as per the award passed by the arbitrator, the cars were supplied on credit basis as per the request made by the accused and for supply of cars when the complainant company demanded security of Rs.90,00,000/-, the same was furnished with the original term deposit receipt, dated 04.11.1999, which was not accepted by the company on some technical ground through letter, dated 11.11.1999. Acting upon the receipt, no cars were supplied by respondent No.2 company to accused No.1 company. There is no mis representation or fraudulent intention at the inception to attract Section 420 IPC. The Supreme Court in S.N.Palanitkar’s case (1 supra), held that if the appellants have committed breach of agreement, it is open to respondent No.2 to seek redressal in a competent court or forum to recover damages, if permissible in law, in case he had sustained any loss. In order to constitute an offence of cheating, the intention to deceive should be in existence at the time when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise, to say that he committed an act of cheating. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating. In the case on hand, the facts do not depict any inducement was made by the accused to supply the Cars on credit acting upon the fixed deposit receipt furnished, which was subsequently encashed by the accused to constitute that the accused had fraudulent or dishonest intention at the time of making the promise. Having regard to the fact that the complainant already invoked the arbitration clause and obtained an award and after obtaining the award on 15.04.2002, filing of the complaint on 21.01.2003 is only to spite by arm-twisting that the accused have committed an offence of cheating, to save the limitation under Section 468 Cr.P.C. It is also not disputed that for the offence under Section 406 IPC, the punishment was three years and for the offence under Section 422 IPC the punishment is for two years. Admittedly, in the case on hand, the alleged offence was committed in December 1999, but the complaint as such was lodged after the period of limitation and hence, the same clearly falls under illustration 7 enumerated by the Hon’ble Supreme Court in State of Haryana v. Bhajan Lal[3] and the same cannot be continued. In view of the same, allowing the proceedings against the accused is nothing but an abuse of process of law and hence, the same cannot be continued and are liable to be quashed. The Criminal Petition is, accordingly, allowed. __________________ A.GOPAL REDDY, J November 2010 lmv [1] AIR 2001 SC 2960 [2] 2010(8) SCC 442 [3] AIR 1992 SC 604