*THE HON’BLE SRI JUSTICE K.C.BHANU +CRIMINAL PETITION No. 9949 OF 2009. %14-09-2009 # Venkat N.N. @ Venkata Narayana.N. …Petitioner-accused Vs. $ State of A.P. rep. By P.P., High Court of A.P. Hyderabad and another ….Respondents-Complainants !Counsel for the Petitioner: Mr.C.B.Ram Mohan Reddy ^Counsel for the Respondent No.1: Public Prosecutor Counsel for the Respondent No.2: Mr.N.Narasimha Rao <Gist : >Head Note: ? Cases referred: 1.1992 Supp. (1) SC 335 2.2007(1) ALD (Crl) 396 (A.P.) 3.(2009) 3 SCC 78 4.AIR 2008 SC 251 5.(2009) 7 SCC 712 6.2006 (2) ALT (Crl) 284 (A.P.) THE HON’BLE SRI JUSTICE K.C.BHANU CRIMINAL PETITION NO.9949 OF 2009 DATED: 14th SEPTEMBER, 2010 Between: Venkat N.N. @ Venkata Narayana.N. …Petitioner-accused And 1.The State of A.P. rep. by Public Prosecutor, High Court of A.P. Hyderabad and another. …Respondents-Complainants THE HON’BLE SRI JUSTICE K.C.BHANU CRIMINAL PETITION NO.9949 OF 2009 ORDER: This Criminal Petition under Section 482 Cr.P.C. is filed to quash the proceedings in C.C.No.224 of 2008 on the file of the XII Additional Chief Metropolitan Magistrate, Hyderabad, which was taken cognizance of the offence punishable under Section 420 IPC. 2. Brief facts, that are necessary for disposal of the present petition may be stated as follows: The 2nd respondent herein, who is the complainant filed the complaint against the petitioner-accused alleging that the accused introduced himself as Director of M/s Jewargi Power Private Limited, Bangalore (hereinafter referred to as ‘J.P.P. Ltd.,”) and that he is the authorized by the J.P.P. Ltd., to negotiate and finalize take over deal of the said company to transfer the project to any willing investor and made himself and his company to believe the version and furnished a copy of Memorandum of Undertaking (for short ‘M.O.U.’) between J.P.P. Ltd., and Government of Karnataka and offered the entire equity share capital of the said company and induced them to enter into a share purchase agreement, dated 07-03-2007 and collected an mount of Rs.1,22,53,440/- in favour of Indian Power International Limited and three more post dated cheques for Rs.8,54,000/- each. Later the accused did not comply the conditions of the share purchase agreement and started dodging the issue. On suspicion, the complainant made enquiries and came to know that M.O.U. between J.P.P. Ltd., and Government of Karnataka has expired and the same has to be approved by the High Level Cabinet Committee and the same will not be renewed automatically as promised by the accused and the said company did not acquire any land or properties to establish such project. On the instructions of the complainant company to transfer the shares of J.P.P. Ltd., the accused was dodging. The said complaint was referred to Panjagutta Police Station for investigation. Police registered a case in Cr.No.143 of 2007 under Sections 389, 415, 420 and 506 IPC. After completion of investigation, police filed charge sheet. On the same day, the complainant lodged another complaint before the XIV Additional Chief Metropolitan Magistrate, Hyderabad stating that the accused induced the complainant company to enter into Investment Agreement with M/s Power Ventures for an investment of Rs.25,00,00,000/- for the take over of a power project in a phased manner. The accused has subsequently approached the complainant company and pressed for early payment of funds. Trusting and believing the said accused, the complainant company in good faith and pending completion of the legal due diligence, issued a cheque for Rs.4,13,46,560/- and issued three post dated cheques for Rs.3,24,78,993/- each with a condition to furnish the documents pertaining to the formation, Registrar of Companies and other statutory books and records of M/s Power Ventures Ltd., within 20 days of the execution of the agreement. But the accused has not provided the documents required by the complainant. Further the Pan number of the Income Tax submitted by the accused belonging to M/s ESL Wind Power Limited, which is erstwhile name of the complainant company. The said fact has been knowingly and deliberately concealed by the accused. Therefore, the complainant company issued legal notice to the accused to return an amount of Rs.4,13,46,560/- and advised the accused not to present the three post dated cheques issued in favour of the companies. But the accused, however, continues to illegally possess the above three cheques till date. Thereafter, the complainant company intimated the Bank not to honour the cheques. Therefore, the Bank dishonoured the cheques. Then the accused issued a notice under Section 138 of the Negotiable Instruments Act, 1881 to the complainant and its Directors. The act of the accused is in attempt to pressurize and intimidate the complainant with false legal proceedings solely for an intention to cover up and cast shadow his illegal and nefarious acts. The same complaint was referred to the police and the police registered a case in Cr.No.802 of 2007. Thereupon, the case was transferred to Central Crime Station, Hyderabad. The Inspector of Police took up investigation, examined the witnesses and filed charge sheet. The allegations in the charge sheet would go to show that the accused has introduced himself as the Director of Indu Group of companies and that he has profound experience in the Power generation sector for over a period of decade gained the confidence of Javid Rahaman, the promoter Director of M/s J.P.P.Ltd., Bangalore and promised him to implement the Power Project by procuring foreign investors to participate in the equity of J.P.P.Ltd., and obtained letter from him to Negotiate and finalize the deal for take over of J.P.P.Ltd., subsequently managed to mail letters from (1) KBT Ventures Limited, Republic of Mauritus stating that they are prepared to invest an amount of US $700/- million and to participate in the equity of J.P.P.Ltd., and (2) Mailed another letter on behalf of M/s Indu Projects stating that they are interested to invest Rs.500 crores in the equity of J.P.P.Ltd., furnished a draft agreement to this extent and induced Mr.Javid Rahman, of J.P.P.Ltd., to induct the accused as a Director in the Board of Directors of M/s J.P.P.Ltd., Having obtained the above, the accused approached the complainant company through one L.Budda Kumar, Financial Consultant of the complainant company, furnished the above letters and fabricated certain documents like extracts of the minutes, share certificates of J.P.P. Ltd., persuaded the complainant to enter into several agreements like M.O.U., Professional Services, Agreement, Share Purchase Agreement and Investment Agreement to take over M/s J.P.P.Ltd., and collected cheques for Rs.5.25 crores from the complainant company on different dates, encashed the above cheques and invested only Rs.1.25 crores in J.P.P.Ltd., and diverted the remaining money of Rs.4 crores into the accounts of his companies as evident from the statements of accounts furnished by L.Ws. 5 and 6, misappropriated the amounts and thereby cheated the complainant company, extorted money from the complainant by furnishing fabricated documents with a dishonest and fraudulent intention and caused wrongful loss to the complainant and thereby cheated the complainant and also M/s J.P.P. Ltd., and liable for punishment under Section 420 IPC. 3. The case was taken on file against the accused for the offence punishable under Section 420 IPC. 4. Now the point for determination is whether this case falls under Section 482 Cr.P.C. to quash the proceedings. 5. Learned counsel appearing for the petitioner-accused contended that even if the allegations in the complaint are accepted as true and correct, at this stage, they do not disclose an offence punishable under Section 420 IPC as the necessary ingredients of the offence of cheating are not made out, that the petitioner and the 2nd respondent entered into M.O.U. on 10-01-2007 for purchase of share of J.P.P.Ltd., that the petitioner was the Director and was authorized signatory, that the M.O.U. was signed by the Chairman of the complainant after due enquiry and deliberations, that as per due diligence, the clause in the agreement is complainant has to verify the records and obtain necessary documents from the Registrar of Companies within 30 days, and upon satisfaction agreed to pay sale consideration and therefore, question of suppression of any facts by the accused does not arise. It is further contended that after verification of records, complainant entered into share purchase agreement and also investment agreement on 07-03-2007 and both the documents would clearly go to show that the complainant has carried out necessary verification of records and accounts of J.P.P.Ltd., after due diligence and therefore, there is no question of suppression of any material facts, that the allegations in the complaint are purely civil in nature and relating to commercial transaction, that the present complaint is filed as a counter-blast to the criminal cases filed under Section 138 of the N.I. Act and therefore, continuation of proceedings is nothing but abuse of process of law. He also relied on several decisions, which will be referred to at appropriate time. 6. On the other hand, learned counsel appearing for the 2nd respondent contended that the accused after receipt of cheques from the complainant, encashed the same and diverted the amounts to M/s GVN Finance and Leasing Ltd., which is a non operative company of the accused, that the documents relating to Indian Power International Ltd., M/s Power Ventures Ltd., and M/s GVN Finance and Leasing Ltd., belonging to the accused and those companies were non operative since a long time, that the accused and other share holders are not entitled to sell 5,76,720 shares to the complainant and subscribed capital of J.P.P.Ltd., was only 1,50,000 equity shares of Rs.10/- each, that the accused did not furnish any documentary evidence of register of company records, resolution approved the transfer of shares along with minutes, that the accused entered into another agreement with Mr.V.R. Rao Avvas of M/s Agri Gold Group of Companies, wherein it was agreed to invest Rs.25 crores for the take over of a power project in a phased manner, that in pursuance of agreement, dated 15-03-2007 Mr.V.R. Rao Avvas issued a cheque for Rs.4 crores and odd, which was encashed by the accused and also three post dated cheques, that the accused fabricated certain documents like extracts of the minutes, share certificates of J.P.P.Ltd., persuaded the company to enter into several agreement and diverted the amount of Rs.4 crores to other companies, which were not in existence and deceived the complainant, that the allegations prima facie made out offence punishable under Section 420 IPC and hence, he prays to dismiss the petition. 7. Necessary ingredients to constitute the offence of cheating which is defined under Section 415 I.P.C. are: (1) There should be fraudulent or dishonest inducement of a person by deceiving him, (2) (a) the person so deceived should be induced to deliver any property to any person or to consent that any person shall retain any property; or (b) the person so deceived should be intentionally induced to do or omit to do anything which he would not do or omit if he were not so deceived, and (3) in cases covered by (2)(b) the act or omission should be one which causes or is likely to cause damage or harm to the person induced in body, mind, reputation or property. In order to bring the case within the first part of Section, it is essential in the first place, that the person who delivers the property should have been deceived before he makes the delivery and in the second place, that he should have been induced to do fraudulently or dishonestly. There must be dishonesty or fraud in obtaining delivery of property and an intentional inducement of the complainant to do or omit to do some act or omission which must cause or to be likely to cause damage or harm to that person in body, mind reputation or property. To held a person guilty of the offence of cheating, it has to be shown that his intention was to dishonest at the time of making promise. Dishonest is defined under Section 24 IPC which reads whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person, he is said to do that thing dishonestly. Similarly the word ‘fraudulently’ is defined under Section 25 IPC, which reads a person is said to do a thing fraudulently if he does that thing with an intention to defraud, but not otherwise. Wrongful gain is a gain by unlawful means of property to which a person gaining is not legally entitled. Similarly wrongful loss is loss of unlawful property to which the person loosing to his legally entitled. 8. Learned counsel for the accused contended that the case squarely falls under clause 7 of a decision reported in STATE OF HARYANA AND OTHERS V BHAJANLAL AND OTHERS [1], wherein it was held that where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge. In view of the allegations in the statement of witnesses and also the case of the accused, it does not fall within the ambit of clause 7 of Bajan Lal’s case. 9. Learned counsel for the accused relied on a decision reported in RAJVIR INDUSTRIES LTD., SECUNDERABAD AND OTHERS V STATE OF A.P.AND ANOTHER [2], wherein it was held thus: “ To hold a person guilty of offence of cheating, it has to be shown that his intention was dishonest at the time of making promise and such a dishonest intention can be inferred from the mere fact that he could not subsequently fulfill the promise. Even if the allegations in the complaint are taken as true and correct at this stage, in pursuance of the agreement only the cheques must have been given. There was no inducement or deception played by A2 and A3 at the time of inception. To constitute an offence of criminal breach of trust, it is essential that the prosecution must show first of all that the accused was entrusted with some property or with dominion or power over it . It has further to be established that in respect of the property so entrusted there was dishonest misappropriation or dishonest conversion or dishonest use in violation of directions of law.” The above decision has no application to the present facts of the case since on facts it was held that the complainant therein appears to have been filed to pre-empt the accused to file complaint under Section 138 of N.I. Act. 10. He relied on another decision reported in V.Y.JOSE AND ANOTHER V STATE OF GUJARAT AND ANOTHER [3], wherein it was held thus: “ There exists a distinction between pure contractual dispute of a civil nature and an offence of cheating. Although breach of contract per se would not come in the way of initiation of a criminal proceeding, there cannot be any doubt whatsoever that in the absence of the averments made in the complaint petition wherefrom the ingredients of an offence can be found out, the court should not hesitate to exercise its jurisdiction under Section 482 of the Code of Criminal Procedure.” There is no dispute about the proposition of law laid down by the apex Court because mere breach of contract by itself give rise to a criminal prosecution. But in a case of cheating, the intention to cheat must be in existence from the inception i.e., at the time of entering into contract. 11. He relied on another decision reported in INDER MOHAN GOSWAMI AND ANOTHER V STATE OF UTTARANCHAL[4], wherein it was held thus: “The Court must ensure that criminal prosecution is not used as an instrument of harassment or for seeking private vendetta or with an ulterior motive to pressure the accused. On analysis of the aforementioned cases, we are of the opinion that it is neither possible nor desirable to lay down an inflexible rule that would govern the exercise of inherent jurisdiction. Inherent jurisdiction of the High Courts under Section 482 Cr.P.C. though wide has to be exercised sparingly, carefully and with caution and only when it is justified by the tests specifically laid down in the Statute itself and in the aforementioned cases. In view of the settled legal position, the impugned judgment cannot be sustained.” 12. He relied on another decision reported in HARMANPREET SINGH AHLUWALIA AND OTHERS V STATE OF PUNJAB AND OTHERS [5], wherein it was held thus: “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 culpable intention at the time of making initial promise being absent, no offence under Section 420ofthe Penal Code can be said to have been made out. We may reiterate that one of the ingredients of cheating as defined in Section415 of the Penal Code is existence of an intention (sic a fraudulent or dishonest intention at the time) of making initial promise or existence thereof from the very beginning of formation of contract.” 13. He relied on another decision reported in COROMONDAL CEMENTS LTD REP. BY ITS MD.AND OTHERS V STATE OFA.P.REP. BY PUBLIC PROSECUTOR AND OTHERS [6], wherein it was held thus: “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.” There is no dispute about the powers of this Court to be exercised under Section 482 Cr.P.C. Similarly, it is clear from the decisions that the accused must have entertained a fraudulent or dishonest intention at the time of making promise. At this stage, it is not necessary to test or weigh the allegations in the charge sheet as correct or not. What is required to be seen at this stage is if the uncontroverted allegations in the charge sheet and the statement of witnesses and other documents, if taken as true and correct, made out prima facie case or not. Prima facie is a latin expression meaning on its first appearance or by first instance or first sight, it is used in modern legal parlance to signify that on first examination, a matter appears to be self evident from the facts. Prima facie evidence means on the face of it, there is a ground for proceeding. It is not the same thing as proof, which comes later when the Court has to find whether the accused is guilty. The essence of a crime is the criminal intention with which the act has been committed. The act does not make a criminal unless there be also criminal intention. The external acts reveal the internal secret purpose, or more shortly acts indicate the intention. The intention in a case only be gathered from the acts of the person committing the crime. Therefore, dole, which is evil or felonious intention is presumed in a greater or lesser extent from the circumstances of each particular case. 14. Bearing the above principles in mind, it has to be seen whether prima facie case of cheating is made out against the accused. 15. The allegation is that the accused introduced himself as Director of J.P.P. Ltd., and that he is the authorized by the J.P.P. Ltd., to negotiate and finalize take over deal of the said company to transfer the project to any willing investors and furnished a copy of M.O.U. between J.P.P. Ltd and Government of Karnataka and offered the entire equity share capital of the said company. During investigation it came to light that the accused and other share holders of J.P.P.Ltd., are not entitled to sell 5,76,720 shares of Rs.10/- each to the complainant as promised by the accused. To the surprise of the complainant, they came to know that they issued subscribed capital of J.P.P.Ltd., was only 1,50,000 equity shares of Rs.10/- each. It is exclusively within the knowledge of accused. Therefore, it is a suppression of fact, which is a deception within the explanation to Section 415 IPC. The allegation further would go to show that the accused made to believe that M.O.U. entered into between J.P.P.Ltd., and Government of Karnataka would be renewed automatically, but to the surprise of the complainant, it came to light that the said renewal has to be approved by High Level Cabinet Committee and the same will not be renewed automatically. It is a false promise made by the accused. It is further alleged that the accused induced V.R. Rao Avvas, Chairman and Managing Director of Agri Gold Group of Companies to enter into investment agreement investing Rs.25 crores for taking over the power project in a phased manner. Believing his representation, V.R. Rao Avvas issued a cheque for Rs.4 crores and 13 lakhs odd and also issued three post dated cheques for Rs.3,24,78,993/- each. Those amounts have been diverted by the accused and transferred to the account of M/s GVN Finance and Leasing Ltd., which is a non operative company of the accused. The accused having received Rs.1 crore from the Chairman, dodging the matter. As promised, the accused did not submit the Registrar of Companies, the resolution passed by the company. It is further alleged that the accused fabricated certain documents like extracts of minutes, share certificates of J.P.P.Ltd., persuaded the complainant V.R. Rao Avvas to enter into agreement and collected cash of Rs.5.25 crores from the complainant company on different dates and encashed the cheques and invested only Rs.1.25 crores in J.P.P.Ltd., and diverted the remaining money of Rs.4 crores to the account of his company namely M/s Indian Power International Ltd., M/s Power Ventures Ltd., and M/s GVN Finance and Leasing Ltd., which were in operative since a long time and thereby misappropriated the amount and cheated the complainant. From the above allegations, it is prima facie clear that the accused entertained an idea of cheating the complainant from the beginning. If really his intention is not to cheat the complainant, he would not have furnished the forged and fabricated documents and he would not have diverted the funds into other companies other than the company to which the complainant advanced money. Though due diligence clause has been incorporated in the agreement that the complainant has to verify the records within 30 days and obtain necessary document from the Registrar of Companies and upon satisfaction, he agreed to pay sale consideration, but after persuation made by the accused, they advanced amount and at a later point of time, it came to light that the accused produced fabricated documents. The accused furnished certain documents and did not furnish all the documents as agreed. Further it is alleged that after receipt of cheques, the accused started dodging in production of documents as per M.O.U. It is also alleged that except the authorization letter issued by J.P.P.Ltd., the appointment of the accused as a Director of J.P.P. Ltd., and all other documents furnished by the accused have been found to be forged and fabricated by the accused with fraudulent intention to receive huge amounts standing in Agro Gold Group of Companies. Since, prima facie case of cheating has been made out against the accused, question of quashing the complaint does not arise. 16. Accordingly, the Criminal Petition is dismissed. --------------------- K.C.BHANU, J DATED:14th SEPTEMBER, 2010 Hsd Note: L.R. copy to be marked [1] 1992 SUPP (1) SCC 335 [2] 2007 (1) ALD (CRL) 396 (A.P.) [3] (2009) 3 SCC 78 [4] AIR 2008 SC 251 [5] (2009) 7 SCC 712 [6] 2006 (2) ALT (CRL)284 (A.P.)