IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED 15.04.2010 CORAM THE HONOURABLE MR.JUSTICE C.T.SELVAM Crl.O.P.No.26808 of 2004 and M.P.Nos.8459 and 8560 of 2004 and 128 of 2008 1.M.O.H.Iqbal 2.Shajahan .. Petitioners Vs Agate Finance Ltd., represented by M.Kanagasabai .. Respondent Criminal Original Petition filed under section 482 of Criminal Procedure Code praying to call for the records relating to the proceedings in C.C.No.10129 of 2003 on the file of the learned XI Metropolitan Magistrate, Saidapet, Chennai and to quash the same. For Petitioners : Mr.G.R.Swaminathan For Respondent : Mr.B.Kumar Senior Counsel for M/s.Sai, Bharath and Illan ***** O R D E R The petitioners, who are accused 2 and 3 in case pending in C.C.No.10129 of 2003 on the file of the learned XI Metropolitan Magistrate, Saidapet, Chennai seek to quash proceedings as against them. 2.The respondent/complainant, a finance house, had advanced monies to the 1st accused company, M/s.M.O.Hassan Kuthoos Maricar Ltd., Pondicherry. The petitioners herein were the Director and Executive Director of the 1st accused company. The respondent/complainant informs that being induced to consider the request of the accused for financial assistance and on the assurance given by the accused 2 and 3, a sum of Rs.1,90,00,000/- was afforded on the basis of promissory note executed by the 1st accused represented by the accused 2 and 3. A deed of hypothecation executed by the 3rd accused on behalf of the 1st accused company was entered into between the 1st accused company and the respondent/complainant. The charges were duly registered with the Registrar of Companies. https://hcservices.ecourts.gov.in/hcservices/ 3.The essence of the compliant is that monies were lent to the accused on the strength of the security in the form of hypothecated goods of the 1st accused company. Towards securing the interest of the respondent/complainant, there was provision in the hypothecation agreement, which provided that the proceeds of sale of the goods which stood hypothecated would be paid over to the respondent/ complainant. This, according to the respondent/complainant has been breached by the 1st accused and hence, the complaint before the R4 Pondy Bazar Police Station has been preferred. 4.The concerned police closed the matter as one of mistake of fact, whereupon a protest petition was filed by the respondent/complainant before the concerned Judicial Magistrate. On the same being dismissed, the respondent/ complainant moved Crl.R.C.No.1436 of 2003 before this Court which found as follows: "5.After consideration or the rival submissions and scrutiny of the available materials, the Court is of the view that the order of the lower court has got to be set aside. Admittedly, the first accused was the Company and the accused Nos.2 and 3 are the Directors of the said company. There was an advancement of loan for a sum of Rs.1,90,00,000/- on 27.12.1997. On that day, a hypothecation deed has also been executed along with two promissory notes. As rightly pointed out by the learned counsel for the petitioner, the covenant in the hypothecation agreement that whenever stocks were received, it should be immediately by way of statement brought to the notice of the complainant and when those stocks are to the notice of the complainant and when those stocks are sold, the sale proceeds should be deposited in the account of the complainant. It is alleged that nothing has been done. Apart from that as per the covenant in the agreement, the accused is bound to keep the stock in trust. Under the stated circumstances, it cannot be stated that it was civil in nature. Hence, the order of the lower court has got to be set aside. Accordingly, it is set aside with a direction to the lower court to take the matter on file and proceed with the matter in accordance with law. This criminal revision case is allowed." 5.Pursuant to the order of this Court in Crl.R.C.No. 1436 of 2003, the protest petition was taken on file by the lower Court and summons were issued to the accused. It is at such stage that the present petition has been filed seeking quash of proceedings in the case. 6.Mr.B.Kumar, the learned Senior counsel appearing for the respondent raises objection to the maintainability of the present petition on two grounds: https://hcservices.ecourts.gov.in/hcservices/ (1)Reference is made to the order of this Court in Crl.R.C.No.1436 of 2003 and to the extract herein above contained. The contention is that once this Court, has on consideration, arrived at the finding that the matter was not civil in nature and that the case was one which has to be taken on file, then the entertainment of the present petition would amount to a review by this Court of the earlier order and the same stood barred by application of Section 362 Cr.P.C. Section 362 Cr.P.C. reads as follows: "Court not to alter judgment.- Save as otherwise provided by this Code or by any other law for the time being in force, no Court, when it has signed its judgment or final order disposing of a case, shall alter or review the same except to correct a clerical or arithmetical error." (2)Reliance is placed on the judgment of the Honourable Apex Court in Sunita Jain v. Pawan Kumar Jain and others (2008) 1 Supreme Court Cases (Cri) 537. Such was a case, where the wife had preferred a complaint against the husband, parents-in-law and also the brother and sister of the husband for offences under Section 498-A, 342, 506 and 406 r/w. Section 3 and 4 of the Dowry Prohibition Act, 1961. The trial Court being satisfied that prima facie case was made out framed charges against the accused. The High Court, on a petition before it, quashed charges against two of the accused viz., the brother-in-law and sister-in-law of the defacto complainant. The petition for quash was dismissed as against the husband and parents- in-law, who moved the Honourable Apex Court by way of Special Leave Petition, which came to be dismissed. Subsequent thereto, the husband and parents-in-law again moved the High Court under section 482 Cr.P.C. for quashing criminal proceedings. The High Court observed that the petitioners before it, had earlier approached the Court against framing of charge and the same was not interfered even by the Honourable Supreme Court and went on to hold that the Court of law cannot be expected to remain a silent spectator and cannot be made a tool of gratifying personal vengeance of any party and found it fit to exercise power under Section 482 Cr.P.C. towards quash of proceedings. Again, the matter reached the Honourable Supreme Court. The Honourable Supreme Court found as follows: "30.To us, the learned counsel for the appellant is right in substance and in reality, the High Court has exercised power of review not conferred by the Code on a criminal court. Section 362 of the Code does not empower a criminal court to alter its judgment. It read thus: "362.Court not to alter judgment.- Save as otherwise provided by this Code or by any other law for the time being in force, no Court, when it has signed its judgment or final order disposing of a case, shall alter or review https://hcservices.ecourts.gov.in/hcservices/ the same except to correct a clerical or arithmetical error." (emphasis supplied) 31.The section makes it clear that a court cannot alter or review its judgment or final order after it is signed except to correct clerical or arithmetical error. The scheme of the Code, in our judgment, is clear that as a general rule, as soon as the judgment is pronounced or order is made by a court, it becomes functus officio (ceases to have control over the case) and has no power to review, override, alter or interfere with it." 7.The learned Senior counsel also relied upon the decision of the Full Bench of the Calcutta High Court in Harjeet Singh v. State of W.B., (2005) Cri.L.J.3286: "The Court cannot review or recall its final order, even in cases where the parties may come up before it feeling that they have not been heard or they have left out something, which if placed before the Court, may have resulted in a different decision and that the decision arrived in their absence was an impaired finding. Once the Court lifts its pen after signature it cannot put it once again; except of the situations like for the purpose of rectifying a clerical or arithmetical error. Thus in view of S.362 of the said Code there is a clear bar for any Court, which includes the High Court, to either review or recall an order or judgment passed even if it is found subsequently that it offends the principles of natural justice as this is the language of S.362 of the Code." 8.It is submitted that the principle of res judicata also applied in criminal proceedings. The learned counsel drew the attention of this Court to the decision of the Honourable Apex Court in Virupakshayya Shankarayya v. Neelakanta Shivacharya Pattadadevaru AIR 1995 Supreme Court 2187 and more particularly to paragraph 8 and 9 of the said judgment which reads as follows: "8.The above apart, what is more material is that the Privy Council of Jamkhandi State having held in an earlier proceeding that Shivalingayya was duly nominated and installed as Padadayya inasmuch as he had been so nominated by Shankarayya before his marriage, which is the only ground on which Shivalingayya's nomination has been held to be vitiated in the present proceedings by the High Court, we are of the firm view that the contrary conclusion arrived at in the present proceedings in favour of plaintiff does not deserve to be confirmed. It may be that principle of res judicata has no application, despite what has been stated in Explanation VI of Section 11, C.P.C., inasmuch as in the earlier proceeding the present plaintiff was not a party and Andanayya (the plaintiff https://hcservices.ecourts.gov.in/hcservices/ therein) had not claimed possession of the property as Padadayya but as Charanti contending that as the office of Padadayya was lying vacant because of invalidity in the nomination and the installation of Shivalingayya, he had stepped into shoes of Padadayya. There is, however, no denial that the foundation of the case of Andanayya was the infirmity in the nomination and the installation of Shivalingayya as Padadayya; and it is precisely this which the Privy Council had not accepted. 9.In the aforesaid premises, the judgment of the Privy Council, even though the same did not bind the plaintiff on the principle of res judicata, was definitely a relevant circumstance to be taken note of, because of what has been stated in Section 42 of the Evidence Act. What we, however, find is that the High Court had only referred to the earlier decision without examining the question as to whether law permitted a contrary view to be taken on the self-same issue. According to us, the issue having been finally determined at the highest level, the same could not have been re-examined, which exercise, to start with was undertaken even by a Civil Judge." 9.The learned counsel for the petitioners, on the other hand, submits as follows: The hypothecation deed was dated 27.12.1997. The First Information Report in the case had been filed on 21.04.2001 and the same had been referred as mistake of fact on 31.07.2002. The criminal revision filed by the defacto complainant was allowed by this Court on 29.01.2003 and thereafter, the learned Judicial Magistrate has taken cognizance of offences under Sections 406, 409 and 120 B IPC and issued summons to the petitioners. As could be made out from a very reading of the FIR and as was the admitted case, the entire complaint stems out of violation of the terms attached to a hypothecation agreement. The matter is no longer res integra and stands settled by the decision of the Honourable Apex Court in Indian Oil Corpn. v. NEPC India Ltd. and others (2006) 6 Supreme Court Cases 736. Paragraphs 25 to 31 of the said judgment are reproduced. 25.The question is whether there is "entrustment" in an hypothecation? Hypothecation is a mode of creating a security without delivery of title or possession. Both, ownership of the movable property and possession thereof, remain with the debtor. The creditor has an equitable charge over the property and is given a right to take possession and sell the hypothecated movables to recover his dues (note: we are not expressing any opinion on the question whether possession can be taken by the creditor, without or with recourse to a court of law). The creditor may also have the right to claim https://hcservices.ecourts.gov.in/hcservices/ payment from the sale proceeds (if such proceeds are identifiable and available). The following definitions of the term "hypothecation" in P.Ramanatha Aiyar's Advanced Law Lexicon [3rd Edn. (2005), Vol.2, pp.2179 and 2180] are relevant: "Hypothecation: - It is the act of pledging an asset as security for borrowing, without parting with its possession or ownership. The borrower enters into an agreement with the lender to hand over the possession of the hypothecated assets whenever called upon to do so. The charge of hypothecation is then converted into that of a pledge and the lender enjoys the rights of a pledgee. 'Hypothecation' means a charge in or upon any movable property existing or future, created by a borrower in favour of a secured creditor, without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallisation of such charge into fixed charge on movable property. [Borrowed from Section 2(n) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002]" But there is no entrustment of the property" or "entrustment of dominion over the property" by the hypothecatee (creditor) to the hypothecator (debtor) over the property" by the hypothecatee (creditor) to the hypothecator (debtor) in an hypothecation. When possession has remained with the debtor / owner and when the creditor has neither ownership nor beneficial interest, obviously there cannot be any entrustment by the creditor. 26.The question directly arose for consideration in Central Bureau of Investigation v. Duncans Agro Industries Ltd (1996 5 SCC 591: 1996 SCC (Cri) 1045). It related to a complaint against the accused for offences of criminal breach of trust. It was alleged that a floating charge was created by the accused debtor on the goods by way of security under a deed of hypothecation, in favour of a bank to cover credit facility and that the said goods were disposed of by the debtor. It was contended that the disposal of the goods amounted to criminal breach of trust. Negativing the said contention, this Court after stating the principle as to when a complaint can be quashed at the threshold, held thus: (SCC pp.607-08, para 27) "[A] serious dispute has been raised by the learned counsel ... as to whether on the face of the allegations, an offence of criminal breach of trust is constituted or not. In our view, the expression 'entrusted with property' or 'with any dominion over property' has been https://hcservices.ecourts.gov.in/hcservices/ used in a wide sense in Section 405 IPC. Such expression includes all cases in which goods are entrusted, that is, voluntarily handed over for a specific purpose and dishonestly disposed of in violation of law or in violation of contract. The expression 'entrusted' appearing in Section 405 IPC is not necessarily a term of law. It has wide and different implications in different contexts. It is, however, necessary that the ownership or beneficial interest in the ownership of the property entrusted in respect of which offence is alleged to have been committed must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit. The expression 'trust' in Section 405 IPC is a comprehensive expression and has been used to denote various kinds of relationships like the relationship of trustee and beneficiary, bailor and bailee, master and servant, pledger and pledgee. When some goods are hypthecated by a person to another person, the ownership of the goods still remains with the person who has hypothecated such goods. The property in respect of which criminal breach of trust can be committed must necessarily be the property of some person other than the accused or the beneficial interest in or ownership of it must be in the other person and the offender must hold such property in trust for such other person or for his benefit. In a case of pledge, the pledged article belongs to some other person but the same is kept in trust by the pledgee. In the instant case, a floating charge was made on the goods by way of security to cover up credit facility. In our view, in such case for disposing of the goods covering the security against credit facility the offence of criminal breach of trust is not committed. (emphasis supplied) 27.The allegations in the complaints are that aircrafts and the engines fitted therein belong to NEPC India, and that a charge was created thereon by NEPC India in favour of IOC by way of hypothecation to secure repayment of the amounts due to IOC. The terms of hypothecation extracted in the complaints show that the ownership and possession of the aircrafts continued with NEPC India. Possession of the aircraft, neither actual nor symbolic, was delivered to IOC. NEPC India was entitled to use the aircraft and maintain it in good state of repairs. IOC was given the right to take possession of the hypothecated aircrafts only in the event of any default as mentioned in the hypothecation deed. It is not the case of IOC that it took possession of the aircraft in exercise of the right vested in it under the deed of hypothecation. Thus, as the possession of the aircraft remained all along with NEPC India in its capacity as the owner and the deed of hypthecation merely created a charge over the aircrafts with a https://hcservices.ecourts.gov.in/hcservices/ right to take possession in the event of default, it cannot be said that there was either entrustment of the aircrafts or entrustment of the dominion over the aircrafts by IOC to NEPC India. The very first requirement of Section 405, that is, the person accused of criminal breach of trust must have been "entrusted with the property" or entrusted with any dominion over property" is, therefore, absent. 28.Learned counsel for the appellant, however, sought to distinguish the decision in Duncans Agro on two grounds. It was pointed out that Duncans Agro itself recognises that there can be criminal breach of trust where a beneficial interest exists in the other person, and the offender holds the property in trust for such person. It is submitted that when the deed of hypothecation was executed by NEPC India in favour of IOC, the hypothecation created a beneficial interest in the property in favour of IOC, and vis-a-vis such "beneficial interest" of IOC, the possession of the property by NEPC India was in "trust". In support of this contention, reliance was placed on a decision of the Sind Judicial Commissioner in Gobindram C. Motwani v. Emperor (1938) 39 Cri LJ 509 : AIR 1938 Sind 73. In that case the complaint was that the accused had hypothecated the goods in their shop as collateral security against an advance and had agreed to hold the goods and proceeds thereof in trust and to pay the proceeds as and when received by them. However, as they did not pay the proceeds, the complaint was that they committed criminal breach of trust. The Magistrate took the view that as the hypothecated goods were still the property of the accused, they could not commit criminal breach of trust in respect of their own property. The Judicial Commissioner did not agree. He held: (Gobindram C.Motwani (1938) 39 Cri LJ 509 : AIR 1938 Sind 73, AIR p.76) "The test in this case appears to me to be whether the owners of the goods, the accused, created an equitable charge over the goods in their possession when they executed the trust receipt. If they did so, they held the goods as trustees, they were 'in some manner entrusted' with the goods, and if they dealt with them in violation of the terms of the trust, they committed an offence under this section, provided they had the necessary criminal intent. I can myself see no reason why it should be said that by this trust receipt the accused did not give a beneficial interest in the goods to the applicant and did not hold the goods, with which they were entrusted as legal owners, in trust for the applicant. That being so, I think the learned Magistrate was wrong in his decision that the accused could not be guilty of criminal breach of trust because the goods were their own property." https://hcservices.ecourts.gov.in/hcservices/ It is evident that the said observations were made on the peculiar facts of that case where the Commissioner concluded that the goods were held by the accused in trust as trustee in view of execution of a "trust receipt" by the accused. The facts were somewhat similar to example (viii) in para 22 above. Further, the Judicial Commissioner finally observed that there was so much room for an honest difference of opinion as to the rights and liabilities of the parties to the trust receipt that no useful purpose could be served in interfering with the order of discharge by the Magistrate. The said decision is therefore of no assistance to the appellant. 29.If the observations relied on by the appellant are to be interpreted as holding that the debtor holds the hypothecated goods, in trust for the creditor, then they are contrary to the decision of this Court in Duncans Agro which specifically holds that when goods are hypothecated, the owner does not hold the goods in trust for the creditor. A charge over the hypothecated goods in favour of the creditor cannot be said to create a beneficial interest in the creditor, until and unless the creditor in exercise of his rights under the deed, takes possession. The term "beneficial interest" has a specific meaning and connotation. When a trust is created vesting a property in the trustee, the right of the beneficiary against the trustee (who is owner of the trust property) is known as the "beneficial interest". The trustee has the power of management and the beneficiary has the right of enjoyment. Whenever there is a breach of any duty imposed on the trustee with reference to the trust property or the beneficiary, he commits a breach of trust. On the other hand, when the owner of a goods hypothecates a movable property in favour of a creditor, no "beneficial interest" is created in favour of the creditor nor does the owner become a trustee in regard to the property hypothecated. The right of the creditor under a deed of hypothecation is the right to enforce the charge created under the deed of hypothecation in the manner specified in the deed and by no stretch of imagination can such right be equated to a beneficial interest of a beneficiary in a property held in trust. Therefore, the first contention that a creditor has a beneficial interest in the hypothecated property and the owner is in the position of a trustee with reference to the creditor is liable to be rejected. 30.The second ground on which learned counsel for the appellant sought to distinguish Duncans Agro is that the said case dealt with a hypothecation deed creating a floating charge, whereas the case on hand related to a fixed charge and, therefore, the principle laid down in Duncans Agro will https://hcservices.ecourts.gov.in/hcservices/ not apply. This contention is also without basis. The principle stated in Duncans Agro will apply in regard to all types of hypothecations. It makes no difference whether the charge created by the deed of hypothecatiion is a floating charge or a fixed charge. Where a specific