IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CRIMINAL APPLICATION No 433 of 2001 WITH SPECIAL CRIMINAL APPLICATIONS No 560 & 579 of 2001 WITH CRIMINAL MISC. APPLICATION NO.8391 OF 2001 For Approval and Signature: Hon'ble MR.JUSTICE A.L.DAVE ============================================================ 1. Whether Reporters of Local Papers may be allowed : YES to see the judgements? 2. To be referred to the Reporter or not? : YES 3. Whether Their Lordships wish to see the fair copy : NO of the judgement? 4. Whether this case involves a substantial question : NO of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? : NO @ THE ARVIND MILLS LIMITED Versus STATE OF GUJARAT -------------------------------------------------------------- Appearance: 1. Special Criminal Application No. 433 of 2001 MR S.B. VAKIL, SR. ADVOCATE FOR M/S THAKKAR ASSOC. for the Petitioners. MR AD OZA, PP, for Respondent No. 1 MR SHANTI BHUSHAN, SR. ADVOCATE WITH MR ND NANAVATI, SR. ADVOCATE WITH MR S.V. RAJU, ADVOCATE for Respondent No. 2 MR MJ THAKORE, SR. ADVOCATE WITH MR SANDEEP SINGHI FOR M/S SINGHI & CO for Respondent No. 3-9 2. Special Criminal Application No. 560 of 2001 MR HN SALVE, SOLICITOR GENERAL OF INDIA WITH MR MJ THAKORE, SR. ADVOCATE WITH MR. SANDEEP SINGHI FOR M/S SINGHI & CO for the Petitioner. MR AD OZA, PP, for Respondent No. 1 MR SV RAJU, ADVOCATE, for respondent No.2. MR SN SOPARKAR, SR. ADVOCATE WITH MR. P.K. JANI, ADVOCATE, for respondents No.3 to 6. 3. Special Criminal Application No.579 of 2001 MR AMIT DESAI, ADVOCATE, WITH MR. SANDEEP SINGHI, FOR M/S SINGHI & CO. for the petitioners. MR AD OZA, PP, for respondent No.1. MR SV RAJU, ADVOCATE, for respondent No.2 MR RJ OZA, ADVOCATE, for respondents No.3 to 6 MR VYAPAK N DESAI, ADVOCATE, for respondent No.7. 4. Criminal Misc. Application No.8391 of 2001. MR. SHANTI BHUSHAN, SR. ADVOCATE WITH MR. ND NANAVATI, SR. ADVOCATE, WITH MR. SV RAJU, ADVOCATE, for the applicant. MR. SB VAKIL, SR. ADVOCATE, for M/S THAKKAR ASSOCIATES, for opponents No.1 to 4. MR MJ THAKORE, SR. ADVOCATE, WITH MR. SANDEEP SINGHI FOR M/S SINGHI & CO. for respondents NO.5 TO 11. MR. AD OZA, PP, for respondent No.12. -------------------------------------------------------------- CORAM : MR.JUSTICE A.L.DAVE Date of decision: 07/05/2002 CAV JUDGEMENT 1. Rule. Mr. A.D. Oza, learned Additional Public Prosecutor, waives service on bahalf of the State in all the matters. Mr. S.V. Raju waives service on behalf of the respondent-original complainant in Special Criminal Applications No.433, 560 and 570 of 2001. Mr. Sandeep Singhi for M/s Singhi & Co. waives service on behalf of respondents No.3 to 9 in Special Criminal Application No.433 of 2001. Mr. P.K. Jani waives service on behalf of respondents No.3 to 6. in Special Criminal Application No.560 of 2001. Mr. R.J. Oza waives service on behalf of respondents No.3 to 6 and Mr. Vyapak N. Desai waives service on behalf of respondent No.7 in Special Criminal Application No.579 of 2001. 2. A private complaint came to be filed in the Court of learned Metropolitan Magistrate, at Ahmedabad by Commerzbank A.G., a banking company incorporated under laws of Germany, through Mr. A. Sekar on 6.6.2002 against ICICI Limited and Arvind Mills Limited along with their respective directors and officers for offences punishable under Sections 409, 421 and 424 read with Section 120-B of Indian Penal Code. Learned Metropolitan Magistrate, Court No.18, Ahmedabad, passed an order on 7.6.2001, directing registration of complaint and issuance of summons for offences punishable under Sections 409, 421 and 424 read with section 120-B of I.P.C. against the accused persons. The case was registered as Criminal Case No.964 of 2001 Aggrieved by the said lodging of complaint and the order passed thereunder, the accused persons have preferred these petitions under Article 227 of the Constitution of India. 3. As the petitions arise out of the same complaint and the order of the learned Metropolitan Magistrate and as common questions are involved, they have been heard together and are disposed of by this common judgment. 4. As seen earlier, respondent-Commerzbank lodged a criminal complaint against the petitioners for offences punishable under Sections 409, 421 and 424 read with Section 120-B of I.P.C. and the learned Magistrate directed registration of the complaint and issuance of summons for the said offences against the accused persons (petitioners herein). The original accused persons (petitioners herein) have sought quashment of the complaint and the order. In order that the contentions of the parties can be properly appreciated, certain facts would be pertinent to be noted. 5. Arvind Mills Limited ("AML" for short) is a limited company incorporated under the provisions of the Companies Act, 1956 and is mainly engaged in textiles and garment business. Around 1996-97, AML undertook expansion and diversification programme for the manufacture of different varieties of fabrics, garments, etc. In order to meet with the project cost, after due negotiations, an amount of 75 million US dollars was agreed to be lent to AML by a syndicate of about 13 foreign lenders, of which Commerzbank was one. The contribution of Commerzbank was to the tune of 9.6 million US dollars. In order that the agreement is acted upon, a document called "Facility Agreement" was entered into by the Syndicate (the Lenders), Facility Agent (Agent of the lenders)-the Bank of Nova Scotia Asia Limited and AML on November 15, 1996. Thereafter, another document called "Security Agent and Trust Agreement" ("SAT Agreement" for short) was executed on the 31st March, 1997 b AML, ICICI Limited, the Bank of Nova Scotia Asia Limited as the facility agent and the lenders. On basis of these documents, agreed amount of Rs.75 million US dollars came to be advanced to AML. By virtue of these documents, the first pari passu legal charge over immovable properties and the first pari passu charge by way of hypothecation over movable assets was created in favour of the lenders. By virtue of the SAT Agreement, ICICI Limited agreed to act as security agent and trustees for the facility agent (Bank of Nova Scotia Asia Ltd.) and the lenders in respect of the assets to be secured by the AML under the security documents. 6. After the money was advanced, in December 1999. AML entered into a Sale and Lease Back transaction with ICICI in respect of the assets of the Santej plant of AML. Out of the sale proceeds of the fixed assets, AML repaid certain amount of loan which AML had borrowed from ICICI. By virtue of the Sale and Lease Back transaction, the fixed assets continued to be in possession of AML and it was used by AML for production. Since the property was sold to ICICI and ICICI became the owner thereof, a rent was fixed which was to be paid by AML to ICICI. 7. It appears that AML was facing financial crisis because of number of factors and, therefore, restructuring of debts was contemplated in consultation with the creditors who included the lenders, i.e. the Syndicate, of which the complainant-Commerzbank is a member. A Steering Committee was appointed and, ultimately, the matter went to GBIFR. As the matter stands today, ultimately, a Company Petition came to be preferred before this Court bearing No. 140 of 2001 for sanction of the scheme of restructured debt, which came to be allowed by judgment dated 08.04.2002. 8. In the meantime, the complainant, having come to know about the Sale and Lease Back transaction between AML and ICICI on receipt of Memorandum of Information for Creditors prepared by Jardine Fleming at the instance of AML, felt that, by this transaction, a criminal breach of trust was committed by ICICI and its directors and office bearers in conspiracy with AML and its directors and officers and, therefore, the complaint in question came to be filed by the complainant. 9. The complaint was lodged on 6.6.2001 along with list of witnesses and other relevant documents. Statement of A. Sekar was recorded on that day and the learned Magistrate passed the order on 7.6.2001, which runs as follows :- "Complaint to be registered. Issue summons on accused for offence under Section 409m, 421, 424 read with 120-B of I.P.C. on P.F. Date: 7.6.2001 Sd/- Metropolitan Magistrate, Court No.18, Ahmedabad." 9.1 Aggrieved by the said complaint and the order, the present petitions are preferred. 9.2 Special Criminal Application No.433 of 2001 is preferred by the Arvind Mills Limited and its directors and officers. 9.3 Special Criminal Application No.560 of 2001 is preferred by ICICI Limited. 9.4 Special Criminal Application No.579 of 2001 is preferred by the directors and the officers of ICICI. 9.5 By these petitions, the petitioners-original accused persons, have prayed for quashment of the proceedings in Criminal Case No.964 of 2001, pending before Court No.18, Metropolitan Magistrate's Court, Ahmedabad and for quashing and setting aside of order of the learned Metropolitan Magistrate passed in Criminal Case No.964 of 2001, directing issuance of summons against the petitioners. 10. When Special Criminal Application No.433 of 2001 was circulated, this Court granted ad-interim relief in terms of paragraph 11(B) staying the further proceedings in the complaint till the returnable date of the notice issued in the matter by order dated 18.6.2001. The operation of that interim relief came to be extended from time to time and, therefore, the original complainant-respondent in these petitions filed Criminal Misc. Application No.8391 of 2001 in Special Criminal Application No.433 of 2001, praying for vacating the ad-interim relief granted in this Special Criminal Application, staying the trial of Criminal Case No.964 of 2001, pending before Court No.18, Metropolitan Magistrate's Court, Ahmedabad. 11. Learned Senior Counsel, Mr. S.B. Vakil, appearing for the petitioner, in order to substantiate the contentions, submitted that the order of the learned Metropolitan Magistrate is a two line order. It does not reflect any application of mind on part of the learned Metropolitan Magistrate. It was submitted that the statement of the complainant itself is not a substitute for the order of the Magistrate. It was submitted that, as per the various decisions of the Supreme Court, the learned Magistrate ought to have passed the order which would reflect application of mind. In support of these contentions, following decisions were cited :- (1) Punjab National Bank v. Surendra Prasad Sinha, AIR 1992 SC 1815. (2) Pepsi Foods Ltd. & Anr. v. Special Judicial Magistrate & Ors, (1998) 5 SCC 749. (3) Smt. Nagawwa v. Veeranna Shivalingappa Konjalgi and Ors., 1976(3) SCC 736. (4) B. Ramesh & Ors. v. State of Gujarat, 1997(2) GLR 1655. (6) Gujarat State Industrial Co-Op. Bank Ltd. v. Prakashchandra N vora & Ors, 1996(2) GLR 445. 11.1 It was contended that the ingredients of the offences alleged are not indicated in the complaint. Mr. Vakil submitted that to constitute criminal breach of trust, entrustment of property has to be indicated. There is no entrustment of any property by the complainant to AML or its directors. The property belonged to AML which has been sold to ICICI and leased back to AML by ICICI. The property still remains with AML. It was also contended that the sale which has aggrieved the complainant was permissible under the Facility Agreement clause 13.1(l)(ii). Therefore, there is not even breach of the contract between the parties. It was also contended that there is no material to indicate any conspiracy between ICICI and AML and their respective directors. It was contended that the complainant was aware about the transaction much prior to the receipt of the memorandum of information, on basis of which the complainant claims to have come to know about the transaction of Sale and Lease Back Agreement. The complainant, therefore, does not come with clean hands. It is, therefore, a mala fide complaint. In order to support the contention about the mala fide action or the abuse of process of law, it was contended that the complainant was aware about the Sale and Lease Back transaction. Still the complaint is filed after about 15 months. On the contrary, multiple legal actions have been taken by the complainant and, having failed at various fronts, has now resorted to institution of this criminal complaint. It was contended that Special Civil Application No.9188 of 2000 was preferred by the complainant which came to be disposed of on February 22, 2001 without granting any relief to the petitioners (complainant). Likewise, the scheme of restructuring of debt before GBIFR was opposed to by the complainant. At that point of time, the complainant was having no objection to the restructuring scheme proposed. But the complainant sought a prioritative treatment as compared to other creditors which could not have been given by AML. Having failed in the Special Civil Application as well as before GBIFR, the complainant has filed a suit on the 4th January, 2001 in England and now a complaint is preferred with a view to obstruct the Company Petition preferred for sanction of scheme of restructuring of debt. This indicates that the complainant is out to use the process of law as a leverage to pressurise the petitioners to yield to the demands of the complainant for a prioritative treatment as compared to other creditors of AML. It was submitted that the dispute is basically, essentially and predominantly a dispute of civil nature. 11.2 It was submitted that the complaint does not disclose the offences alleged to have been committed by the petitioners. It was submitted that the sale part of the Sale and Lease Back agreement was permissible to AML since it was aimed at reducing the interest burden on the company and to provide a life support by reducing the burden. The transaction was, therefore, permissible under clause 13.1(l)(ii) of the Facility Agreement. There is nothing in the complaint to indicate that the sale was not in ordinary course of business or that it was for a price less than the market price. It was submitted that there is no entrustment of property. It was, therefore, urged that the petition by the AML be allowed. 12. Learned Senior Counsel Mr. Salve, appearing for the petitioners in Special Criminal Application No. 560 of 2001, submitted that it is a case of sheer abuse of process of law. The dispute is of civil nature. The conduct of the complainant indicates that attempts were made to make good their civil right and, having failed, this complaint is lodged with an ultimate goal of pressurising the petitioners for yielding to the demand of the complainant in respect of the civil dispute. It was submitted that the complaint does not disclose the ingredients of the offences charged. It was submitted that, while exercising the powers for quashing, the Court has to apply two tests. The first is that whether the criminal recourse is a trickly disguised recourse of civil remedy and the second is whether the complaint makes out a criminal offence. It was submitted by Mr. Salve that even if the admitted facts are considered, it is a pure abuse of process of law and lacks any bona fide. It was contended that the complaint nowhere discloses the dishonest intention on part of the petitioners and if that is lacking, the offences alleged cannot be said to have been committed. It was submitted that a bona fide transaction cannot be given a garb of a dishonest action to constitute criminal breach of trust. It was submitted that the complaint must disclose dishonesty or lack of bona fides. Bona fide transaction claimed by the petitioner is not a defence but lack of bona fide or dishonest intention is an essential ingredient for constituting the offence alleged in the complaint and must be disclosed in the complaint, which is not done and the complaint, therefore, deserves to be quashed. It was submitted by Mr. Salve that there is total absence of mens rea in the alleged transactions of sale and lease back. The attempt was to save the project. Ninety three per cent of the creditors agreed to the scheme of restructure of debt. The complainant wanted a priority over other creditors and, hence, the complaint. The transaction is not a clandestine transaction. It has been entered into after obtaining appropriate legal opinion and is disclosed in the Information Memorandum for Creditors prepared by Jardine Fleming Singapore Securities Pte. Ltd., the financial advisor to AML. The complaint is based on the said information memorandum which does not disclose any mens rea. Bona fides of AML is not doubted by Jardine Fleming. It was contended that the sale part of the Sale and Lease Back transaction was for full market value. It was contended that the complaint is drafted with bald assertions for satisfying the requirement of ingredients of the offences, but factually that part is not made out and bald and misleading statement about the wrongful loss itself would not constitute an offence. It was contended that all these aspects ought to have been considered by the learned Magistrate before passing the impugned order. The complainant has tactfully referred to the London suit in a very casual manner in the complaint. The learned Magistrate ought to have called for the copy of the plaint before passing the order. If that was done, the contradictory versions emerging from the complaint and the plaint would have been noticed and the order may not have been passed. It was submitted by Mr. Salve that by the Facility Agreement and the SAT Agreement, AML was required to maintain an asset cover of not below 133.33% and at no point of time. This condition is not breached. The right of the complainant is, therefore, not affected. Mr. Salve, relying on certain decisions, submitted that this is a fit case in which the Court may exercise its powers and quash the complaint. He submitted that it is a case of abuse of process of law. 13. Mr. Desai, learned counsel for the directors of ICICI, submitted that it is true that the Court has to be slow in quashing the complaint in exercise of powers under Section 482 of the Code of Criminal Procedure. But placing reliance on certain decisions, Mr. Desai submitted that the Court must exercise these powers if the complaint does not make out the ingredients of the offences alleged, if mens rea is not found and if it is found that the complaint is an abuse of process of law. He submitted that the complainant comes with different versions at different levels in different proceedings. He submitted that the case of the complainant in the suit in the English Court is different than the one in the complaint and the case emerging from the affidavit-in-reply to the petition is different that the case emerging from the complaint. This reflects that the complainant is either not sure about its case or that it does not approach the Court with clean hands. It was subsmitted by Mr. Desai that all assets are not sold and leased back. The asset cover of 133.33% assured under the Facility/SAT Agreement has been maintained. It was submitted that the complainant has annexed with the complaint the Information of Memorandum prepared by Jardine Fleming, but only in part. The whole report is not produced. If the whole report is read, it in dicates that the transaction is purely commercial transaction and there is no mens rea. Mr. Desai also subsmitted that the transaction was permitted under clause 13.1(l) of the Facility Agreement. Any commercial institution would try to reduce its financial burden and would try for its survival. This transaction was aimed at that as can be seen from the report of Jardine Fleming and, therefore, the complaint is illfounded and may be quashed. 14. Mr. Soparkar, learned Sr. Advocate appearing for the petitioner in Special Criminal Application No. submitted that the very premise of complaint is factually incorrect and contraty to the proceedings in the London Court. It was contended that under the Sale and Lease Back transaction, what is transferred is the right of AML, i.e. the mortgager's right of redemption and not other right of the mortgagee. It was contended that cluase 13.1(l) of the Facility Agreement protects the accused persons and, therefore, the properties are transferred to ICICI free from encumbrance and in a valid and legal manner. Mr. Soparkar submitted that even if that contention is not correct, the effect of transfer by AML to ICICI under the Sale and Lease Back Agreement would be that ICICI shall hold the same subject to the charge and, in that event also, the complainant's interest is protected and, therefore, the whole allegation about the breach of trust is without any basis. 15. Mr. Thakore, learned Senior Advocate, has raised a large number of question on the provisions of Transfer of Property Act, regarding mortgage, equity of redemptions, right of mortgagee and right of mortgager and contended that in either case, the interest of the complainant-bank is protected. If sale was not permitted under clause 13.1(l) of the Facility Agreement, then also what is sold is the mortgager's right to redeem and even if that is not so what is purchased by ICICI would be subject to the charge of the complainant as ICICI who has purchased the same was fully aware about the right of the complainant over the property. Mr. Thakore also submitted that, if the documents are properly perused and interpreted, it is a case of floating charge which is created by the Facility agreement and by the SAT Agreement. Mr. Thakore argued on various aspects touching fixed and floating charge and effets thereof. 16. Learned Counsel, Mr. Shanti Bhushan, appearing with Mr. Raju, learned advocate for the original complainant-respondent herein, submittd that th contentions raised by the petitioners are all illfounded. He relied on several decisions to indicate that the scope for interference in such a quashing petition is limited as per the settled proposition of law. He submitted that the complaint cannot be thrown off at the initial state if the complaint reveals commission of offence prima facie. If on plain reading the complaint makes out the ingredients of offence alleged, the Court may not interfere and quash the complaint. 16.1 Mr. Shanti Bhushan submitted that, in the instant case, a plain reading of the complaint would indicate that the ingredients of the offences are made out in the complaint and are supported by the documentary evidence annexed to the complaint. He has drawn attention to paragraph 5.1, 5.2, 5.3, 6, 7, 9, 10, 12, 13, 14 and 28 of the complaint. He has also drawn attention of this Court to paragraph 2.4(a) and (b) of the Facility Agreement and Article I (paragraphs 1.01 & 1.03) and Article IV [paragraph 4.01(j)] of the SAT Agreement to indicate that there is a trust created and there is an entrustment. Mr. Shanti Bhushan has drawn attention of this Court to clause 13.1(l) of the Facility Agreement and paragraph 2 of the Hypothecation Agreement. He submitted, therefore, that the complaint does disclose an offence prima facie. 16.2 As regards the order impugned, Mr. Shanti Bhushan submitted that the order, though short, it is hand written and it is written just below the statement of the complainant and, therefore, it cannot be said that the learned Magistrate has not applied his mind. He has relied on certain decisions to indicate that in such eventuality, it is not always necessary that the order must be reasoned one. 16.3 Mr. Shanti Bhushan submitted that there may be commercial transactions and breach of which may give rise to criminal offence and civil as well as criminal proceedings may be initiated simultaneously. Mr. Shanti Bhushan submitted that, merely because a suit is preferred in the London Court, it will not be a ground for quashing the complaint. Mr. Shanti Bhushan submitted that a petition under Section 391 of the Companies Act cannot have any impact on prosecution. It will have only civil impact. 16.4 Mr. Shanti