IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) Dt.01.12.2009 PRESENT THE HON'BLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL PETITION No : 1558 of 2007 Between: Chundru Srihari Rao . .Petitioners And The State of A.P. rep. By Public Prosecutor and another. .. Respondents THE HON’BLE SRI JUSTICE SAMUDRALA GOVINDARAJULU CRIMINAL PETITION No : 1558 of 2007 ORDER : This Criminal Petition is filed under Section 482 of Code of Criminal Procedure by the accused for quashing proceedings in C.C.No.2 of 2003 of the Judicial Magistrate of the First Class, Special Mobile Court, Kakinada relating to offences punishable under Sections 420, 406 and 409 of Indian Penal Code. 2) The 2nd respondent is complainant who filed private complaint against the petitioner/accused in C.C. No.94 of 1998 on the file of IV Additional Judicial Magistrate of the First Class, Kakinada. After transfer of that case to the Special Mobile Court, Kakinada, it was renumbered as C.C. No.2 of 2003. 3) The 2nd accused is one of the partners in Sri Padmalaya Finance Corporation, Kakinada. The petitioner is Managing Partner of Sri Padmalaya Finance Corporation (in short ‘finance corporation’). 4) There are other partners also in that finance corporation. Both the parties are related to each other. The 2nd respondent is no other than brother-in-law of the petitioner. Subject matter of the complaint is loan advanced by the petitioner in his capacity as managing partner to M/s.K.C.G.P House, Madras to the extent of Rs.5,01,250/- on 14.12.1991. M/s.K.C.G.P House, Madras is a partnership firm in which the petitioner’s son-in-law Kalyan Chakravarthi is a partner. It is alleged that the petitioner as Managing Partner of the finance corporation advanced the said loan of Rs.5,01,250/- to K.C.G.P. House, Madras without taking any security and without any documentation from them and that the petitioner never took any steps to recover loan amount from the said borrower and that therefore, the accused committed criminal breach of trust and cheated the finance corporation by inducing the said partnership firm to part with the loan amount. On the other hand, the 2nd respondent contends that K.C.G.P House is making periodical payments of interest etc., and that in any event, the said transaction will not constitute any offence alleged in the complaint. 5) Even as per allegations in the complaint, the loan was advanced on 14.12.1991. The 2nd respondent filed the private complaint in the lower Court on 06.08.1998, nearly seven years after the transaction. If really, the borrower did not repay any amount under that loan, then suit for recovery for the said amount in any civil Court would have been barred by limitation by 14.12.1994, after expiry of three years from date of advancing of the loan. It is not known why the 2nd respondent did not take any steps for filing suit for recovery of the loan amount in any competent civil Court within the prescribed time. There is no bar for a partner to maintain a suit on behalf of the partnership-firm in case managing partner or other partners are not evincing interest for filing of valid suit within time. Admittedly, the loan was advanced to K.C.G.P. House by way of demand draft bearing No.0935052 of Bank of Baroda, Kakinada payable at Madras. Since loan amount was paid by way of demand draft through bank, there is absolutely no necessity for obtaining any documentation from the borrower because the transaction is always reflected in bank records of issuing bank of demand draft and also encashing bank of the same demand draft by the borrower. Therefore, it is incorrect to say that there is no documentation for the loan. Assuming for a moment for the sake of argument that no promissory note was obtained from the borrower evidencing the loan, it matters little because payment of loan was through bank by way of demand draft. The question of obtaining security from the borrower or not obtaining security depends upon business relationship between the two partnership firms. As pointed out earlier, even the 2nd respondent is closely related to the petitioner as brother-in-law. 6) Even as per the allegations in the complaint, the finance corporation paid T.D.S (Tax Deduction at Source) amount of Rs.2,663/- on 19.05.1993 under this loan account. But, the 2nd respondent contends that even without the borrower making single payment, the finance corporation itself paid the said T.D.S amount. Unless accounts of the finance corporation reflect receipt of income by way of interest from the loan, the question of paying T.D.S will never arise at all. It is not the 2nd respondent’s case that even though the borrower did not make any payment of interest, the petitioner entered payment of interest by the borrower in accounts of the finance corporation falsely and then made payment of T.D.S under the loan account. Allegations in the complaint are mutually conflicting with each other. When the borrower has been regularly paying interest and other repayments, there was no necessity for the petitioner to take any steps by way of filing civil suit for recovery of the said amount, by spending Court fees, Advocate’s fees and other expenses. The petitioner’s counsel intended to file copy of loan account of K.C.G.P. House to show regular payments made by the borrower. Finance corporations lend money for the sake of earning interest. Wisdom does not lie in filing civil suits by spending huge amounts against any borrower for recovery of loan amount, when the borrower is making regular payment of interest and when the borrower is otherwise sound. Even after recovery of money from such borrower, the finance corporation cannot keep the amount idle in its chest. The finance corporation has to necessarily lend that recovered amount to another borrower and it may not be known whether the subsequent borrower or borrowers would pay interest promptly and would make regular repayments of loan amounts properly. In so far as the present loan of Rs.5,01,250/- is concerned, activity of the petitioner will not attract any penal liability under Sections 406, 409 and 420 of I.P.C. because the loan transaction was part of regular and prudential business of the finance corporation. 7) Further, there is no juristic personality for a partnership firm as distinguished from an incorporated company. A partnership firm is only a group of individuals, who flock together to do particular activity collectively. Money and assets of a partnership firm belong to all partners in the same proportion of their individual shares in the partnership. Similarly, subject matter of the case viz., Rs.5,01,250/- of the finance corporation, is money belonging to all partners including the petitioner who is managing partner. It cannot be said that the 2nd respondent or any other partner entrusted that money to the petitioner. The money belongs to the petitioner also. Until the partnership firm is an on-going concern, none of the partners can claim any particular asset as belonging to one partner exclusively. When it is a collective affair, the question of entrustment of money or asset by one partner to another partner or managing partner may not arise at all. 8) The senior advocate appearing for the 2nd respondent placed reliance on R.K.Dalmia and others V. The Delhi Administration[1] and contended that when management of the concern is entrusted to the petitioner, then there is valid entrustment of the assets as per law. Facts of the said reported decision reveal that it was a case relating to affairs of a company by name Bharat Insurance Company, which is a juristic person in the eye of law; and the accused therein was Director and Chairman of the company; and the subject matter was activities of the said Director and Chairman of the company causing detriment and loss to the company. As pointed out earlier, a partnership firm is no entity in the eye of law. Therefore ratio in the above reported decision cannot be applied to affairs relating to a partnership firm and a dispute between partners inter se. It is contended that in para-81 at Page 1837 of the above reported decision the Supreme Court quoted two reported decisions one from Calcutta High Court in Queen V. Okhoy Coomar Shaw (21 Suth WR Cr 59 at P.61 (FB) and the 2nd one from Bombay High Court in Emperor V. Jagannath Raghunathdas, (AIR 1932.Bom 57) which decisions are in favour of the 2nd respondent’s contention herein. At any rate ratio, of the above reported decision of the Supreme Court is in respect of activity of Director-cum-Chairman vis-à-vis the company; and so it cannot be applied to facts of the present case. 9) Thus, both on facts as well as in law, criminal case filed by the 2nd respondent against the petitioner in the lower Court does not stand to scrutiny by this Court on undisputed allegations contained in the complaint itself. 10) It is evident that the 2nd respondent began filing one case after the other against the petitioner picking up transactions relating to the finance corporation individually with ulterior motive. There are exchange of notices between the parties and filing of civil suit in O.S. No.33 of 1994 by the 2nd respondent against the petitioner in 1st Additional Subordinate Judge Court, Kakinada with regard to affairs of the finance corporation. When civil matters came before this Court in C.R.P. Nos.1043, 1054, 1055, 1056, 1057 and 1058 of 1995, even as per allegations in the complaint, advocate-receiver appointed by the civil Court at Kakinada was directed to prepare balance sheet of the firm immediately and the petitioner was directed to conduct business of the finance corporation under supervision and concurrence of the advocate-receiver pending disposal of O.S. No.33 of 1994. The present criminal case is filed three years after the above order passed by this Court in revision petitions. Assuming for the sake of argument that the petitioner did not take any steps for recovery of loan amount advanced to K.C.G.P House Madras, after 26.12.1995, it is not responsibility of the petitioner alone, but also that of the advocate- receiver. The 2nd respondent has no complaint against the receiver. It is evident that the criminal case is filed with malafide intention against the petitioner. 11) In the result, the Criminal Petition is allowed quashing proceedings in C.C. No.2 of 2003 (Old C.C.No.94 of 1998) of the Judicial Magistrate of the First Class, Special Mobile Court, Kakinada. ________________________________ JUSTICE SAMUDRALA GOVINDARAJULU December 01, 2009 KSH [1] AIR 1962 Supreme Court 1821