IN THE HIGH COURT OF GUJARAT AT AHMEDABAD CRIMINAL MISC.APPLICATION No 164 of 2001 with CRIMINAL MISC.APPLICATION No 165 of 2001 and CRIMINAL MISC. APPLICATION NO.166 OF 2001 For Approval and Signature: Hon'ble MR.JUSTICE M.H.KADRI ============================================================ 1. Whether Reporters of Local Papers may be allowed : NO to see the judgements? 2. To be referred to the Reporter or not? : NO 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 -------------------------------------------------------------- KRISHNA POLYESTER LTD Versus STATE OF GUJARAT -------------------------------------------------------------- Appearance: In all the matters: MR BB NAIK for Petitioners Mr. AJ Desai ADDITIONAL PUBLIC PROSECUTOR for Respondent No. 1 MR KJ SHETHNA for Respondent No. 2 -------------------------------------------------------------- CORAM : MR.JUSTICE M.H.KADRI Date of decision: 27/02/2002 COMMON C.A.V. JUDGEMENT 1. The petitioners [original accused], by filing these three applications under Section 482 of the Code of Criminal Procedure, 1973 ('Code' for short), have prayed to quash the complaints, being Criminal Cases Nos.8461 of 2000, 8462 of 2000 and 8463 of 2000, filed by the respondent No.2 in the Court of the learned Chief Judicial Magistrate, Rajkot, and to set aside the cognizance taken and the summons issued by the learned Magistrate for the offences punishable under Sections 406, 420 read with Section 114 of the Indian Penal Code ('IPC' for short). 2. In Criminal Case No.8461 of 2000, the respondent No.2 has alleged that it was carrying on business of cotton ginning and pressing at Kuvavada, District Rajkot, The accused were having their corporate office in Mumbai and the registered office at Bhilad. The accused had entered into an agreement with the respondent No.2 through the broker, Kiritkumar Prabhudas, for purchase of 60 bales of cotton of Shanker brand and 55 bales of cotton of the same brand on April 14, 2000 and April 24, 2000 respectively. The said goods were despatched to the accused by the respondent No.2. As per the agreed terms, the accused did not pay the amount of the purchase price of the bales of cotton within the stipulated period. As per the terms of the purchase agreement, the accused were liable to make payment of cotton bales within ten days after deducting 2% discount. As the accused did not pay the said amount till May 7, 2000, two authorised persons of the respondent No.2, namely, Vinodbhai and Manishbhai, on May 8, 2000, had gone to meet the accused persons, when the petitioner No.2, Pravinbhai, was contacted, he had refused to pay the amount of cotton bales. It is alleged that the complainant came to know that the said bales of cotton were converted into yarn. The authorised person had gone to contact the petitioner No.2 and had requested him to return the goods if they did not want to pay up the price of the cotton bales. The total price of the said goods was Rs.4,87,230/-. There was exchange of notice between the complainant and the accused. It is alleged that the accused did not pay the amount nor return the goods of cotton bales and, therefore, the complainant was constrained to lodge a complaint, being Criminal Case No.8461 of 2000, in the Court of learned Chief Judicial Magistrate, Rajkot, against the petitioners for the offences stated above. 3. In Criminal Case No.8462 of 2000, similarly, the accused had entered into an agreement with the respondent No.2 through the broker, Kiritkumar Prabhudas, for the purchase of 120 bales of cotton of Shanker brand and 60 bales of cotton of the same brand on April 6, 2000 and April 7, 2000 respectively. The said goods were despatched to the accused by the respondent No.2. As per the agreed terms, the accused did not pay the amount of the purchase price of the bales of cotton within the stipulated period. As per the terms of the purchase agreement, the accused were liable to make payment of cotton bales within ten days after deducting 2% discount. As the accused did not pay the said amount till May 7, 2000, two persons, namely, Vinodbhai and Manishbhai, on May 8, 2000, had gone to meet the accused persons, and, when the petitioner No.2, Pravinbhai, was contacted, he had refused to pay the amount of cotton bales. It is alleged that the complainant came to know that the said bales of cotton were converted into yarn. The authorised persons had again gone to contact the petitioner No.2 and had requested him to return the goods if they did not want to pay up the price of the cotton bales. The total price of the said goods was Rs.26,81,558.00. The notices were exchanged between the complainant and the accused. It is alleged that the accused did not pay the amount nor return the goods of cotton bales and, therefore, the complainant was constrained to lodge the complaint, being Criminal Case No.8462 of 2000, in the Court of learned Chief Judicial Magistrate, Rajkot, against the petitioners for the offences stated above. 4. In Criminal Case No.8463 of 2000, similarly, the accused had entered into an agreement with the respondent No.2 through the broker, Kiritkumar Prabhudas, for purchase of 60 bales of cotton of Shanker brand on April 14, 2000. The said goods were despatched to the accused on April 15, 2000 by Truck bearing Registration No.GJ-3-T-1533, and the said goods were received by the accused on April 18, 2000. As per the agreed terms, the accused did not pay the amount of the purchase price of the bales of cotton within the stipulated period. As per the terms of the purchase agreement, the accused were liable to make payment of cotton bales within ten days after deducting 2% discount. The total price of the goods was Rs. 5, 10,700/- including sales-tax. On April 23, 2000, the accused agreed to purchase 173 cotton bales through broker, Kiritkumar Prabhudas. The said cotton bales were sent on April 24, 2000 by Truck bearing Registration No.GJ-3-T-1533, which were received by the accused on April 26, 2000. The total price of the said goods was Rs.6,17,709/-. Another agreement was entered into between the accused and the complainant through the same broker on April 26, 2000 for purchase of 110 cotton bales. The said goods were sent through Truck bearing Registration No.GJ-11-U-8284, which were received by the accused on April 29, 2000. The price of the said goods was Rs.10,26,027/-. Similarly, as per the purchase agreement, 55 cotton bales were sent on April 28, 2000 by Truck bearing Registration No. GJ-3-U-5621, which were received by the accused on April 30, 2000. The price of the said goods was Rs.4,94,252/-. It is alleged in the complaint that the total price of the cotton bales was Rs.26,48,689/- and the accused were liable to pay the said amount within ten days of the receipt of the said goods by deducting the discount of 2%. As the accused did not pay up the said amount, the complainant had contacted the broker, Kiritkumar Prabhudas. As per the allegations made in the complaint, the broker had contacted the petitioner No.2 who had conveyed the message that the goods were of good quality and the amount shall be sent within a short period. The amount of the goods was not received till May 7, 2000. Therefore, on May 8, 2000, Vinodbhai and Manishbhai of the firm of the complainant went to meet the accused and were able to contact petitioner No.2, Pravinbhai. When the said Vinodbhai and Manibhai demanded the amount of the goods sold, the petitioner No.2 flatly refused to make the payment of the said goods. The accused had made false excuses to delay the payment of the amount of the said goods. It was learnt by the complainant that, when the accused were contacted on May 8, 2000, they had already converted the cotton bales into yarn. A false excuse was made out that the goods sold were not upto the mark and the accused persons were prepared to return the said goods. When the persons of the complainant had gone to Bhilad to collect the said goods, the truck driver was not permitted to enter the premises of the factory of the accused persons. It is alleged in the complaint that the accused persons had hatched a conspiracy to book the order of purchase of cotton bales and after receipt of the said bales, they had deliberately and with mala fide intention converted the cotton bales into yarn and, by making false excuses that the goods were not upto the mark, had not made payment of the said goods and had committed offence of cheating and breach of trust. It is alleged that all the accused persons, being Chairman, Managing Director and Directors of the accused No.1-Company, were responsible for the offences as they were in-charge of the administration of the Company. 5. On presentation of the complaints before the learned Chief Judicial Magistrate, Rajkot, the learned Magistrate passed an order on December 5, 2000 that the complaints be fixed for hearing on December 7, 2000. The statement of the witness, Jamnadas Khimjibhai Modi, was recorded by the learned Magistrate on December 7, 2000, who stated that the agreements were entered into for purchase of cotton bales by the accused persons through one broker Kiritbhai and the said goods were delivered to the accused persons through the transport operators. After the goods were received by the accused persons, a talk had taken place between the broker, Kishorbhai, and the accused persons, wherein, it was conveyed that the goods received were of good quality. It was stated that the accused persons had told on May 26, 2000 that the cotton bales were converted into yarn, and, when the said yarn was sold to different traders, the same was rejected as it was of inferior quality. It was, therefore, stated by the witness, Shri Jamnadas Khimjibhai, that, as the cotton bales were converted into yarn without the permission of the complainant, the accused persons had committed an offence of cheating. The statement of the broker, Kishorebhai, was also recorded by the learned Magistrate on December 7, 2000. He also supported the case of the complainant that the accused persons had agreed to purchase cotton bales by different agreements and after receipt of the said goods they were satisfied that the said goods were of good quality. He also stated that, when the accused persons did not make payment of the said goods, he had contacted accused No.2, who was the Chairman of the accused No.1-Company and he had assured that the amount of the said cotton bales would be paid within a short period by a demand draft. After some time, when he contacted the accused persons, it was conveyed that, when the cotton bales were converted into yarn and when the said yarn was sold in the open market, the purchasers had rejected the said yarn and, therefore, the accused persons were not liable to make payment. All the three complaints were supported by the documentary evidence. The learned Magistrate, having satisfied that a case was made out, directed that the complaints be registered as Criminal Cases, took cognizance of the offences under Sections 406, 420, and 114 of the Indian Penal Code by the order dated December 7, 2000, and issued summons on the accused persons making it returnable on January 16, 2001. The said order is challenged by the petitioners by filing these three applications. 6. As common question of facts and law arise for my consideration, I propose to dispose of all these three applications by this common order. 7. Learned counsel for the petitioners submitted that the complaints, the documents annexed with them, and the oral statements recorded of the witnesses do not, prima facie, make out the ingredients of offences of Sections 420, 406 and 409 of the Indian Penal Code. The learned counsel for the petitioners has, vehemently, submitted that the complaints do not, prima facie, make out that there was a fraudulent misrepresentation by the accused persons before the purchase of cotton bales. It is submitted that a bold assertion has been made in the complaints that, when the cotton bales were sold to the accused persons, they had verified the quality of the goods and, thereafter, had taken the delivery of the said goods. It is submitted that no specific role has been attributed to the accused persons in their individual capacity and, therefore, the ingredients of the offences alleged qua the Directors have not been made out. It is also submitted that, in none of the complaints, any allegation is made that all the petitioners were in-charge of the administration of the first petitioner-company and they were responsible for the management of the first petitioner-company and, therefore, they were liable for the criminal acts alleged in the complaint by the complainant. It is vehemently contended by the learned counsel for the petitioners that the dispute involved in all the three applications was of purely civil nature, and the respondent No.2-complainant has tried to bring pressure and has used the process of criminal proceedings as a lever to harass the petitioners. It is submitted that, prior to the alleged transaction covering three complaints, there were many business transactions between the petitioners and the respondent No.2-firm and regular payments were made prior to the present transaction and there was no dishonest intention on the part of the petitioners. It is submitted that, on the contrary, the respondent No.2-firm had sold the goods of inferior quality and they were instructed to take back the goods by the petitioners, for which they had failed. It is submitted that, for the goods delivered and sold, and for non-payment of the price of the said goods, a proceeding in the Civil Court can be filed and the respondent No.2 cannot take recourse to criminal proceedings to bring pressure on the petitioners. It is submitted that the present proceedings have been initiated with mala fide intention to harass the petitioners and, therefore, all the three complaints are liable to be quashed and the cognizance taken and the summons issued by the learned Magistrate also deserve to be quashed and set aside. 8. Learned counsel for the respondent No.2 (original complainant) has submitted that the order of taking cognizance by the learned Magistrate cannot be interfered with by the High Court in exercise of its powers under Section 482 of the Code. It is submitted that the defence of the accused that the goods sold and delivered by the complainant were of inferior quality and, therefore, no payment was made, cannot be looked into at the stage of quashing because it involved disputed question of facts, for which a detailed evidence is required to be led at the trial. The learned counsel for the respondent No.2 has submitted that the Court, at the stage of quashing, is only required to see whether the averments made in the complaint make out a prima-facie case of taking cognizance of the offence. It is submitted that, if the factual foundation for the offence has been laid in the complaints, the Court should not quash the criminal proceedings and and it is not necessary that the complainant should verbatim reproduce the ingredients of the offences alleged in it. The learned counsel for the respondent No.2 has, further, submitted that the allegations and averments made in the complaint, prima facie, establish that the cotton bales were supplied to the accused persons and the said cotton bales were converted into yarn and the accused persons had agreed to return the defective yarn, which was not returned as agreed, and it is also established that no payment was made of the goods which were sold. It is submitted that the above allegations made in the complaints, prima facie, make out the offences, which is also supported by the documentary evidence and the statements made by the witnesses before issuance of the summons. The learned counsel for the respondent No.2 has further submitted that the learned Magistrate has taken cognizance of the offences and not the offenders. It is submitted by the learned counsel for the respondent No.2 that, in the complaints, specific allegations have been made against the petitioner No.2, Mr. Pravinbhai Tayal, who was the Chairman of the first petitioner-company and who had promised to make payment of the goods sold when contacted by the two authorised persons of the complainant. The learned counsel for the respondent No.2 has also submitted that, during the course of the commercial transaction, if any offence is made out, a criminal proceeding can be launched and it is not open for the petitioners to contend that, as the said dispute had arisen during the course of the commercial transaction, the same requires to be quashed. It is submitted that the criminal proceeding which had taken place during the course of commercial transaction can only be quashed in a case where no offence is made out. The learned counsel for the respondent No.2 has further submitted that it was prima facie established that, after the purchase of cotton bales, the petitioners had converted the cotton bales into yarn and had sold away the yarn to different businessmen. It is submitted that a false defence was raised that the said yarn was found defective. The learned counsel for the respondent No.2 has submitted that, until the payments were made, the petitioners were holding the said goods on behalf of the respondent No.2 and, without the permission of the respondent No.2, they had converted the said goods into yarn and, therefore, prima-facie, the ingredients of the offences under Sections 406 and 420 were made out. It is submitted that quashing of the complaint is an extreme step which the Court should take in a rarest of rare cases, and the complaints which prima facie make out ingredients of the offences alleged therein cannot be quashed, and, hence, these applications be dismissed. 9. In all the three complaints lodged by the respondent No.2, the learned Magistrate, by order dated December 7, 2000, had taken cognizance of the offences under Sections 406, 420 read with Section 114 of the Indian Penal Code against all the accused persons by directing that the said complaints be registered as criminal cases, and had issued summons on payment of process fees making it returnable on January 16, 2001. Criminal breach of trust has been defined under Section 405 of the Indian Penal Code. Every breach of trust may not result in a penal offence of criminal breach of trust unless there is evidence of a mental act of fraudulent misappropriation. An act of breach of trust involves a civil wrong in respect of which the person wronged may seek his redress for damages in a civil court but a breach of trust with mens rea gives rise to a criminal prosecution as well. The ingredients in order to constitute a criminal breach of trust are: (i) entrusting a person with property or with any dominion over property, (ii) that person entrusted (a) dishonestly misappropriating or converting that property to his own use; or (b) dishonestly using or disposing of that property or willfully suffering any other person so to do in violation (i) of any direction of law prescribing the mode in which such trust is to be discharged (ii) of any legal contract made touching the discharge of such trust. The ingredients of an offence of cheating are: (i) there should be fraudulent or dishonest inducement of a person by deceiving him, (ii) (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 (iii) in cases covered by (ii) (b), the act of 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 case of a complaint under Section 200 of the Code of Criminal Procedure, a Magistrate can take cognizance of the offence made out and then has to examine the complainant and his witnesses, if any, to ascertain whether a prima facie case is made out against the accused to issue process so that the issue of process is prevented on a complaint which is either false or vexatious or intended only to harass. Such examination is provided in order to find out whether there is or not sufficient ground for proceeding. The words 'sufficient ground' used under Section 203 have to be construed to mean the satisfaction that a prima facie case is made out against the accused and not sufficient ground for the purpose of conviction. [S.W. Patnitkar and others vs. State of Bihar and others, 2001 (7) Scale page 430] 10. A mere transaction of sale cannot amount to an entrustment. The respondent No.2 had sold cotton bales to the petitioner No.1-firm for the purpose of their business of converting it into yarn. Pursuant to the agreement arrived at between the respondent No.2 and the petitioner No.1-firm through the broker, the cotton bales were, accordingly, delivered. The said cotton bales were not delivered as a result of any fraudulent misrepresentation, nor was there any inducement. The expression 'entrustment' carries with it the implication that the person handing over any property or on whose behalf that property is handed over to another, continues to be its owner. Further, the person handing over the property must have confidence in the person taking the property so as to create a fiduciary relationship between them. In my view, the allegations made in the complaints do not, prima facie, establish that there was any entrustment either of the property or with any dominion over the property. When the agreement to sale was entered into between the parties, there was no fraudulent misrepresentation by the accused persons so as to induce the respondent No.2 to deliver the cotton bales. Even assuming, prima facie, all the allegations in the complaints to be true, they merely amount to a breach of the contract and could not give rise to a criminal prosecution. There is nothing in the complaints to show that the the petitioners had dishonest and fraudulent intention at the time when the respondent No.2 parted with the goods, namely, cotton bales, nor do the complaints indicate that the petitioners had induced the respondent No.2 to deliver cotton bales. The respondent No.2-original complainant also did not allege in the complaints that the petitioners had made representation before him to part with cotton bales. A mere fact that they did not abide by their commitment of making the payment of cotton bales, would not fasten them with criminal liability. In my view, on the facts of the present case, the essential ingredients of constituting an offence under Sections 406 and 420 of the Indian Penal Code are absent. 11. It requires to be stated that, prior to the transactions in question, there were business transactions between the petitioners and the respondent No.2 and the petitioners had paid the amounts to the respondent No.2 within the stipulated time. It is true that, during the course of commercial transaction, if any offence is made out, a criminal prosecution can be launched, but, in the absence of any averments and allegations made in the complaints, in my view, the learned Magistrate, without examining as to whether the complaints and the statements of the witnesses make out a prima facie case of the offences alleged, had issued summons against the petitioners. By not making payment of the delivered cotton bales and by converting the cotton bales into yarn, at the