Case: M/S. Indian Oil Corporation Vs. M/S. Nepc India Ltd.

These appeals are filed against the common order dated 29.3.2001 passed by the Madras High Court allowing Crl.O.P. Nos.2418 of 1999 and 1563 of 2000. The said two petitions were filed by the respondents herein under section 482 of Criminal Procedure Code (Code for short) for quashing the complaints filed by the appellant against them in C.C. No.299 of 1999 on the file of Judicial Magistrate No.6, Coimbatore and C.C. No. 286 of 1998 on the file of Judicial Magistrate, Alandur (Chennai).2. The appellant (Indian Oil Corporation, for short IOC) entered into two contracts, one with the first respondent (NEPC India Ltd.) and the other with its sister company Skyline NEPC Limited (Skyline for short) agreeing to supply to them aviation turbine fuel and aviation lubricants (together referred to as "aircraft fuel"). According to the appellant, in respect of the aircraft fuel supplied under the said contracts, the first respondent became due in a sum of Rs.5,28,23,501.90 and Skyline became due in a sum of Rs.13,12,76,421.25 as on 29.4.1997.3. The first respondent hypothecated its two Fokker F27-500 Aircrafts, bearing Registration No. VT-NEJ (12684) and VT-NEK (10687) to the appellant under Deed of Hypothecation dated 1.5.1997, to secure the outstanding amounts. Clause (2) of the said Deed provided that the two aircrafts with all parts and accessories stood hypothecated to IOC by way of charge and as security for payment of the amounts due, with effect from the date of hypothecation. Clause (3) read with the schedule set out the instalments schedule for payment of the amount due. Under clause (6), NEPC India declared that it would not assign, sell, pledge, charge, underlet or otherwise encumber or part with the possession, custody or beneficial interest in respect of the two aircrafts without the previous written consent of IOC. It also undertook not to do any act which may diminish the value of the hypothecated property without clearing the entire outstanding amount. Clause (9) provided that if NEPC India failed to pay any of the instalments with interest within the stipulated time, or if any undertaking or assurance given by NEPC India was found to be false, IOC shall have the "right to take possession of the hypothecated property" and sell the same by public auction or by private contract and appropriate the sale proceeds towards the outstanding dues without recourse to court of law. Clause 12 confirmed that NEPC India had handed over the title deeds relating to the aircraft to IOC, and agreed to receive them back only after paying the amounts due. It is stated that Skyline also hypothecated its aircraft (VT-ECP) under a separate Hypothecation Deed dated 14.5.1997. It is further stated that a tripartite agreement dated 6.5.1997 was entered among IOC, NEPC India and Skyline setting out the mode of payment of the dues and recovery in the event of default.4. As NEPC India failed to pay the first two instalments as per schedule, IOC stopped supply of aircraft fuel on 3.6.1997. However, subsequently, under a fresh agreement dated 20.9.1997, a revised payment schedule was agreed and IOC agreed to re-commence supply of aircraft fuel on cash and carry basis. Even this arrangement came to an end as the instalments were not paid.5. Apprehending that NEPC India may remove the hypothecated aircraft (VT-NEJ) from Coimbatore Airport to a place outside its reach, IOC filed C.S. No.425 of 1997 in the Madras High Court seeking a mandatory injunction to the Airport Authority of India and Director General of Civil Aviation to detain the said aircraft stationed at Coimbatore Airport, under section 8 of the Aircraft Act, 1934, so as to enable it to take possession thereof. The High Court granted an interim injunction on 16.9.1997 restraining NEPC India from removing the aircraft (VT-NEJ) from Coimbatore Airport. In regard to the other hypothecated aircraft (VT-NEK) kept at Meenambakkam (Chennai) Airport, IOC filed a suit (OS No.3327/1998) in the City Civil Court, Chennai for a similar mandatory injunction.6. IOC filed the two complaints against NEPC India and its two Directors (respondents 2 & 3 herein) in July 1998 under section 200 of Code of Criminal Procedure alleging unauthorized removal of the engines and certain other parts from the two hypothecated aircraft. They are:(i) C.C. No. 299 of 1999 before the Judicial Magistrate No.6, Coimbatore, regarding Aircraft bearing No. VT-NEJ.(ii) C.C. No. 286 of 1998 before the Judicial Magistrate, Alandur (Chennai) regarding aircraft bearing No. VT - NEK.The relevant averments in the complaint in C.C. No.299/1999 (Coimbatore Court) reads as under:complainant states that on 24.4.98, IOC had come to know that NEPC India Limited in total disregard to the orders of the Hon. High Court, Madras had clandestinely removed both the engines and certain other parts from the Aircraft VT-NEJ Aircraft Sl.No. 10684 (Fokker F27-500) stationed at the Coimbatore Airport, CoimbatoreThe complainant states that, besides the above, the act of NEPC India Limited in removing the engines and certain other parts from the Aircraft VT-NEJ Aircraft Sl. No. 10684 (Fokker F27-500) stationed at the Coimbatore Airport, Coimbatore is against the terms of the hypothecation deed dated 01.5.1997 and 20.9.1997 will amount to theft, criminal breach of trust, and cheating which are offences punishable under section 378 (Theft), 403 (Dishonest Misappropriation of Property), 405 (Criminal Breach of Trust), 415 (Cheating), 425 (Mischief) of the Indian Penal Code. No notice was given to IOC in thisrelevant averments in the complaint in C.C. No.286/1998 (Alandur Court) read as under:a view to defeat the said right of IOC (that is right to take possession and sell the aircraft), NEPC India removed the engines of the Aircraft (VT-NEK) stationed at the Meenambakkam AirportThe complainant states that, the act of NEPC India Limited in removing the engines and certain other parts from the Aircraft VT-NEK Aircraft Sl. No. 10687 (Fokker F27-500) stationed at the Meenabakkam Airport, Chennai is against the terms of the hypothecation deed dated 1.5.1997 as well as the terms of the agreement dated 20.9.1997 and will amount to offences punishable under section 378 (Theft), 403 (Dishonest Misappropriation of Property), 405 (Criminal Breach of Trust), 415 (Cheating), 425 (Mischief) of the India Penal Code. No notice was given to IOC in thisthe complaints also contain the following commoncomplainant states that the accused had with fraudulent intention to cheat and defraud IOC had induced IOC to resume supply of Aircraft fuel on Cash and Carry basis, by undertaking to clear the outstanding amount of Rs.18 crores approximately within the time stipulated in the hypothecation agreements. However, the accused had failed to clear the said outstanding amounts and had breached the terms of the hypothecation agreements. Subsequently on 20.9.2007, an agreement was entered into between IOC and M/s NEPC India Limited. As per the terms of the above agreement M/s NEPC India Limited had agreed to clear the outstanding amount of Rs.18 crores approximately due to IOC from M/s NEPC India Limited and M/s Skyline NEPC Limited within a time frame. However, M/s NEPC India Limited had failed to keep up the schedule of payments mentioned in the said agreements.The facts narrated above will clearly show that IOC has got every right to take possession of the Aircraft VT-NEK as well as VT-NEJ. Only with a view to defeat the said right of IOC, M/s NEPC India has removed the engines of the aircraft. ..The respondents herein filed Crl. O.P. No.1563 of 2000 and Crl.O.P. No.2418 of 1999 respectively under section 482 of Cr.P.C. for quashing the said two complaints on the following two grounds:(i) The complaints related to purely contractual disputes of a civil nature in respect of which IOC had already sought injunctive reliefs and money decrees.(ii) Even if all the allegations in the complaints were taken as true, they did not constitute any criminal offence as defined under sections 378, 403, 405, 415 or 425 IPC.8. The High Court by common judgment dated 23.3.2001 allowed both the petitions and quashed the two complaints. It accepted the second ground urged by the Respondents herein, but rejected the first ground. The said order of the High Court is under challenge in these appeals.

Court's reasoning:
Re: Point No.Coming to the facts of this case, it is no doubt true that IOC has initiated several civil proceedings to safeguard its interests and recover the amounts due. It has filed C.S. No.425/1997 in the Madras High Court and O.S. No.3327/1998 in the City Civil Court, Chennai seeking injunctive reliefs to restrain the NEPC India from removing its aircrafts so that it can exercise its right to possess the Aircrafts. It has also filed two more suits for recovery of the amounts due to it for the supplies made, that is CS No.998/1999 against NEPC India (for recovery of Rs.5,28,23,501/90) and CS No.11/2000 against Skyline (for recovery of Rs.13,12,76,421/25), in the Madras High Court. IOC has also initiated proceedings for winding up NEPC India and filed a petition seeking initiation of proceedings for contempt for alleged disobedience of the orders of temporary injunction. These acts show that civil remedies were and are available in law and IOC has taken recourse to such remedies. But it does not follow there from that criminal law remedy is barred or IOC is estopped from seeking such remedy.12. The respondents, no doubt, have stated that they had no intention to cheat or dishonestly divert or misappropriate the hypothecated aircraft or any parts thereof. They have taken pains to point out that the aircrafts are continued to be stationed at Chennai and Coimbatore Airports; that the two engines of VT-NEK though removed from the aircraft, are still lying at Madras Airport; that the two DART 552 TR engines of VT-NEJ were dismantled for the purpose of overhauling/repairing; that they were fitted to another Aircraft (VT-NEH) which had been taken on lease from M/s Aircraft Financing and Trading BV and that the said Aircraft (VT-NEH) has been detained by the lessor for its dues; that the two engines which were meant to be fitted to VT-NEJ (in places of the removed engines), when sent for overhauling to M/s Hunting Aeromotive, U.K., were detained by them on account of a dispute relating to their bills; and that in these peculiar circumstances beyond their control, no dishonest intent could be attributed to them. But these are defences that will have to be put forth and considered during the trial. Defences that may be available, or facts/aspects when established during the trial, may lead to acquittal, are not grounds for quashing the complaint at the threshold. At this stage, we are only concerned with the question whether the averments in the complaint spell out the ingredients of a criminal offence or not.13. The High Court was, therefore, justified in rejecting the contention of the respondents that the criminal proceedings should be quashed in view of the pendency of several civil6. The High Court has held that mere breach of a contractual terms would not amount to cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction and in the absence of an allegation that the accused had a fraudulent or dishonest intention while making a promise, there is no cheating. The High Court has relied on several decisions of this Court wherein this Court has held that dishonest intent at the time of making the promise/inducement is necessary, in addition to the subsequent failure to fulfil the promise. Illustrations (f) and (g) to section 415 makes this positionA intentionally deceives Z into a belief that A means to repay any money that Z may lend to him and thereby dishonestly induces Z to lend him money, A not intending to repay it. A cheats.""(g). A intentionally deceives Z into a belief that A means to deliver to Z a certain quantity of indigo plant which he does not intend to deliver, and thereby dishonestly induces Z to advance money upon the faith of such delivery. A cheats; but if A, at the time of obtaining the money, intends to deliver the indigo plant, and afterwards breaks his contact and does not deliver it, he does not cheat, but is liable only to a civil action for breach of contract.In this case, the complaints clearly allege that the accused with fraudulent intention to cheat and defraud the IOC, had induced IOC to resume supply of aircraft fuel on cash and carry basis, by entering into a further agreement dated 20.9.1997 and undertaking to clear the outstanding amount of Rs.18 crores approximately within the time stipulated in the Hypothecation Agreements. The sum and substance of the said allegation read with other averments extracted above, is that NEPC India, having committed default in paying the sum of Rs.18 crores, entered into a fresh agreement dated 20.9.1997 agreeing to clear the outstanding as per a fresh schedule, with the dishonest and fraudulent intention of pre-empting and avoiding any action by IOC in terms of the hypothecation deeds to take possession of the aircrafts. Though the supplies after 20.9.1997 were on cash and carry basis, the fraudulent intention is alleged to emanate from the promise under the said agreement to make payment, thereby preventing immediate seizure (taking possession) of the aircrafts by IOC. This allegation made in addition to the allegation relating to removal of engines, has been lost sight of by the High Court. All that is to be seen is whether the necessary allegations exist in the complaint to bring the case within section 415. We are clearly of the view that the allegations in the complaint constitute such an offence. We are not concerned with the proof of such allegations or ultimate outcome of trial at this stage.Section 425 IPCwith intent to cause, or knowing that he is likely to cause, wrongful loss or damage to the public or to any person, causes the destruction of any property, or any such change in any property or in the situation thereof as destroys or diminishes its value or utility, or affects it injuriously, commits "mischief". The three ingredients of the Section are:(i) intention to cause or knowledge that he is likely to cause wrongful loss or damage to the public or to any person;(ii) causing destruction of some property or any change in the property or in the situation thereof; and(iii) the change so made destroying or diminishing the value or utility or affecting it injuriously. For the purpose of section 425, ownership or possession of the property are not relevant. Even if the property belongs to the accused himself, if the ingredients are made out, mischief is committed, as is evident from illustrations (d) and (e) to section 425.The complaints clearly allege that NEPC India removed the engines thereby making a change in the aircrafts and that such removal has diminished the value and utility of the aircrafts and affected them injuriously, thereby causing loss and damage to IOC, which has the right to possess the entire aircraft. The allegations clearly constitute the offence of mischief. Here again, we are not concerned with the proof or ultimate