Case: V. P. Shrivastava Vs. Indian Explosives Ltd. and Ors

2. These appeals, by special leave, arise out of the judgment and order dated 28th February 2007, delivered by the High Court of Calcutta in CRR No.2898 of 2004 in a common petition filed by the two appellants herein and one Mr. A.K. Mukherjee, who is now deceased, under Section 482 of the Code of Criminal Procedure, 1973 (in short "the Code"). By the impugned judgment, the High Court has declined to quash a private complaint filed by respondent No.1 company against the appellants and Mr. A.K. Mukherjee for offences under Sections 420, 406 and 120B of the Indian Penal Code, 1860 (for short "the IPC).3. Shorn of unnecessary details, the facts, material for the purpose of disposal of these appeals may be stated thus:Both the appellants in these appeals were senior employees of the Fertilizer Corporation of India Limited (hereinafter referred to as "FCIL"), a government company within the meaning of Section 617 of the Companies Act, 1956.4. On 20th April 1992, the FCILs Board of Directors passed a resolution to the effect that the company had become a sick company within the meaning of the Sick Industrial (Special Provision) Companies Act, 1985 (hereinafter referred to as "SICA") and hence a reference should be filed with the Board of Industrial and Financial Reconstruction (hereinafter referred to as "BIFR"). On 6th November 1992, FCIL was declared a "sick company" under Section 3(1)(o) of the SICA by the BIFR.5. The complainant -- Indian Explosives Limited (hereinafter referred to as "IEL"), respondent No.1 in these appeals, is engaged in the manufacture and sale of industrial explosives. Ammonium nitrate is a major raw material for the manufacture of explosives, and the same was procured by IEL from FCIL. Some time in the year 2001, FCIL entered into a tripartite agreement with M/s Bharat Coking Coal Limited (hereinafter referred to as "BCCL") and IEL. As per the arrangement under the agreement, it was agreed that FCIL would supply ammonium nitrate to IEL and against this supply, IEL would supply explosives of an equivalent value to BCCL, which in turn would supply coal of equivalent value to FCIL. It is an undisputed fact that pursuant to the said arrangement ammonium nitrate was supplied by FCIL to IEL for some time. However, due to the breakdown of a synchronized gas compressor and other financial difficulties, FCIL stopped supplies of ammonium nitrate to IEL.6. On 2nd November 2001, BIFR formed its final opinion recommending winding up of FCIL and forwarded the same to the High Court of Delhi. Some time in December 2001, FCIL aggrieved by the opinion of the BIFR, preferred a statutory appeal under Section 25 of SICA before the Appellate Authority for Industrial and Financial Reconstruction (hereinafter referred to as "AAIFR"). However, on 16th April 2002, the AAIFR dismissed the said appeal and confirmed the order of the BIFR for the winding up of FCIL. In June 2002, FCIL and its employees preferred a Writ Petition (CWP No.3298 of 2002) before the High Court of Delhi challenging the said order of the AAIFR. The writ petition was disposed of by the High Court by its order dated 26th November 2002, whereby it remitted the matter back to BIFR for fresh consideration on the revival of the closed units of FCIL. BIFR, upon receiving the reference, directed the winding up of FCIL, except the JMO unit and on 2nd April 2004 sent its opinion to the High Court for confirmation.7. During the pendency of the writ petition before the High Court, the Government of India, on 30th July 2002, issued a memorandum for closing of all the units of FCIL except the Sindhri and JMO units. On 10th September 2002, the Government of India issued yet another memorandum directing closure of the Sindhri unit as well. It was further directed that FCIL shall implement Voluntary Suppression Scheme in all its units, and all the employees shall be discharged of their employment. The appellants herein availed of the Voluntary Suppression Scheme and were discharged from the service of FCIL.8. On 22nd May 2003, IEL instituted a criminal complaint (Case No. 2560/2003) in the court of Chief Metropolitan Magistrate, Kolkata under Sections 406, 420 and 120B of the IPC read with Sections 540 and 542 of the Companies Act, 1956 against both the appellants and Mr. A.K. Mukherjee.9. Simultaneously, on 25th May 2003, IEL also filed a Title Suit No. 34 of 2003 before the 4th Civil Judge, Alipore for recovery of the outstanding amount of Rs.4,20,41,622/- along with future and pendelite interest against FCIL. IEL, on 23rd January 2004, obtained and was granted permission by the BIFR to continue with the said civil suit subject to the condition that they will not execute the decree in the suit without the permission of the BIFR.10. On 30th October 2003, the Chief Metropolitan Magistrate referred the complaint to Metropolitan Magistrate, 8th Court, Kolkata, who issued summons against the appellants and Mr. A.K. Mukherjee. Aggrieved by the order of the Magistrate taking cognizance of the complaint, appellants together with Mr. A.K. Mukherjee preferred the afore-stated petition under Section 482 of the Code for quashing of the order summoning them to stand trial, before the Calcutta High Court.11. As stated above, the High Court, vide its impugned judgment has dismissed the said petition. The High Court has inter alia, observed that if the fact that FCIL, of which the accused were senior functionaries, had become sick and the question of its winding up was under consideration by the BIFR was made known to the complainant company, it would not have agreed to the proposal of the accused persons. According to the High Court, in order to arrive at a conclusion whether or not on the available materials the accusation against the appellants would be sustained or not, a detailed enquiry by appreciation of the evidence would be required and such an exercise, being entirely a matter of trial, cannot be undertaken in proceedings under Section 482 of the Code.Hence the present appeals.

Court's reasoning:
15. Before evaluating the contentions advanced on behalf of the parties, it will be useful to briefly notice the scope and ambit of the inherent powers of the High Court under Section 482 of the Code. The section itself envisages three circumstances under which the inherent jurisdiction may be exercised, namely; (i) to give effect to an order under the Code; (ii) to prevent an abuse of the process of court; and (iii) to otherwise secure the ends of justice. Nevertheless, it is neither possible nor desirable to lay down any inflexible rule which would govern the exercise of inherent jurisdiction of the Court. Undoubtedly, the power possessed by the High Court under the said provision is very wide but is not unlimited. It has to be exercised sparingly, carefully and cautiously, ex debito justitiae to do real and substantial justice for which alone the court exists. It needs little emphasis that the inherent jurisdiction does not confer an arbitrary power on the High Court to act according to whim or caprice. The power exists to prevent abuse of authority and not to produce injustice.Bearing in mind the aforestated legal position in regard to the scope and width of power of the High Court under Section 482 of the Code, we shall now advert to the facts at hand.20. As noted above, the complaint against the appellant alleges commission of offences by them of cheating and dishonestly inducing delivery of property; criminal breach of trust and of criminal conspiracy punishable respectively under Sections 420, 406 and 120B of the IPC.It is well settled that in order to constitute an offence of cheating, it must be shown that the accused had fraudulent or dishonest intention at the time of making the representation or promise and such a culpable intention right at the time of entering into an agreement cannot be presumed merely from his failure to keep the promise subsequently. (Also see: Hira Lal Hari Lal Bhagwati Vs. CBI, New Delhi ((2003) 5 SCC 257 ).25. In the instant case, it has been alleged by IEL that at the time of entering into the tripartite agreement, the appellants, by having suppressed the fact that FCIL was likely to be declared a sick company and was, in fact, declared to be so by the BIFR, had dishonest intention to induce IEL to enter into the said agreement, which amounted to cheating. A bare reading of the complaint would show that there is not even a whisper let alone a specific averment that the appellants had dishonestly "induced" IEL to enter into the said agreement/arrangement. On the contrary, the complaint clearly reveals that IEL was fully conscious of the precarious financial health of FCIL at the time they had decided to enter into contract with FCIL and BCCL to ensure a regular supply of their basic raw material from FCIL so that their production of explosives did not suffer.(Emphasis supplied by us)26. It is manifest from the afore-extracted paragraphs of the complaint that the basis of the complaint is that by deliberately suppressing the fact that FCIL had already been referred to the BIFR after the erosion of its net worth and was likely to be declared a "sick company", the appellants induced IEL to pay Rs.4,20,41,622/- to BCCL and in return did not supply ammonium nitrate to them. In our view, a mere mention of the words "defraud" and "cheat" in para 12 of the complaint, in the setting that these have been used, is not sufficient to infer that the appellants had dishonest intention right at the beginning when, demonstrably, after due deliberations a tripartite agreement was signed, which, under the given circumstances at that juncture, was considered to be in the interest of all the three parties to the agreement. In this regard, it would be useful to advert to the following observations made by this Court in Anil Mahajan Vs. Bhor Industries Ltd. & Anr. ((2005) 10 SCC 228 ):"The substance of the complaint is to be seen. Mere use of the expression `cheating in the complaint is of no consequence. Except mention of the words `deceive and `cheat in the complaint filed before the Magistrate and `cheating in the complaint filed before the police, there is no averment about the deceit, cheating or fraudulent intention of the accused at the time of entering into MoU wherefrom it can be inferred that the accused had the intention to deceive the complainant to pay."27. In our opinion, in the present case, at best, it was a case of breach of contract on the part of FCIL, for which the said company is already defending a civil suit filed by IEL. In this behalf, it is also pertinent to note that in para 5 of the plaint filed by IEL it is averred that:"While the aforesaid arrangement was continuing and the defendant no.1 supplied various quantities of Ammonium Nitrate malt to the plaintiff in the years 2000-2001, the defendant no. 1 ran into serious difficulties in continuing its production due to breakdown of synchronized gas compressor and the other financial problems...."28. In our view, the averment strikes at the root of the allegation that at the time of entering into the agreement some time in the year 2001, the appellants had fraudulent intention to somehow induce IEL to enter into the said agreement and part with a huge sum of money. It bears repetition that on their own showing IEL was fully aware of the financial health of FCIL at the time the said contract was entered into, as also the reason why FCIL was unable to continue the production of ammonium nitrate. It needs little emphasis that in order to constitute an offence of "cheating", the intention to deceive should be in existence at the time when the alleged inducement was made. In the instant case, such an intention cannot be inferred from the aforenoted allegations in the complaint and averments in the plaint. In our opinion, therefore, even if the allegations made in the complaint are taken to be correct on their face value, may amount to breach of terms of contract by FCIL but do not constitute an offence of "cheating", punishable under Section 420 of the IPC.However, it must be borne in mind that Section 405, IPC does not contemplate the creation of a trust with all the technicalities of the law of trust. It contemplates the creation of a relationship whereby the owner of property makes it over to another person to be retained by him until a certain contingency arises or to be disposed of by him on the happening of a certain event. (See: Jaswantrai Manilal Akhaney Vs. State of Bombay (AIR 1956 SC 575 ) and Indian Oil Corpn. Vs. NEPC India Ltd. & Ors. ((2006) 6 SCC 736 ).)34. In the instant case, there is nothing in the complaint which may even suggest remotely that the IEL had entrusted any property to the appellants or that the appellants had dominion over any of the properties of the IEL, which they dishonestly converted to their own use so as to satisfy the ingredients of Section 405 of the IPC, punishable under Section 406 IPC.35. Having come to the conclusion that no prima facie case had been made out against the appellants in respect of the alleged offences under Sections 420 and 406 IPC, the question of alleged conspiracy between the appellants does not arise. Nevertheless, in order to bring home the charge of conspiracy within the ambit of Section 120B of the IPC, it is necessary to establish that there was an agreement between the appellants for doing an unlawful act. The complaint lacks any such substance.