1) The following reference made by a learned Single Judge on August 09, 2012 has led to placement of this Criminal Appeal alongwith two Criminal Revisions (Criminal Revision Nos.1245 and 1412 of 2012) and two Criminal Misc. Petitions (Crl.Misc.M Nos.5582 of 2009 and 24351 of 2012) before us:-

2) To appreciate the controversy in its correct perspective, brief reference to the facts may be made from Criminal Appeal IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [2] No.28-DBA of 1991 which has been preferred by the State of Punjab against the order dated 18.1.1990, passed by the Judicial Magistrate, First Class, Samana, acquitting the respondents in a case under Section 406 IPC which had arisen out of FIR No.159 dated 26.9.1984 registered at Police Station Ghagga, District Patiala.

3) The afore-stated FIR was registered on the basis of a written complaint made by the District Manager, Punjab State Civil Supplies Corporation Limited, Patiala (in short, the PUNSUP), inter-alia, alleging that PUNSUP had purchased paddy as one of the procuring agencies of the State Government for custom milling and for delivering the resultant rice to Food Corporation of India (in short, 'FCI') in the central pool, out of which 4293-80-000 quintals of paddy was entrusted to M/s Jagdamba Rice Mill, Ghagga, for shelling during the paddy season 1983-84. The respondents- accused were the partners of the Firm M/s Jagdamba Rice Mill and as per the Government Instructions they were obligated to deliver 67% yield of rice of PR-106 variety. The respondents, however, did not deliver the custom milled rice to the tune of 447-05-900 quintals as well as 3634 'B Class' gunny bags which were entrusted to their firm. In this manner, the respondents were alleged to have caused loss to the tune of Rs.1,33,028.99 to PUNSUP and defalcated paddy worth the above mentioned amount.

4) The matter was investigated and on presentation of challan, charges under Section 406 IPC were framed against the respondents. The prosecution examined eight witnesses besides producing documentary evidence. The respondents in their statement under Section 313 Cr.P.C. denied the allegations, pleaded innocence and took a specific plea that an arbitration case was already pending against them initiated by PUNSUP. They tendered a copy of the Award (Exhibit D-1) and closed the defence evidence.

paddy was supplied to the accused by the complainant under a contract (Exhibit PW-3/A) dated 12.10.1983 and since they allegedly failed to return the paddy or the extracted rice, it was only a case of 'breach of contract' and not that of 'breach of trust'. It was observed that the complainant (PUNSUP) could get the contract enforced, hence the registration of a criminal case was sheer abuse of the process of law. The learned Judicial Magistrate also took notice of the fact that after registration of the criminal case, the accused had moved an application before the Civil Court under the Arbitration Act for referring the dispute for arbitration and vide order dated May 23, 1986 the Chairman of PUNSUP was appointed as Arbitrator who had passed the Award dated 8.7.1987 (Exhibit D-

1) holding the accused-respondents liable to pay Rs.1,81,315.43 to the PUNSUP. The Judicial Magistrate thus concluded as follows:-

6) The Judicial Magistrate accordingly acquitted the respondents.

7) The State of Punjab preferred this appeal against the aforesaid order which was dismissed by a learned Single Judge of this Court on 16.10.2002 observing that:-

8) Still aggrieved, the State of Punjab preferred Criminal Appeal No.1069 of 2004 and the Hon'ble Supreme Court, after briefly noticing the ingredients of 'criminal breach of trust' as defined under Section 405 of IPC and on consideration of the decisions in ( i) Rajesh Bajaj versus State NCT of Delhi , [1999 ( 3) SCC 259] and (ii) Trisuns Chemical Industry versus Rajesh Agarwal and others , [1999 (8) SCC 686], held vide its order dated 11.2.2009 as follows:-

9) When this appeal came up for hearing on August 09, 2012 after its remand by the Hon'ble Supreme Court, the learned Single Judge referred it to Division Bench for the reason mentioned in the reference order which we have reproduced at the outset.

whether criminal proceedings under Section 405 of IPC (breach of trust) or under Section 415 of IPC (cheating) can be initiated and/or maintainable when antecedents of the occurrence originate out of a binding contract between the parties and the arbitration clause contained therein gives rise to civil liability in the event of breach of such contract?

11) To be more specific, the question that we are called upon to determine in these cases is whether a breach of contract giving rise to 'civil liability' would, as a matter of principal, rule out to the 'criminal prosecution'?

12) We have heard learned counsel for the parties and gone through the cited decisions as well as the record with their able assistance.

13) Before we advert to the case-law cited in abundance, it appears expedient to briefly notice the basic ingredients of the offence of 'criminal breach of trust' as defined in Section 405 of IPC, namely, (i) entrustment to any person with property or with dominion over property in any manner; (ii) dishonest misappropriation or conversion of such property to his own use by the person to whom it was entrusted; (iii) dishonest use or disposal of that property by the person to whom it was entrusted, in violation of any direction of law prescribing the mode in which such trust is to be discharged, (iv) dishonest use or disposal of that property by the person to whom it was entrusted, in violation of any legal contract expressed or implied which he has made touching the discharge of such trust, or (v) if the person to whom the property was entrusted, willfully suffers any other person so to do any of the above mentioned acts, is said to have committed 'criminal breach of trust'.

the property was vested in some other person other than the accused and the accused has held that property on behalf of that person, appropriation of that beneficial interest in the property by the accused for his own use amounts to 'criminal breach of trust'.

15) The offence of 'cheating' is defined under Section 415 of IPC to mean (i) there is an inducement of a person by deceiving him fraudulently or dishonestly to deliver any property to any person or to consent that any person shall retain any property; (ii) when a person is induced intentionally to do or omit to do anything which he would not do or omit to do if he was not so deceived and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, and (iii) dishonest concealment of facts amounts to deception.

16) For an offence of 'cheating', it must therefore be proved that: (i) the complainant has been induced fraudulently or dishonestly and (ii) by reason of such deception, the complainant has not done or omitted to do anything he would not do or omit to do if he was not deceived or induced by the accused.

17) The marked distinction between the offence of 'criminal breach of trust' and 'cheating' to be born in mind is that for an offence of 'criminal breach of trust', it is not necessary that the accused-person must possess dishonest or fraudulent intention to misappropriate or convert the entrusted property to his own use at the time when such property was entrusted to him. But in the case of 'cheating', the existence of such dishonest intention at the time of entrustment of the property is a must. The doubts which occurred at one point of time that the offence of 'criminal breach of trust' is anti-thesis to the offence of 'cheating' and both cannot be said to have been committed in the same occurrence, have since been laid to rest, clarifying that in case of misappropriation of property IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [7] entrusted to the accused, if such misappropriation was preceded by fraudulent and dishonest intention to induce the person having beneficial interest in the property to entrust it to the accused, may in addition, attract Section 415 IPC as well.

18) Most of the cases wherein criminal proceedings initiated under Section 405 or 415 IPC or under both the provisions of IPC have been assailed at pre or post trial stage are at the instance of various rice millers to whom the procuring agencies, like PUNSUP had entrusted the paddy for custom milling but either they have (i) not delivered the agreed quantity of rice of the required quality; or (ii) have delivered rice of poorer quality than the paddy entrusted to them, or (iii) have partly delivered same quality of rice and partly of poorer quality, known as Below Rejection Limits (BRL) quality of rice. There existed a binding contract between the rice millers and the procuring agencies in every case and in such agreements there was an 'arbitration' clause. While in some of the cases the arbitrators have passed 'awards' and the Government Agencies are still struggling to recover the awarded amount, in other cases, the arbitration proceedings are still pending.

19) The petitioners in this factual backdrop contend that the launching of criminal prosecution is nothing but an act of arm- twisting to recover the disputed dues for which there exists an independent remedy under the binding agreement and at the best it is a simplicitor case of 'breach of contract' which may attract only civil consequences.

20) Contrarily, learned Additional Advocate General, Punjab as also the counsel representing the procurement agencies, vehemently urged that both 'civil' and 'criminal' proceedings can be initiated and run parallel to each other as recovery of the price value of the misappropriated rice through an arbitration award or civil IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [8] court decree does not and cannot absolve an accused if the offence of 'criminal breach of trust' or 'cheating' within the meaning of Sections 405 and 415 of IPC is made out.

21) In all fairness, Mr.Vikram Chaudhry, learned counsel for the petitioners has given us a compilation of judgments referred to for both sides, which we propose to consider in extenso.

22) Bal Krishan Das versus P.C.Nayar , 1991 (Suppl.2) SCC 412 was a case where close to the facts of the case in hand there was an arbitration agreement for procurement of paddy. One of the clauses of agreement was that shortage to the extent of 1.25 kgs per quintals of paddy procured should be permitted and beyond that, the petitioner would be liable for payment of penalty at the rate prescribed in the agreement. Since a heavy shortage of 206.10 quintals of paddy and 11678.600 quintals of rice during the year 1971-72 was found in the stock, the FCI filed an arbitration application. Meanwhile, the Vigilance department also registered a case under Section 406 IPC which was challenged under Section 482 Cr.P.C., but the High Court declined to quash the criminal proceedings observing that it was difficult to entertain the contention that the liability, if any, was purely of civil nature. The Hon'ble Supreme Court, however, after perusing the documents opined that the matter was purely of civil nature as 'there was an arbitration proceeding' and the matter was pending for more than 17 years. Hence the proceedings were quashed.

23) Following Bal Krishan Das 's case (supra), the Hon'ble Supreme Court in Kailash Verma versus Punjab State Civil Supplies Corporation and another , 2005 (2) SCC 571, quashed the criminal proceedings in a case under Sections 406 and 428 IPC registered against the partners of a firm which were running rice mills in the State of Punjab and had failed to return 1440 tons of rice to the PUNSUP, observing that "the respondent-Corporation had also IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [9] initiated steps of arbitration proceedings on the basis of an arbitration clause in the agreement". The appellant (Kailash Verma) in the above-cited case while facing trial had moved an application for his discharge alleging that he was a sleeping partner and his plea was in fact accepted by the Chief Judicial Magistrate. The learned Sessions Judge also upheld that order but the High Court in its revisional jurisdiction set-aside the same. The scope of powers of the Revisional Court was the dominant issue debated and decided in Kailash Verma 's case (supra).

24) In Baldev Krishan and others versus State of Punjab , 2006 (4) RCR (Criminal) 492, a Single Bench of this Court upheld the continuation of trial under Section 7 of the Essential Commodities Act by a Magistrate, but at the same time quashed the proceedings under Section 406 of IPC, observing that there was an 'arbitration clause' in the agreement, which stipulated that disputes and differences arising out of or in any manner touching or concerning the agreement were referable to the sole arbitrator. Hence, the allegations were of civil nature. A similar view was taken by some other learned Single Judges also in Tarsem Lal versus State of Punjab , 2006 (3) RCR (Criminal) 889; M/s Moga Roller Flour Mills Pvt. Ltd. and another versus State of Punjab (Crl. Misc.No.20570-M of 2005) decided by this Court on 26.7.2006; Bharat Bhushan versus State of Punjab and another (Criminal Misc. No.20216-M of 2006) decided on 17.5.2006, and Punjab State Civil Supplies Corporation (PUNSUP) versus Deepak Kumar and another , 2007 (2) RCR (Criminal) 550.

25. Contrary to these cases, the Hon'ble Supreme Court in Rajesh Bajaj versus State NCT of Delhi and others , (1999) 3 Supreme Court Cases 259, ruled that the mere fact of an act having a civil profile would not be sufficient to denude it of its criminal outfit and that "many a cheating is committed in the course of IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [10] commercial and also money transactions".

26. In Trisuns Chemical Industry versus Rajesh Aggarwal , 1999 (8) SCC 686, a criminal complaint alleging certain offences including 'cheating' filed against the respondent was quashed by the High Court in exercise of its powers under Section 482 Cr.P.C. on the ground that the dispute was purely of a civil nature. To arrive at that conclusion, reference was made to an agreement between the parties which contained an 'arbitration clause'. Relying upon an earlier decision in Rajesh Bajaj 's case (supra), the Hon'ble Supreme Court held as follows:-

approved the action of the High Court in quashing an enquiry into a criminal offence at its preliminary stage in the exercise of power under Section 482 Cr.P.C. solely because the dispute had arisen out of an 'agreement' between the parties and it contained an 'arbitration' clause.

others' case (supra), the accused preferred a Special Leave Petition (Criminal) 2052 of 2007 which was dismissed by the Hon'ble Supreme Court on 18.11.2010 observing that "in the facts of the case, there can be no question quashing the FIR or the criminal proceedings arising from it".

31) There is another string of decisions cited before us which have a direct bearing on the point in issue. In V.P.Shrivastava versus Indian Explosives limited and others, (2010) 10 Supreme Court Cases 361, criminal proceedings alleging commission of offence under Sections 420 , 406 & 120-B IPC were unsuccessfully challenged before the High Court. The criminal complaint had emanated from a tripartite agreement between the Indian Explosives Limited, M/s Bharat Coking Coal Limited and Fertilizer Corporation of India Limited. The appellants were senior employees of Fertilizer Corporation of India Limited which had become a sick company within the meaning of Sick Industrial Companies (Special Provision) Act, 1985 . While evaluating the contentions advanced on behalf of the parties, the Hon'ble Supreme Court explained the ingredients of the offence of 'cheating' within the meaning of Section 415 of IPC and of 'criminal breach of trust' as defined under Section 405 of IPC and thereafter in para No.32 of the judgment concluded that "even if the allegations made in the complaint are taken to be correct on their face value, they may amount to breach of terms of contract by the Fertilizer Corporation of India Limited, but do not constitute an offence of 'Cheating' punishable under Section 420 IPC". Similarly, in para No.38 of the judgment, it was concluded that "there is nothing in the complaint which may even suggest remotely that Indian Explosives Limited had entrusted any property to the appellants or that the appellants had dominion over any of the properties of the Indian Explosives IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [13] Limited, which they dishonestly converted to their own use so as to satisfy the ingredients of Section 405 IPC, punishable under Section 406 IPC".

32) In M/s Pepsi Foods Limited versus Special Judicial Magistrate , 1998 5) SCC 749, a sample of a beverage (Lehar Pepsi) of which the accused held the licence to manufacture, was found to be adulterated. However, the accused had given their 'brand' to Residency Foods Limited for bottling the beverage. Since no evidence was brought that the accused had manufactured the beverage, the criminal complaint was quashed by the Hon'ble Supreme Court. The scope of powers exercisable by the High Court under Section 482 Cr.P.C. or under Article 226 of the Constitution of India was also explained.

33) In S.W.Palanitkar versus State of Bihar , 2002 (1) SCC 241, there was an agreement dated 21.2.1995 appointing the appellant as a consignment stockist of respondent No.2-Company. The afore-mentioned agreement contained an arbitration clause. As there was a dispute regarding certain payments between the parties that a complaint alleging offence under Sections 406 and 420 read with Section 120-B IPC was filed. The appellant was summoned and their petition for quashing of the summoning order was dismissed by the High Court. Consequently, they approached the Hon'ble Supreme Court where it was held that in order to constitute an offence of 'cheating' the intention to deceive should be in existence at the time when inducement was made and it was necessary to show that a person had fraudulent or dishonest intention at the time of making the promise and that a mere failure to keep the promise subsequently cannot be presumed as an act leading to cheating. It was also ruled that "merely because there is an arbitration clause in the agreement, that cannot prevent criminal prosecution against an accused if an act constituting a IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [14] criminal offence is made out even prima-facie."

34) In Hridaya Ranjan Pd. Verma and others versus State of Bihar and another , 2000 (4) SCC 168, the distinction between 'breach of trust' and the offence of 'cheating' was explained and furthermore seven golden principles justifying the quashing of criminal proceedings by the High Court in exercise of its power under Section 482 Cr.P.C. read with Article 226 of the Constitution of India which had been laid down in State of Haryana and others versus Bhajan Lal and others , 1992 Suppl. (1) SCC 335 were re- iterated.

35) Dhariwal Tobaco Products Limited and others versus State of Maharashtra and another , 2009 (2) SCC 370, holds that a petition under Section 482 Cr.P.C. cannot be dismissed only on the ground that the remedy of revision under Section 397 Cr.P.C. was available to the petitioner. It was ruled that "whenever the High Court comes to the conclusion that allowing the proceedings to continue would be an abuse of process of Court and that the ends of justice require that the proceedings should be quashed, it would not hesitate to do so".

36) In MEDCHL Chemicals & Pharma (P) Ltd. versus Biological E. Limited and others, (2003) 3 SCC 269, there was an 'agreement' between the parties for the purpose of securing ethambutol hydrochloride drug in bulk for sale and use in various pharmaceutical drugs and products. The breach of agreement which allegedly caused loss of about Rs.one crore due to false representation on the part of the accused-respondent led to the filing of a criminal complaint under Sections 415, 418, 420 read with Section 120-B IPC. The High Court quashed the complaint in exercise of its power under Section 482 Cr.P.C. The Apex Court in an appeal held that while exercising jurisdiction under Section 482 Cr.P.C., the High Court must examine the complaint as a whole IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [15] without going into merits of the allegations made therein and if a prima-facie case is made out which discloses the ingredients of the offence alleged, the Court should not quash the complaint. It was further held that merely because the offence was committed during the course of a commercial transaction could not be sufficient to quash the complaint by itself and the Court should see whether in the fact situation 'civic profile' outweighs the 'criminal outfit'.

37) A somewhat similar view was taken in Lalmuni Devi versus State of Bihar and others , (2001) 2 SCC 17 also.

38) In Alpic Finance Limited vesus P.Sadasivan and another, (2001) 3 SCC 513, the appellant agreed to finance the respondent for purchase of 100 hydraulically-operated dental chairs as per the agreement. The respondents, however, did not make payments as per the agreement and their cheques were also dis- honoured by the bank. The appellant filed a criminal complaint under Section 200 Cr.P.C. alleging offence under Sections 420, 406 and 423 read with Section 120-B of IPC but it was quashed by the High Court in a petition under Section 482 of Cr.P.C. on the ground that the entire transaction was of 'civil nature' and since the substantial payment as per the hire-purchase agreement stood made, the appropriate recourse for the appellant was to avail the remedy under civil law. On an appeal, the Hon'ble Supreme Court though approved the view taken by the High Court but further ruled that when somebody suffers injury to his person, property or reputation, he may have remedies both under civil and criminal law. The injury alleged may form the basis of civil claim and may also constitute the ingredients of a crime punishable under the criminal law.

39) In V.Y.Jose and another versus State of Gujrat and another, (2009) SCC 78, the Hon'ble Supreme Court quashed the proceedings initiated in a case of 'breach of trust' on finding that the case essentially involved a civil dispute and that mere 'breach of IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [16] trust' does not necessarily involve 'cheating' as there was no culpable intention at the time of the initial promise.

40) Lastly, we may cite State of Orissa versus Debendra Nath Padhi , 2005 (1) SCC 569, which laid down that the trial court has no jurisdiction to allow the accused to produce any document at the stage of framing of the charge(s) but if the evidence, even if fully accepted, cannot show that the accused committed the offence, the accused deserves to be discharged at that stage only. It was also held that the powers of the High Court under Section 482 Cr.P.C. and under Article 226 of the Constitution are unlimited, whereunder the High Court in the interest of justice can make such orders as may be necessary to prevent abuse of the process of any Court or otherwise to secure the ends of justice.

41) The High Court shall be well within its peripherial limits to decline quashing of the criminal proceedings, even if the facts and the circumstances of a case do justify, provided that the caveat lodged against the exercise of such power is founded upon the doctrine of 'public interest' or is meant to cater to the rights of the 'invisible victim' of the crime who has hardly any say in the corridors of Criminal Justice System.

42) The principles that emerge out of the cited decisions may thus be usefully summarized to lay down that:-

sheet submitted under Section 173 Cr.P.C., the High Court would refrain from invoking its inherent powers under Section 482 of Cr.P.C. or the constitutional jurisdiction under Article 226 of the Constitution and shall not set at naught such criminal prosecution only because the allegations against the accused persons have emanated from an agreement of 'civil nature' IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [17] between the parties or such an agreement contains an 'arbitration' clause. In our humble view, the conclusions drawn in Baldev Krishan and others' and Kailash Verma's cases (supra), were founded upon the peculiar facts and circumstances of those cases and the same cannot be said to have laid down the principle that a contract between the parties with an arbitration clause shall be a lawful embargo against initiation or continuation of criminal proceedings arising out of the dispute touching such agreement between the parties;

(ii) A complaint on the basis of which FIR has been registered or a criminal complaint under Section 200 Cr.P.C., cannot be quashed at the threshold by the High Court in exercise of its inherent or constitutional jurisdiction nor are the complainant or the investigating agency, as the case may be, expected to produce the relevant material at the initial stage for consideration of a court of competent jurisdiction for the formation of its opinion whether or not a prima-facie case as per the ingredients descripted in different provisions of the Indian Penal Code or any other Penal Law, is made out;

(iii) However, in a case where the entire material produced by the complainant or the investigating agency at the stage of preliminary evidence or the charge-sheet under Section 173 Cr.P.C., respectively, even if accepted in its entirety, does not make out a prima-facie case such proceedings being an abuse of process of law as well as an exercise in futility, are liable to be quashed by the High Court to prevent the abuse of process of any court and to secure the ends of justice;

(iv) Wherever the material produced by a complainant or the investigating agency, even if accepted in entirety, also does not establish a prima-facie offence, an accused is entitled to press for his discharge at the stage of framing of charges and it IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [18] is the duty of the trial Magistrate to objectively consider his plea, of course without permitting such accused to produce any proof of his innocence at the stage of framing of charges;

(v) The High Court shall exercise its inherent power under Section 482 Cr.P.C. or discretionary jurisdiction under Article 226 of the Constitution, keeping in view the three well known parameters, namely, (i) to give effect to an order under the Code; (ii) to prevent abuse of process of the Court, and (iii) to otherwise secure the ends of justice, though no inflexible rule in this regard can be laid down except to observe that the aforesaid jurisdiction is exercisable sparingly and with great care and circumspection;

(vi) The High Court, while invoking its powers under Section 482 Cr.P.C. or Article 226 of the Constitution, shall be guided by the seven celebrated principles commencing from R.P.Kapoor versus State of Punjab, AIR 1990 SC 866 and summed up in Bhajan Lal 's case (supra);

(vii) Additionally, the High Court would be well within its power under Section 482 Cr.P.C. read with Article 226 of the Constitution to strike down criminal proceedings/prosecution on the basis of a compromise or amicable settlement between the parties subject to the limitations indicated or illustrated by a Five Judges Bench of this Court in Kulwinder Singh versus State of Punjab and others , 2007 (3) RCR (Criminal), 1052, which has got the seal of approval by the Hon'ble Supreme Court in Gian Singh versus State of Punjab and another (2012 (10) SCC 303.

(viii) To sum up and reiterate, we hold that the appellant or the petitioner-rice millers cannot seek quashing of criminal proceedings initiated against them under Sections 405, 406 or 415 IPC or other related provisions of IPC only on the ground IOIN CRA-28-DBA of 1991 in CRA-28-DBA of 1991 and connected cases [19] that they have entered into an agreement with one or the other procuring agencies or that non-delivery, shortage of delivery or delivery of poor quality of rice by them, gives rise to civil liability for which the complainant-procuring agencies have got an efficacious remedy by invoking the arbitration clause and seeking consequential recovery. However, if the investigation report, even on its acceptance in entirety, does not disclose prima-facie ingredients of any offence under the penal law(s), the aggrieved party is at liberty to raise such a plea before an appropriate forum as per the conclusions summarised above.

43) For the reasons stated above, we express our inability to agree with the view taken by the learned Single Judges in the cases cited in para-24 of this order and the same are hereby over ruled. The contrary view taken by other learned Single Judges referred to in para-29 of this order is consequently approved.