HIGH COURT FOR THE STATE OF TELANGANA
AT HYDERABAD
*****
I.A.No. 1 of 2022
In
Criminal Petition No.1559 OF 2020
and
Criminal Petition No. 1559 of 2020
Between:
Sukesh Gupta & Others ... Petitioners
And
The State of Telangana,
rep. by Assistant Commissioner of Police
(Through its Public Prosecutor),
High Court for the State of Telangana,
Hyderabad & Another ... Respondents
DATE OF JUDGMENT PRONOUNCED: 22.11.2022
Submitted for approval.
THE HON'BLE SRI JUSTICE K.SURENDER
1 Whether Reporters of Local
newspapers may be allowed to see Yes/No
the Judgments?
2 Whether the copies of judgment
may be marked to Law Yes/No
Reporters/Journals
3 Whether Their Ladyship/Lordship
wish to see the fair copy of the Yes/No
Judgment?
__________________
K.SURENDER, J
2
* THE HON'BLE SRI JUSTICE K. SURENDER
+I.A.No. 1 of 2022
In
CRL.P. No. 1559 of 2020
and
CRL.P. No. 1559 of 2020
% Dated 22.11.2022
# Sukesh Gupta & Others ... Petitioners
And
$ The State of Telangana,
rep. by Assistant Commissioner of Police
(Through its Public Prosecutor),
High Court for the State of Telangana,
Hyderabad & Another ... Respondents
! Counsel for the Petitioners: Sri. H. Rajesh Kumar
^ Counsel for the Respondents: Sri. M.P.K. Aditya
>HEAD NOTE:
? Cases referred
1
(2000) 2 SCC 636
2
(2007) 12 SCC 1
3
(2009) 3 SCC 78
4
(2009) 7 SCC 495
5
(2015) 8 SCC 293
6
(2006) 6 SCC 736
7
(1972) AIR SC 1490
8
Criminal Appeal No. 1723 of 2017
9
1954 CriLJ 1806
10
1992 (2) ALD (Crl.) 610 (AP)
11
2001 (1) ALD (Crl.) 551
3
HON'BLE SRI JUSTICE K.SURENDER
I.A.No.1 of 2022
In
CRIMINAL PETITION No.1559 OF 2020
and
CRIMINAL PETITION No.1559 OF 2020
ORDER:
1. The petitioners are A1 to A4, filed the petition to quash the complaint and investigation in FIR No.41 of 2020, dated 28.02.2020 on the file of the Assistant Commissioner of Police, Division-C, CCS, DD, Hyderabad. However, the investigation was completed and charge sheet was filed and numbered as CC No.1247 of 2021 pending on the file of XII Additional Chief Metropolitan Magistrate, Hyderabad.
2. I.A.No.1 of 2022 is filed to amend the prayer in the present Criminal Petition to quash the proceedings in CC. No.1247 of 2021 pending on the file of XII Additional Chief Metropolitan Magistrate, Hyderabad. I.A. is allowed.
3. Briefly, the case according to the charge sheet is that one Sri E.Venugopal, Associated Vice President of SREI Equipment 4 Finance Limited, situated at Banjara Hills filed complaint stating that the 1st petitioner/A3, 2nd petitioner/A4 who are partners of M/s.Aashi Realtors(A1) and 3rd petitioner/A5 and 4th petitioner/A6, who are directors of Neeharika Infrastructure Private Limited(A2), have approached the defacto complainant company for availing loan of Rs.110.00 Crores.
4. Accordingly, two immovable properties (i) land bearing Survey No.78 admeasuring Acs.8.08 guntas situated at Hafeezpet, Sheriilingampally, Hyderabad and (ii) house property bearing H.No.4-1-1, King Koti, Hyderabad admeasuring 28106 sq.yds, were mortgaged.
5. Though the installments were to be paid on 5th day of each quarter commencing from 5th October 2018, petitioners failed to pay the installments in spite of repeated reminders. The defacto complainant initiated proceedings under SARFAESI Act and the first asset was auctioned on 30.12.2019, which fetched Rs.102,60,00,000/-. Then the complainant company decided to mortgage the 2nd charged 5 asset, it was found that the 2nd asset which is house property at King Koti was sold without notice, as such these petitioners and other accused caused wrongful loss to the company.
6. On the basis of the said complaint, FIR was registered and having investigated the offence, charge sheet was filed. It is stated in the complaint that after availing loan from the complainant company, the petitioners and others intentionally defaulted in repaying the loan amount, for which reason, proceedings under SARFAESI Act were initiated and the 1st mortgaged property was sold and an amount of Rs.102,60,00,000/- was recovered. However, the balance as on the date was Rs.58.90 Crores, which includes 24.81 Crores as OD and Rs.33.81 Crores as ODC-Penalties.
7. Sri V.Ravi Kiran Rao, learned Senior Counsel appearing on behalf of Sri H.Rajesh Kumar, learned counsel appearing for the petitioners, submits that even accepting all the transactions, it is purely of civil dispute, which has to be decided by the Civil Court. There is no allegation of either cheating or criminal misappropriation. The defacto 6 complainant and the petitioners in fact entered into a MOU for settlement dated 07.09.2020, which was not considered by the Investigating Officer and without making a mention of the MOU for Settlement dated 07.09.2020, the said charge sheet is filed. In the said MOU, there is an understanding that against the outstanding liability of Rs.42,28,69,014/-, which includes interest and other charges, 3 cheques were issued. The three cheques were not presented by the defacto complainant. It is not the case that the amount was not in the accounts to honour the said cheques. It was further agreed that in view of the settlement, the parties shall take steps to withdraw all the pending cases, which includes the present Crime No.41 of 2020 initiated by the defacto complainant in pending investigation by the CCS, DD, Hyderabad. It is further argued that in case of delay or default in making balance liability, the defacto complainant/lender, shall be entitled to enforce and execute award, which would be before the arbitrator.
7
8. Learned Senior Counsel further argued that without resorting to either presenting the three cheques or enforcing the consent arbitration award, the charge sheet is filed. In support of his contentions, he relied on the judgment of G.Sagar Suri and another v. State of U.P and others1, wherein their Lordships have held that in exercise of jurisdiction under Section 482 of Cr.P.C, it has to be seen if a matter, which is essentially of a civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law and before issuing process a criminal court has to exercise great deal of caution as it is a serious matter. Further, in the said case, criminal complaint under Section 138 of Negotiable Instrument Act was already filed and the Court found that prosecution under Section 406 and 420 of IPC is abuse of process of law and accordingly quashed.
1 (2000) 2 Supreme Court Cases 636 8
9. In the judgment reported in the case of Inder Mohan Goswami and another v. State of Uttaranchal2, the Hon'ble Supreme Court held that when it appears that the proceedings are abuse of process of court, the High Court in exercise of its powers should not allow injustice but promote justice and the Court also held that quashing of proceedings would serve ends of justice. More so, in business circles where purely civil disputes are converted into criminal cases and such criminal prosecution should be deprecated and discouraged. The Court further held that intention is the gist of offence to attract an offence under Section 420 of IPC. It has to be seen whether fraudulent or dishonest intention existed at the time of making promise and mere failure to subsequently keep up promise, it cannot be said that such person had culpable intention to break the promise from the beginning.
10. Learned Senior Counsel also relied upon the judgments in the cases of V.Y.Jose and another v. State of Gujarat3, 2 (2007) 12 SCC 1 3 (2009) 3 SCC 78 9 Devendra and others v. State of Uttar Pradesh and another4 and Vesa Holdings Pvt. Ltd., v. State of Kerala and others5, when pure contractual disputes of civil nature were converted to criminal proceedings, the Hon'ble Supreme Court held that the Court should not hesitate to exercise its jurisdiction under Section 482 of Cr.P.C and consequently quashed the criminal proceedings having found that the transactions were purely of civil nature and breach of contract would not attract criminal prosecution for the offence under Section 420 or 406 of IPC unless the ingredients are satisfied.
11. In the said circumstances, learned Senior Counsel submits that since the transaction is one between lender and the borrower and out of the principal amount of Rs.110.00 Crores, Rs.102.60 Crores was already recovered and for the remaining amount, when there was MOU entered into between the parties, the question of attracting offence under Section 4 (2009) 7 SCC 495 5 (2015) 8 SCC 293 10 420 and 406 of IPC does not arise. Accordingly, prayed to quash the proceedings against the petitioner.
12. On the other hand, Sri M.Govind Reddy, learned counsel appearing for the 2nd respondent would submit that the transactions clearly make out an offence under Section 420 of IPC. When not even a single installment is paid as agreed, it can only be said that the petitioners had intention from the inception to cheat. Admittedly, there was MOU dated 07.09.2020 for settlement. However, a request was made by the 1st petitioner to postpone the presentation of cheques issued towards outstanding, as such, the intention to cheat is clear. Further, when the mortgaged property was sold, it amounts to an offence of cheating. Though, the 2nd property was mortgaged vide agreement dated 15.07.2018, without the knowledge of the defacto complainant, the said property was sold. The amount of loan given is entrusting the said amount, as such, the petitioners are liable for both cheating and criminal misappropriation. In cases of a mortgage, under Section 67 of the Transfer of Property Act, the mortgagee has 11 the right over the property and the mortgagors, who are the accused herein are deprived of their rights to sell the property. He relied upon the judgment of Hon'ble Supreme Court in the case of Indian Oil Corporation v. NEPC India Limited and others6 and argued that disputes arising from breach of contract, though civil remedy is available, the remedy under criminal law will not be barred, if the allegations in the complaint discloses criminal offence.
13. Learned counsel further argued that when the accused knew that interest exists in the 2nd property, which was mortgaged by the accused, selling the said property without the knowledge of the defacto complainant amounts to criminal breach of trust. He relied upon the judgment of Som Nath Puri v. State of Rajasthan7, wherein the Hon'ble Supreme Court held that once property was entrusted, if the property is converted to his own use, it amounts to criminal misappropriation, which is punishable under Section 409 of 6 (2006) 6 Supreme Court Cases 736 7 1972 AIR (Supreme Court) 1490 12 IPC. Counsel argued that admittedly the 2nd property was sold without consent. In the judgment of Parbatbhai Aahir @ Parbatbhai Bhimsinhbhai Karmur v. State of Gujarat8, the Hon'ble Supreme Court laid down the broad principles when a Court can quash the proceedings under Section 482 of Cr.P.C. He relied upon the judgment of the Hon'ble Supreme Court in the case of Mahadeo Prasad v. State of West Bengal9, in which the Hon'ble Supreme Court upheld the conviction under Section 420 of IPC. Court held that in a business transaction, though it was a civil liability, the transactions in the case would not eschew any criminal liability if the transactions fulfilled the ingredients of criminal provisions.
14. Admitted facts of the case are that; i) loan agreement dated 15.07.2008 was entered into in which it was agreed that there would be first and exclusive mortgage and charge over the first property. The second charge and mortgage over the 2nd property (which was sold subsequently); ii) both the 8 Criminal Appeal No.1723 of 2017 9 1954 CriLJ 1806 13 properties were free from any encumbrances and there is no fabrication or misrepresentation; iii) first property when sold fetched an amount of Rs.102.60 Crores on 30.12.2019; iv) MOU dated 07.09.2020 was entered into for Settlement under which, three cheques were given towards outstanding and both the parties agreed to withdraw all the pending cases including the present case; v) failure or default in making payment covered under three cheques, the defacto complainant is entitled to enforce and execute the award on the terms in the Arbitration consent award, which was passed on 25.11.2020.
15. In Ahmed Moosa v. Inspector of Police, Jagtial10, this Court held as follows:
"10. In this case the property said to have been delivered by the complaint to the accused is said to be the amounts advanced as loan to the three petitioners. Apparently, these amounts were delivered to the petitioners as loan on their request and on their offering registered mortgage deed in respect of immovable property as security as a part of business of the complainant as Finance company. There is no hint or even a remote suggestion that the complainant was induced to deliver these amounts as loan on account of any deception, any fradulent or dishonest inducement practised by the petitioners. From the tenor of the complaint it would appear that it was perfectly a normal loan transaction in which the complainant had advanced loan, to the petitioners by taking the precaution of a registered mortgage deed as security for the loan. There is 10 1999 (2) ALD (Crl.) 610 (AP) 14 no allegation that the petitioners made any fradulent representation as to their title to mortgaged property without having such title to the same. The complaint discloses that according to the terms of the loan agreement and mortgage deed the loan was to be repaid within two years, but it was not repaid inspite of lapse of three years. Mere failure to repay the loan within the period agreed upon cannot be construed as a piece of evidence of practising fradulent deception on the part of the accused."
16. In the present case, out of the amount of Rs.110.00 Crores of principal amount, nearly Rs.102.60 crores, which is 95% of the principal amount was recovered by selling the mortgaged property. It is apparent that the transaction was a perfectly normal loan transaction and the mortgaged property when liquidated, fetched the said amount of Rs.102.60 Crores. The learned Senior counsel appearing for the petitioners submitted that the defacto complainant was complicit in causing loss to the petitioners in the process of selling the first property for 102.60 crores though the property was worth nearly 165 crores and if such fraud was not played, the entire loan along with interest would have been discharged. Cheating if any that was committed during the process of selling the first property, the petitioners ought to have agitated at the relevant time and the same cannot be decided in the present application.
15
17. The main allegation is that 2nd property which was in the nature of a second charge apart from the first property, with the defacto complainant was sold without the consent of the defacto complainant. It is not the case that there existed a fraudulent and dishonest intention at the time of entering into loan agreement. There is no allegation that the Petitioners made any willful misrepresentation at the time of loan agreement. The second property was sold after recovery of 102.60 crores. The transactions between the defacto complainant and the accused at best in the present facts and circumstances can be described as a breach of contract or violation of agreement, for which the remedy lies with the Civil Court. The Hon'ble Supreme Court in G.Sagar Suri and another v. State of U.P and others's case (supra) and also Alpic Finance Limited v. P.Sadasivan11 held that unless misrepresentation and deception are played at the inception, it cannot be said that it is an offence of cheating under Section 420 of IPC. 11
2001 (1) ALD (Crl.) 551 16 The Hon'ble Supreme Court in Alpic Finance Limited v. P.Sadasivan observed-
"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 basis of civil claim and may also constitute the ingredients of some crime punishable under criminal law. When there is dispute between the parties arising out of a transaction involving passing of valuable properties between them, the aggrieved person may have right to sue for damages or compensation and at the same time, law permits the victim to proceed against the wrongdoer for having committed an offence of criminal breach of trust or cheating. Here the main offence alleged by the appellant is that respondents committed the offence underI.P.C. and the case of the appellant is that respondents have cheated him and thereby dishonestly induced him to deliver property. To deceive is to induce a man to believe that a thing is true which is false and which the person practicing the deceit knows or believes to be false. It must also be shown that there existed a fraudulent and dishonest intention at the time of commission of the offence. There is no allegation that the respondents made any willful misrepresentation. Even according to the appellant, parties entered into a valid lease agreement and the grievance of the appellant is that the respondents failed to discharge their contractual obligations. In the complaint, there is no allegation that there was fraud or dishonest inducement on the part of the respondents and thereby the respondents parted with the property. It is trite law and common sense that an honest man entering into a contract is deemed to represent that he has the present intention of carrying it out but if, having accepted the pecuniary advantage involved in the transaction, he fails to pay his debt, he does not necessarily evade the debt by deception."
18. The present complaint was filed after recovery of Rs.102.60 crores from the accused. The defacto complainant having entered into a memorandum of understanding for settlement and having taken thee cheques failed to present the said cheques. Though it is stated by the defacto complainant that e-mail was addressed by the 17 first petitioner to postpone the presentation of cheques, nothing stopped the defacto complainant from presenting the cheques and prosecute them. In the initial loan agreement, which was entered into, there is no allegation of any misrepresentation or fraud that was played upon by the petitioners. No dishonest intention can be deduced from the facts when the property mortgaged was genuine and fetched Rs.102.00 Crores. Subsequently, MOU for settlement was entered into on 07.09.2020 and also an award was passed by the arbitrator on 25.11.2020. All the transactions are admitted by the defacto complainant and both the parties consented to all the transactions. Only for the reason of selling the 2nd property, which was in the nature of a second charge, will not amount to an offence of cheating punishable under section 420 IPC, since there was no deception played from the inception. Similar view was taken in Ahmed Moosa's case by this Court.
19. The second property that was sold by the Petitioners was not entrusted to them to attract an offence of criminal misappropriation either under section 406 or 409 of IPC. 18
20. For the said reasons, the transactions being purely civil in nature, the criminal proceedings would be an abuse of process of the Court.
21. In the result, the Criminal Petition is allowed and the proceedings in CC No.1247 of 2021 pending on the file of XII Additional Chief Metropolitan Magistrate, Hyderabad pending against the petitioners, are hereby quashed.
__________________ K.SURENDER, J Date: 22.11.2022 kvs 19 HON'BLE SRI JUSTICE K.SURENDER CRIMINAL PETITION No.1559 OF 2020 Date: 22.11.2022.
kvs 20