Nova Steels (India) Ltd. vs Punjab National Bank
2000 Latest Caselaw 535 Del

ORDER

M.S.A. Siddiqui, J.

1. By this petition under Section 482 of the Code of Criminal Procedure, the petitioner seeks quashing of the criminal proceedings emanating from the complaint filed by the respondent Punjab National Bank under Sections 206/403/406/421 IPC read with Section 120-B IPC.

2. Briefly stated, the facts giving rise to this petition are: The respondent bank filed a complaint under Sections 206/403/406/421 IPC read with Section 120-B IPC against the petitioner and others on the allegations that the petitioner company had been enjoying cash credit facilities against hypothecation of stock from the respondent bank. Pursuant to the decision of the Supreme Court in the case of M.C. Mehta Vs. Union of India and others , the petitioner had to close down its industrial unit at Shahdara (Delhi). It is alleged that the officials of the petitioner company hatched a criminal conspiracy to defraud the respondent bank and nullify the assurance given to the bank for repayment of loan and in pursuance of the said conspiracy they dishonestly sold the stock hypothecated with the bank and misappropriated the sale proceeds thereof. It is alleged that the petitioner company and its official and dishonestly sold the hypothecated stock without adequate consideration intending thereby to prevent or knowing it to be likely that they will thereby prevent distribution of the hypothecated stock according to law among the petitioner's creditors including the respondent bank. On the complaint being filed, the learned Metropolitan magistrate took cognizance of the offences under Sections 206/403/406/421 IPC read with Section 120-B IPC and issued process against the petitioner and the remaining accused persons. Aggrieved thereby, the petitioner has come up before this Court under Section 482 Cr.P.C.

3. Learned counsel for the petitioner has strenuously urged that the allegations made in the complaint do not constitute any offence against the petitioner. According to the learned counsel, the case was basically a matter of civil dispute and the bank was already moved the Debt Recovery Tribunal for recovery of the dues of the bank an account of the credit facility and hence no prosecution should have been permitted in respect of the said dispute. Reliance has been placed on the decision of the Supreme Court in G. Sagar Suri and another Vs. State of U.P. and others in support of the said contention.

4. It is well settled that powers under Section 482 Cr.P.C. are meant to be exercised sparingly and with circumspection. In State of Haryana Vs. Bhajan Lal , the Supreme Court has laid down certain categories of cases of way of guidelines to indicate contingencies where this court can quash criminal proceeding. At the initial stage of the proceedings, the complaint in its entirely shall have to be examined on the basis of the allegations made therein and this Court under Section 482 Cr.P.C. has jurisdiction to examine its correctness Whatever appears on the face of the complaint shall be taken into consideration without any critical examination of the same.

5. By the impugned order dated 29.8.1998, the learned Metropolitan Magistrate has taken cognizance of the offences punishable under Section 206/403/406/421 IPC read with Section 120-B IPC. It is relevant to mention that the ingredients of the offence under Section 206 IPC are totally absent in the complaint. As regards the offences punishable under Section 403/406 IPC, it is contended by the learned counsel for the petitioner that the grant of credit facility or giving of a loan in pursuance of that credit facility cannot amount to entrustment of property as a loan in quite different from entrustment of money. He further contended that when the debtor hypothecates his goods to the bank by way of security, there is no entrustment of those goods to the bank by the debtor. Even if there is any contravention of the terms of the contract under which credit facilities are given, it will be merely a breach of contract for which the bank may make debtor liable for damages under the civil law., Reliance in placed on a decision of the Supreme Court in CBI Vs. Duncans Agro Industries Ltd. . In that case it was held that disposal of the hypothecated goods covering the security against credit facility does not amount to an offence of criminal breach of trust. In this context, a reference to the following passage of the judgment has become indispensable.

"27. In the instant case, a serious dispute has been raised by the learned counsel appearing for the respective parties as to whether on the face of the allegations, an offence of criminal breach of trust is constituted or not. In our view, the expression "entrusted with property" or "with any dominion over property" has been used in a wide sense in Section 405 IPC. Such expression includes all cases in which goods are entrusted, that is, voluntarily handed over for a specific purpose and dishonestly disposed of in violation of law or in violation of contract. The expression `entrusted' appearing in Section 405 IPC is not necessarily a term of law. It has wide and different implications in different contexts. It is, however, necessary that the ownership or beneficial interest in the ownership of the property entrusted in respect of which offence is alleged to have been committed must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit. The expression `trust' in Section 405 IPC is a comprehensive expression and has been used to denote various kinds of relationships like the relationship of trustee and beneficiary, bailor and bailee, master and servant, pledge and pledgee. When some goods are hypothecated by a person to another person, the ownership of the goods still remains with the person who has hypothecated such goods. The property in respect of which criminal breach of trust can be committed must necessarily be the property of some person other than the accused or the beneficial interest in or ownership of it must be in the other person and the offender must hold such property in trust for such other person or for his benefit. In a case of pledge, the pledged article belongs to some other person but the same is kept in trust by the pledgee. In the instant case, a floating charge was made on the goods by way of security to cover up credit facility. In our view, in such case for disposing of the goods covering the security against credit facility the offence of criminal breach of trust is not committed."

6. Bearing in mind, the aforesaid principles of law, I am of the opinion that the action of the petitioner is disposing of the hypothecated stock does not attract the penal provisions of Sections 403/406 IPC.

As regards the offence punishable under Section 421 IPC, following allegations have been made in para No.13 of the complaint:

"(13) That the accused persons in the aforesaid manner have dishonestly and fraudulently removed, concealed, delivered and transferred to and in favour of other persons with inadequate considerations the properties hypothecated with the Complainant Bank intending the knowing that the said removal, transfer and delivery would prevent the distribution of the said property according to law amongst their creditors including the Complainant Bank."

7. At this stage, allegations in the complaint will have to be accepted on the face of it and trust or falsity thereof would not be gone into by this Court under Section 482 Cr.P.C. At this stage, it is not necessary to scrutinize the allegations for the purpose for deciding whether such allegations are likely to be upheld in the trial. {State of Haryana Vs. Bhajan Lal , State of Bihar Vs. P.P. Sharma 1992 Supp. (1) SCC 222, Janta Dal Vs. H.S. Chowdhary }. On a careful reading of the allegations made in para No.13 of the complaint, it cannot be said that the ingredients of the offence under Section 421 IPC are totally absent in the complaint. It is also well settled that merely because an act has a civil profile is not sufficient to denude it of its criminal outfit. (Rajesh Bajaj Vs. State ). In M/s Medchl Chemicals and Pharma P. Ltd. Vs. M/s. Biological E. Ltd. , it was held that simply because of the fact that there s a remedy provided for breach of contract, that does not by itself clothe the Court to foreclose criminal prosecution at the threshold. Both criminal and civil law remedy can be pursued in divers situations and "they are not mutually exclusive but clearly co-extensive and essentially differ in their content and consequences." It is anathema to suppose that when a civil remedy is available, a criminal prosecution is completely barred.

8. Considering the factual aspect of the matter, I am of the opinion that this is not a case in which the criminal trial is liable to the shortcircuited. Consequently, I am not inclined to interfere in the matter in exercise of extraordinary jurisdiction under Section 482 Cr.P.C. The petition is accordingly dismissed.