Gurmeetsingh Sawhney vs State Of Gujarat
2022 Latest Caselaw 2773 Guj

     R/SCR.A/1087/2013                               JUDGMENT DATED: 11/03/2022




              IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

             R/SPECIAL CRIMINAL APPLICATION NO. 1087 of 2013


FOR APPROVAL AND SIGNATURE:


HONOURABLE MR. JUSTICE NIKHIL S. KARIEL

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1      Whether Reporters of Local Papers may be allowed No
       to see the judgment ?

2      To be referred to the Reporter or not ?                     No

3      Whether their Lordships wish to see the fair copy No
       of the judgment ?

4      Whether this case involves a substantial question No
       of law as to the interpretation of the Constitution
       of India or any order made thereunder ?

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                         GURMEETSINGH SAWHNEY & 2 other(s)
                                     Versus
                           STATE OF GUJARAT & 1 other(s)
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Appearance:
MR ADITYA PARIKH, ADVOCATE for MR MRUGEN K PUROHIT(1224) for the
Applicant(s) No. 1,2,3
MR SANKUL KABRA, ADVOCATE for MR DHAVAL M BAROT(2723) for the
Respondent(s) No. 2
MS M D MEHTA, APP for the Respondent(s) No. 1
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     CORAM:HONOURABLE MR. JUSTICE NIKHIL S. KARIEL

                                 Date : 11/03/2022
                                 ORAL JUDGMENT

1. Heard learned Advocate Mr. Aditya Parikh for learned Advocate Mr. Mrugen K. Purohit for the petitioners, learned APP Ms. M.D. Mehta for the respondent-State and learned Advocate Mr. Sankul Kabra for learned Advocate Mr. Dhaval M. Barot for the respondent No.2.

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2. By way of this petition the petitioners pray for quashing of FIR being M. Case No. 15 of 2012 registered with CID Crime Police Station, Gandhinagar Zone, for the offence punishable under Sections 420 and 120- B of the Indian Penal Code. The petitioners had also sought for an additional prayer for quashing and setting aside the order passed by the learned Chief Metropolitan Magistrate, Ahmedabad dated 21.04.2012, whereby in the complaint filed by the respondent No.2, while exercising power under Section 156(3) of the Cr.P.C. the learned Magistrate had directed the CID Crime and the Railways' Additional D.G. to inquire into it and register a complaint.

3. It would be pertinent to mention here that learned Advocate Mr. Parikh, more particularly relying upon the observations of the Hon'ble Apex Court in case of Pradeep N. Sharma Vs. State of Gujarat, reported in 2019(1) GLH 798, has not pressed the prayer with regard to challenging the order dated 21.04.2012 passed by the learned Magistrate and whereas challenge is restricted to the impugned FIR on its merits. Thus, the petition is considered for the main prayer for quashing the FIR.

4. Brief facts leading to filing of this petition being that the respondent No.2 herein as well as the petitioners had entered into a transaction, whereby loan had been sanctioned by the respondent No.2 in favour of the petitioners herein against security provided by the petitioners. It appears that the petitioners had issued three cheques for the said loan amount, each valued at Rs. 5 Crore and whereas upon depositing the same, the same had been returned with an endorsement 'Account Blocked'. It appears that a complaint under the Negotiable Instruments Act had been filed by the respondent No.2 against the petitioners being Criminal Case No. 821 of 2012. It appears that after the complaint under the Negotiable Instruments Act had been preferred by the respondent No.2, a complaint had been preferred before the learned Chief Metropolitan Magistrate by the

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respondent No.2 for the said transaction which was numbered as Criminal Inquiry No. 16 of 2012. It appears that in the said Criminal Inquiry, the learned Chief Metropolitan Magistrate, Ahmedabad vide order dated 21.04.2012 had been pleased to direct the CID Crime and Railways Department to investigate under Section 156(3) of the Cr.P.C., pursuant to which the FIR impugned had been registered with the CID Crime Police Station, Gandhinagar Zone.

5. Learned Advocate Mr. Parikh would draw the attention of this Court to the allegations levelled in the FIR inasmuch as according to the learned Advocate, the complainant states that the petitioners who were promoters of a public limited company viz. M/s. Koutons Retail India Private Limited had approached the complainant in the month of September, 2010 for obtaining loan/financial assistance. It is further alleged that the petitioners had through misrepresentations lured the complainant into providing financial assistance to the petitioners to the tune of Rs. 4 Crore to the first and second accused and Rs. 5.40 Crore to the third accused. Learned Advocate Mr. Parikh would submit that the complainant states that while the financial assistance was for a period of three months, the petitioners- accused had offered security in the form of 566774, 692764 and 518855 shares respectively, of M/s. Koutons Retail India Limited. Learned Advocate Mr. Parikh would further draw the attention of this Court to the allegations made in the FIR that while entering into the transaction, the value of a single share of M/s. Koutons Retail India Limited was Rs. 119/- which aggregated to Rs.6,77,46,106/-, Rs.8,24,38,916/-and Rs. 6,17,43,745/- respectively, with regard to shares pledged by each of the petitioners as security. It is mentioned in the FIR that the accused had also assured that if the price of the shares would go down, then additional security to compensate the amount of reduction of the security money would be offered by them. It is further mentioned in the FIR that after the

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agreements for loan and securities dated 19.10.2010 was signed and executed by the parties, the respondent No.2 had provided financial assistance to the petitioners. It is further mentioned that the accused did not make the payment to the complainant within the stipulated time period and whereas the market price of the shares offered as security had reduced substantially and whereas though the petitioners were called upon to provide additional security, the petitioner had not provided the same. It is, under such circumstances, according to learned Advocate Mr. Parikh, the allegation of commission of offence punishable under Section 420 of the IPC has been made.

5.1 Learned Advocate Mr. Parikh would draw the attention of this Court to the agreement dated 19.10.2010 between the parties which is referred to in the FIR. Learned Advocate would submit that as per Clause 3.2, the financial facility had been granted for a period of three months and whereas at the discretion of the lender, the financial facility could be extended for a further period of three months. Clause 3.3 of the agreement states that the borrower would agree and undertake to repay the facility in full on or before 19.01.2011 i.e. the original period or 19.04.2011 i.e. the extended period. Learned Advocate would further draw the attention of this Court to Clause 8.2 of the agreement which inter alia empowers the lender to sell the securities in whole or in part to any person for a price as the lender may consider appropriate towards repayment of facility with three days notice envisaged to the borrower. Clause 8.3 also envisages that the sale proceeds upon sale of the securities, if they are insufficient to repay the loan amounts, then the lender was at liberty to recover the balance amount at the borrower's costs and consequences. Most importantly, learned Advocate Mr. Parikh would draw the attention of this Court to the Schedule of Securities appended with each of the loan agreements between the complainant and the individual petitioner. Learned Advocate would submit

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that while the petitioner No.1 had given 566774 equity shares of M/s. Koutons Retail India Limited as security in lieu of the loan, petitioner No.2 had given 601871 equity shares and the petitioner No.3 had given 631355 equity shares. Having regard to the same, learned Advocate would submit that while the complaint inter alia alleges offence punishable under Section 420 of the IPC, but at the same time what requires to be noted is as per the complaint itself the value of the share of the company in question was Rs.119/- per share on the date in question which aggregated to Rs.6,74,46,106/- in case of petitioner No.1, Rs.8,24,38,916/- in case of petitioner No.2 and Rs. 6,17,43,745/- in case of petitioner No.3. Learned Advocate would submit that admittedly the value of the shares pledged with the respondent No.2 on the date of the transaction was higher than the loan obtained by each of the petitioners and according to the learned Advocate, the said fact would be the most crucial fact in this entire transaction, which indicates that from the very inception the petitioners did not have any intention to cheat the complainant. Learned Advocate would elaborate by submitting that by giving shares which were of higher value than the amount of the financial facility availed by the petitioners, at the time of inception of the transaction, the petitioners were on the contrary showing their willingness to repay the financial facility as availed by them within the stipulated time period and whereas there was no intention whatsoever to have cheated the complainant.

5.2 Learned Advocate Mr. Parikh would further submit that the complaint while it states that on the date of the agreements between the parties the value of the shares were higher than the financial facility availed by the petitioners, it does not state the period during which the value of the shares had come down. Learned Advocate would submit that the securities were pledged with the lender, with the specific understanding that the period of loan was for three months originally and it could be extended only

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for a period of three months further. The agreement also envisaged empowering the lender to sell the securities at his discretion if the loan amount was unpaid with a three days notice to the petitioners. Learned Advocate would submit that while the period of six months i.e. the maximum period the loan facility could be extended, ended on 19.04.2011 and whereas the complaint had been preferred on 24.07.2012 i.e. approximately after one year and three months. Learned Advocate Mr. Parikh would submit that the complaint not specifically stating that what was the value of the shares on 19.04.2011 or even later, it could not be alleged that the petitioners had in any manner committed an offence punishable under Section 420 of the IPC. Learned Advocate would emphasize by submitting that since the lender could have sold the shares from 19.04.2011 for recovery of unpaid dues after giving notice of a three days, it was specifically required to be mentioned in the complaint as regards the value of the shares on the date when the loan facility would expire. Learned Advocate Mr. Parikh would in support of his contentions seek to rely upon the decisions of the Hon'ble Apex Court in case of Vesa Holdings Private Limited and Another Vs. State of Kerala and Others, reported in (2015) 8 SCC 293 as well as in case of Satishchandra Ratanlal Shah Vs. State of Gujarat and Another, reported in (2019) 9 SCC 148. Learned Advocate Mr. Parikh would submit that both the judgments of the Hon'ble Apex Court, inter alia reiterate a settled position of law that mere breach of contract would not give rise to an offence of cheating and whereas the offence of cheating could be alleged only when the deception was played from the very inception of the transaction. Having regard to the same, learned Advocate Mr. Parikh would submit that the impugned FIR alleging offence under Section 420 of the IPC and since it is established that there was no intention to cheat the complainant from the very inception of the transaction, therefore the impugned FIR deserves to be quashed and set

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aside by this Court.

6. This petition is vehemently contested by learned Advocate Mr. Sankul Kabara for the respondent No.2. Learned Advocate Mr. Kabara would submit that the averments as made in the FIR are very clear and unambiguous. Learned Advocate would submit that the petitioners had misrepresented and lured the complainant into providing financial facility for such a huge amount and whereas having not repaid the loan amount, within the time limit as mentioned in the agreement, the intention of the petitioners to cheat the complainant from very inception of the transaction is established. Learned Advocate would further submit that in any case even the later developments that the cheques for Rs. 5 Crore each, issued by each of the petitioners, being dishonoured, would also point out the dishonest intention of the petitioners from the inception of the transaction. Learned Advocate would further submit that the impugned FIR, after the order of the learned Magistrate dated 21.04.2012, had been registered with the Police Station on 24.07.2012. Learned Advocate Mr. Kabra would submit that the petitioners had approached this Court within a period of one year and whereas this Court had been pleased to grant interim relief in the nature of stay of further proceedings of the FIR in question. Learned Advocate would submit that the stay having continued till date, the same is amounted to interfering with the investigation at the very initial stage, which is something which has been frowned upon by the Hon'ble Apex Court in the number of judgments. Learned Advocate Mr. Kabra would therefore request this Court to reject the petition.

7. Learned APP Ms. M.D. Mehta for the respondent-State would submit that since averments in the FIR point towards the petitioners having availed of a substantial amount of loan from the respondent-complainant and whereas it would be only evident after the investigation and subsequent trial as to whether there was any dishonest intention on the part of the

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petitioners and hence, learned APP would submit that this Court may not interfere at this stage.

8. Heard learned Advocates for the respective parties.

9. At the outset, it is required to be noted that the complainant in the impugned FIR only alleges offence punishable under Sections 420 and 120- B of the IPC. Keep this aspect in view, the submissions made by learned Advocates for the respective parties are examined hereinafter.

10. The case of the petitioners being that the transaction in question was purely a commercial transaction and whereas there was no intention on the part of the petitioners to cheat the respondent-complainant. The case of the respondent-complainant being that if a prima facie offence is disclosed upon reading the FIR, then the Court should not normally quash the complaint. It is also the case of the complainant that merely because civil proceedings are also maintainable, criminal proceedings cannot be thwarted.

11. Having regard to the same, it is required to be observed that the FIR inter alia alleges that the petitioners had availed of a loan and had provided security in lieu of the loan in form of shares of a company and agreements with regard to grant of loan had been signed by the parties on 19.10.2010 and whereas the complainant had been lured into giving financial assistance on account of misrepresentation and inspite of guarantying repayment, the petitioners did not repay the amount nor did the petitioners give additional security upon the value of the shares pledged as security continuously going down. Both the parties relied upon the various terms and conditions of the agreement for loan against securities entered into between the parties on 19.10.2010. It appears that the loan was for a period of three months extendable at the discretion of the lender for a further period of three months and no extension envisage thereafter. It also appears that the borrowers had pledged shares of a company in which they were Directors as

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security against the loan and as mentioned in the FIR, the petitioners had pledged shares aggregating to Rs.6,74,46,106/-, Rs.8,24,38,916/- and Rs. 6,17,43,745/- respectively. The agreement also inter alia envisaging that the lender i.e. the complainant could sell securities in whole or in part upon the loan remaining unpaid beyond repayment date after giving three days notice in writing to the borrowers i.e petitioners.

12. Thus, it appears that the borrowers i.e. the petitioners herein had sought for an amount of Rs.15 Crore in aggregate from the complainant and as against the loan facility availed of 15 Crore, the petitioners had given a security shares having an aggregating value of Rs. 21,17,47,767/- on the date of the transaction. The loan was for a period of three months extendable for further period of three months at the discretion of the lender and no further extension beyond 19.04.2011 is envisaged. Apart from the other conditions, the loan agreement also contain condition that the borrower was required to make repayment not later than the repayment date and discretion was reserved with the complainant that the complainant could sell the securities.

13. With this background, this Court now proceeds to examine the scope of offence as alleged in the FIR. The complaint alleges commission of offence punishable under Section 420 and 120B of the IPC. The allegation with regard to offence punishable under Section 420 is that the accused- petitioners had right at the beginning an intention to cheat the complainant with regard to repayment of the loan, which they had not repaid. Insofar as the offence under Section 420 of the IPC is concerned, the position of law in this regard is now well settled inasmuch as the accused should be shown to have an intention to cheat the complainant from the inception of the transaction. The Hon'ble Apex Court in case of Hridaya Ranajn Prasad Verma and Others Vs. State of Bihar and Another, reported in 2000(4) SCC 168 has succinctly explained the distinction between a breach of contract and an offence of cheating. Paragraph Nos. 13, 14 and 15 of the said

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decision being relevant, the same are quoted below for benefit.

"13. Cheating is defined in Section 415 of the Code as :

"415. Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were 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, is said to "cheat".

Explanation. - A dishonest concealment of facts is a deception within the meaning of this section."

The section requires -

(1) Deception of any person.

(2) (a) Fraudulently or dishonestly inducing that person (i) to deliver any property to any person; or (ii) to consent that any person shall retain any property; or

(b) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were 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.

14. On a reading of the section it is manifest that in the definition there are set forth two separate classes of acts which the person deceived may be induced to do. In the first place he may be induced fraudulently or dishonestly to deliver any property to any person. The second class of acts set forth in the section is the doing or omitting to do anything which the person deceived would not do or omit to do if he were not so deceived. In the first class of cases the inducing must be fraudulent or dishonest. In the second class of acts, the inducing must be intentional but not fraudulent or dishonest.

15. In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time to inducement which may

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be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed."

14. The Hon'ble Apex Court has inter alia laid down that the distinction between a breach of contract and an offfence of cheating is a fine one and depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this the subsequent conduct is not the sole test. According to the Hon'ble Apex Court, fraudulent or dishonest intention is to be shown right at the beginning of the transaction and for making out a case of cheating as distinct from a case of breach of contract, the culpable intention of the accused is necessary and whereas a mere failure to keep up a promise subsequently the intention could not be presumed.

15. Applying the above principle to the facts of the case, it clearly appears that at the time when the petitioners had availed the loan facility, the securities which they had provided was much higher value than the loan availed of. That as mentioned hereinabove, against an aggregating amount of Rs.15 Crore, the petitioners had as security pledged shares, the aggregating value of which on the date of the transaction was more than 21 Crore. Considering the issue from the touchstone of the principle as laid down by the Hon'ble Apex Court, it appears that from the inception of the transaction there was no fraudulent or dishonest intention of the petitioners

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to have cheated the complainant, more particularly since on the date of the transaction the value of the security was higher than the value of the loan.

16. The decision of the Hon'ble Apex Court in case of Hridaya Ranajn Prasad Verma (supra) has been followed in the later decision of the Hon'ble Apex Court in case of Satishchandra Ratanlal Shah Vs. State of Gujarat and Another, reported in (2019) 9 SCC 148, where the Hon'ble Apex Court has inter alia observed that "The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence."

17. As noted hereinabove, the facts show that the fraudulent or dishonest intention is not borne out, more particularly for the reasons of the security being higher in value than the amount of loan availed of.

18. Insofar as the submission made by the learned Advocate Mr. Kabra for the complainant that the FIR should not be interfered with at the very inception and whereas investigation should be permitted to be continued is concerned, in the considered opinion of this Court, the facts of the present case read with the law laid down by the Hon'ble Apex Court as referred to hereinabove, do not persuade this Court to take such a decision, more particularly as noted hereinabove, this Court having come to a conclusion that offence of cheating is not made out. As regards the submission made by learned Advocate Mr. Kabra that even cheques provided by the accused having dishonoured, dishonest intention could be presumed from the very inception, in the considered opinion of this Court, in view of the fact that the amount of security provided at the time of availing of the loan being higher in value than the amount of the loan availed of, the subsequent event of cheques given by the accused being dishonoured would not bring the

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action of the petitioners in the ambit of offence punishable under Section 420 of the IPC. The law as having been laid down by the Hon'ble Apex Court in case of Hridaya Ranajn Prasad Verma (supra) also clarify the aspect of subsequent development.

19. Having regard to the facts that this Court does not find a prima facie offence under Section 420 of the IPC being made out, consequently even offence under Section 120B of the IPC also could not be alleged.

20. At this stage, this Court feels it appropriate to refer to the decision of the Hon'ble Apex Court in case of State of Haryana and others Vs. Bhajan Lal and others, reported in 1992 Supp. (1) SCC 335, where the Hon'ble Apex Court has set out appropriate situation where this Court could exercise jurisdiction under Article 226 of the Constitution of India or inherent powers under Section 482 of the Code of Criminal Procedure to quash criminal complaint either to prevent abuse of process of Court or otherwise to secure ends of justice. The relevant Para No.102 of the said decision is quoted below hereinabove for benefit.

"102. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code, which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelised and inflexible guidelines or rigid formulae and to give an exhaustive list of myriad kinds of cases wherein such power should be exercised.

(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any

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offence or make out a case against the accused.

(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.

(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.

(4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code.

(5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.

(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.

(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."

21. The illustration (1) of the judgment of the Hon'ble Apex Court would be relevant to the facts situation, more particularly since in the recital of the complaint which has been mentioned by the complainant - respondent

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No.2 that as against an aggregate loan for Rs.15 Crore, the petitioners had provided as security shares aggregating to Rs.21 Crore, in the considered opinion of this Court, such a recital in the FIR makes it abundantly clear that even if the allegations in the FIR are taken at the fact value and accepted in its entirety, they do not prima facie constitute any offence or making out any case against the accused.

22. Having regard to the discussion, reasoning and conclusion as stated hereinabove, in the considered opinion of this Court, the FIR being a clear abuse of process of the Court, deserves interference. As a result, the impugned FIR being M Case No. 15 of 2012 registered with the CID Crime Police Station, Gandhinagar Zone, for the offence punishable under Sections 420 and 120B of the Indian Penal Code and any consequential proceedings arising therefrom are hereby quashed and set aside qua the petitioners herein. Rule is made absolute to the above extent.

(NIKHIL S. KARIEL,J) BDSONGARA