Jammu & Kashmir High Court

Raj Kumar Gupta & Others vs Union Of India & Othrs on 29 June, 2021

       IN THE HIGH COURT OF JAMMU AND KASHMIR
                      AT JAMMU

                   (THROUGH VIRTUAL MODE)

                                             Reserved on: 04.06.2021
                                            Pronounced on:29.06.2021


                       CRM(M) No.375/2020
             CrlM Nos.1396, 1397, 1754 and 1755 of 2020
                                c/w
                       CRM(M) No.365/2020
                CrlM Nos.1339, 1340 and 1734 of 2020


RAJ KUMAR GUPTA & OTHERS                           ... PETITIONER(S)
                   Through: - Mr. Vikram Rathore, Advocate.

       Vs.

UNION OF INDIA & OTHRS                            ...RESPONDENT(S)
                   Through: - Mr. Vishal Sharma, ASGI

CORAM:       HON'BLE MR. JUSTICE SANJAY DHAR, JUDGE


                            JUDGMENT

1)     CRM(M) No.375/2020:
(I)    The petitioners, in this petition, have challenged FIR No.RC/

DST/2019/A/0004 dated 26.08.2019 for offence under Section 420

read with Section 120-B RPC registered with Central Bureau of

Investigation (CBI) as also the proceedings/investigation being

conducted by the CBI pursuant to aforesaid FIR.

(II) The impugned FIR has been registered by respondent No.3-CBI

on the basis of a complaint lodged by respondent No.4 - Bank of

India, vide its complaint dated 9th of August, 2019. As per the said

complaint, M/S Jhelum Industries and its Directors, petitioner No.1

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and 2 along with other corporate guarantors and individual guarantors

indulged in commission of acts of cheating, fraud, diversion/siphoning

of funds.

(III) It is alleged that M/S Jhelum Industries had represented that it

was managing projects of over Rs.100.00 crores and having business

of approximately Rs.400.00 crore in pipeline but it earned a revenue

of Rs.5.34 crore and Rs.11.18 crore against the estimates of Rs.117.78

crore and Rs.174.78 crore for the financial years 2012-13 and 2013-14

respectively. It is further alleged that the contracts obtained by M/S

Jhelum Industries were as a sub-contractor from the main contractor

and company's management/execution of the contracts was not up to

the mark which eventually resulted in cancellation of high value

Dhanbad Coal Extraction Contract and other contracts as well as

revocation of bank guarantee of Rs.6.29 crore by two beneficiaries.

The complainant goes on to allege that the company went out of order

from September, 2014 due to non-servicing of interest and revocation

of bank guarantee vis-à-vis low turnover in the cash credit account

and despite repeated reminders and vigorous follow up, the conduct of

the company remained unsatisfactory and ultimately the account was

classified as NPA on 31.12.2014 with outstanding amount of Rs.36.50

crore plus bank guarantee of Rs.2.57 crore. It is alleged that the

aforesaid company had opened current account with two other banks

without permission of respondent No.4 and routed the transactions

through these banks. Subsequently, the company again opened a

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current account with Canara Bank routing the transactions through the

said branch thereby avoiding recovery of bank interest deliberately.

(IV) As per the complaint, the petitioner No.3 had also extended

guarantee to secure the limit availed by the company from the

respondent No.4. The complaint gives the details of fraud which, are

reproduced hereunder:

1. Funds were diverted from A/C No.791230110000017 of M/S JIPIPL to following groups accounts having credit facilities with Banks then MCB, Jammu, aggregating Rs.5.00 crore in CC A/C No.791230110000012 of M/S Jhelum Industries, Rs.3.75 crore in CC A/C No.791230110000013 of M/S I. D. Sood Ispat Pvt. Ltd. and Rs.2.70 crore in CC A/C No.791230110000016 of M/S New Jammu Flour Mills Pvt. Ltd. In the above manner, M/SD JIPIPL diverted Bank's funds for other than sanctioned purposes. For recovery of Bank's dues, the Bank has already filed suit in the borrowing account of M/S JIPIPL with court, Jammu & Kashmir, on 14.03.2016.

2. In the light of extant guidelines of RBI, the forensic audit was assigned to M/S Satya Prakash Mangal & Company and the forensic auditors submitted their report dated 06.09.2016 to the following:

a) On comparison of bank statement with Consolidated Financial Statement (CFS) count of the observed that in the month of March, 2014, share capital has increased to Rs.8.00 crore from Rs.50 lakhs but only Rs.4 crore was received in the bank account of the company and the remaining Rs.3.50 crore was not received in books. Further, a clarification was submitted by the borrower to Bank that Rs.3.50 crore towards share application money pending for allotment was shown under creditors in financial

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statement of FY 2012-13. However, noted that total trade payable shown in balance sheet was only Rs.0.20 crore. Further, it may be noted that total current facilities shown was only Rs.1.18 crore implying that the intention of borrower was malafide.

b) Borrower submitted two different sets of financial statements for FY 2013-2014 which were audited by same auditor Sunil Kumar Kharkia and firm M/S S. K. Kharkia & Associates, including all notes of accounts, Director Report, Auditor Report. The borrower intention indicated to cheat the Bank (Address of M/S S. K. Kharkia & Associates - Chartered Accountant, Membering No.075490, 217.2nd floor, Sri Ram Plaza, Bank More, PO & Distt.

Dhanbad - 826001)

c) During verification of KYC, it was observed that Shri Raj Kumar Gupta was having two PAN Nos.AIQPG6268E & ACVPG6137D.

An explanation in this regard was submitted to bank that he never used PAN AIQPG6268E in any financial transaction. But both PANs were active as per Income tax website. Further, both PAN cards were simultaneously used by Shri Raj Kumar Gupta i.e. for account opening and in annual returns. However, return was filed for ACVPG6137D only. Thus, M/S JIPIL misrepresented their financial position to obtain loan and further dishonestly utilized the funds allocated to them for causing wrongful loss to the Bank.

(V) On the basis of forgoing allegations, the impugned FIR came to

be registered and investigation of the case was set into motion.

2) CRM(M) No.365/2020:

(I) Through the medium of this petition, the petitioners have

challenged FIR No.RC 0042019A0007 dated 06.11.2019 for offences

under Section 409/420 read with Section 120-B RPC registered with

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respondent No.2-Central Bureau of Investigation (CBI), and the

proceedings/investigation emanating there-from. The impugned FIR

has been registered on the basis of complaint dated 05.11.2019 lodged

by respondent No.3-State Bank of India with respondent No.2.

(II) As per the complaint, M/S I. D. Sood Ispat Pvt. Ltd, of which

petitioner No.1 happens to be the Managing Director, petitioner No.2

happens to be the Director and the petitioner No.3 is guarantor to the

loan account advanced by the respondent No.3 to the said company, is

alleged to have cheated the respondent Bank to the tune of Rs.18.10

crores (CC limit - 17.48 crore and term loan - 0.62 crore) plus

interest during the period from 31.05.2013 to 28.05.2015 by availing

the credit facilities, diverting the fund and willfully defaulted the

repayment of the bank.

(III) As per the complaint, the Forensic audit of M/S Jhelum Infra

Projects India Pvt. Ltd. which includes M/S I. D. Sood Ispat Pvt. Ltd.

was conducted and the following findings were recorded:

―4.Forensic Audit: findings of forensic audit in the group account M/S JIPIPL are as follows:

a) On comparison of bank statement with CFS submitted observed that in the month of March 2014, share capital was increased to Rs.8 crore from Rs.50 lacs as per BS dt. 31.03.2014, but only Rs.4 crore has been received in bank account of the company, remaining Rs.3.5 crore not received in books. It is further noted that a clarification submitted by the borrower to bank that Rs.3.5 crore which is an amount of share application money pending for allotment shown under creditors in Financial statement of FY

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2012-13. However, noted that total trade payable shown in Balance sheet is only for Rs.0.20 crore. Further it may be noted that total current liabilities shown is only Rs.1.18 crore. This implies the intention of borrower is malafide.

b) In forensic audit report it was bound that borrower has submitted two different sets of Financial statements for FY 2013-2014 audited & signed by the same auditor S. K. Kharkia & Associates including all notes of accounts, Director report, Auditors Report.

c) Further on KYC verification, it was observed that Mr. Raj Kumar Gupta is having two PAN cards AIQPG6268E & ACVPG6137D. An explanation in this regard was submitted to bank that he has never used PAN AIQPG6268E in any financial transaction but as per Income tax website both PAN cards were active. It was further noted that both PAN cards were simultaneously used by Mr. Raj Kumar Gupta.

(IV) The complainant further goes on to allege as under:

As per Bank's investigation report, Company has taken heavy cash withdrawals for Rs.5.00 lacs & above during the period from 24.08.2013 to 23.02.2015 (total aggregating Rs.118.80 lacs). On 07.06.2013, amount of Rs.1.00 crore was transferred from M/S I. D. Sood Ispat Pvt. Ltd. (A/C No.791230110000013) to M/S Jhelum Industries (A/C No.791230110000012), TDR of Rs.12.00 lacs in the name of M/S I.D. Sood Ispat Pvt. Ltd. was issued on 18.03.2014, In the same way Rs.75.50 lacs was transferred from M/S I. D. Sood Ispat Pvt. Ltd. to M/S Jhelum Industries on various dates. Therefore, it is ob served from the above facts that the acts of the company directors constitute cognizable offence under the provisions of law.

(V) On the basis of aforesaid allegations, the impugned FIR came to

be registered and the investigation of the case was set into motion by

respondent No.2

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3) The petitioners have challenged the impugned FIRs and the

investigation set into motion by CBI on the grounds that the CBI

lacked jurisdiction to register FIR(s) pertaining to the alleged offences

which were committed within the territorial jurisdiction of erstwhile

State of Jammu and Kashmir. It is contended that no consent, in terms

of Section 6 of Delhi Special Police Establishment Act, 1946 [―DSPE

Act‖ for short], for investigation of the instant case has been given by

the State government and, as such, the CBI could not have exercised

its powers and jurisdiction for investigation of the instant case.

4) It is further contended that after coming into effect of the

Jammu and Kashmir Reorganization Act, 2019, and extension of

Central Laws to the Union Territory of Jammu and Kashmir, the

petitioners could not be booked for offences under repealed laws

which were applicable to the erstwhile State of Jammu and Kashmir.

5) On merits, it is contended that the transaction between

petitioners and respondent Bank are purely civil in nature, inasmuch

as the petitioners had obtained loan facility from the respondent Bank

and the dispute is with regard to repayment of the amount of loan. In

this regard it is contended that the loan account of the company went

into default because of acts of omission and commission on the part of

respondent Bank and there was no fraud or deception committed by

the petitioners in this regard. According to the petitioners, there is

material on record to show that negotiations between them and

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respondent Bank for settlement of loan amount have taken place from

time to time and even onetime settlement of loan account was agreed

upon by the parties, pursuant to which the company deposited an

amount of Rs.11.78 crores with the respondent Bank.

6) On the basis of the above submissions, it is contended that the

contents of impugned FIRs do not make out a criminal offence against

the petitioners.

7) I have heard learned counsel for the parties and perused the

material on record.

8) The first and foremost contention of the petitioners is that the

CBI lacks jurisdiction to investigate the impugned FIRs on the ground

that no consent in terms of Section 6 of the DSPE Act has been

accorded by the erstwhile State of Jammu and Kashmir to the

investigation of the instant cases.

9) The petitioners have relied upon certain note sheets of official

files of the Home Department of erstwhile State of Jammu and

Kashmir and the reply to the query of one Shri Mukesh Khurana

under Right to Information Act given the Government of Jammu and

Kashmir, wherein it has been stated that the consent under Section 6

of the DSPE Act is to be given on case to case basis. The petitioners

have also relied upon the objections filed by the Government of

Jammu and Kashmir to writ petition bearing OWP No.1126/2016, in

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which the Government of Jammu and Kashmir has taken a similar

stand.

10) For determining the merits of the contentions raised by learned

counsel for the petitioners, it will be apt to notice the relevant

provisions of DSPE Act. Sections 3, 5 and 6 of the Act are relevant to

the context and the same are reproduced below:

3. Offences to be investigated by special police establishment.--The Central Government may, by notification in the Official Gazette, specify the offences or classes of offences which are to be investigated by the Delhi Special Police Establishment.

5. Extension of powers and jurisdiction of special police establishment to other areas.--(1) The Central Government may by order extend to any area (including Railway areas) in a State, not being a Union territory the powers and jurisdiction of members of the Delhi Special Police Establishment for the investigation of any offences or classes of offences specified in a notification under section 3.

(2) When by an order under sub-section (1) the powers and jurisdiction of members of the said police establishment are extended to any such area, a member thereof may, subject to any orders which the Central Government may make in this behalf, discharge the functions of a police officer in that area and shall, while so discharging such functions, be deemed to be a member of the police force of that area and be vested with the powers, functions and privileges and be subject to the liabilities of a police officer belonging to that police force.

(3) Where any such order under sub-section (1) is made relation to any area, then, without prejudice prejudice to the provisions of sub-section (2), any member of the Delhi Special Police Establishment of or above the rank of Sub-Inspector may, subject to any orders which the Central Government may make in this behalf, exercise the powers of the

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officer in charge of a police station in that area and when so exercising such powers, shall be deemed to be an officer in charge of a police station discharging the functions of such an officer within the limits of his station.

6. Consent of State Government to exercise of powers and jurisdiction.--Nothing contained in section 5 shall be deemed to enable any member of the Delhi Special Police Establishment to exercise powers and jurisdiction in any area in a State, not being a Union territory or railway area, without the consent of the Government of that State.

11) The Supreme Court in the case of M. Balakrishna Reddy v.

Director, Central Bureau of Investigation, New Delhi, (2008) 4 SCC

409, after noticing the aforesaid three provisions of DSPE Act,

explained the conditions which are required to be fulfilled before the

CBI exercises its power and jurisdiction to investigate a case in any

State. Para 19 of the said judgment is relevant to the context and the

same is reproduced as under:

19. Plain reading of the above provisions goes to show that for exercise of jurisdiction by the CBI in a State (other than Union Territory or Railway Area), consent of the State Government is necessary. In other words, before the provisions of the Delhi Act are invoked to exercise power and jurisdiction by Special Police Establishment in any State, the following conditions must be fulfilled;

(i) A notification must be issued by the Central Government specifying the offences to be investigated by Delhi Special Police Establishment (Section 3);

(ii) An order must be passed by the Central Government extending the powers and jurisdiction of Delhi Special Police Establishment to any State in respect of the offences specified under Section 3 (Section 5); and

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(iii) Consent of the State Government must be obtained for the exercise of powers by Delhi Special Police Establishment in the State (Section 6).

12) From the aforesaid ratio laid down by the Supreme Court, it is

clear that before the CBI, which is an agency constituted und DSPE

Act in terms of Section 2 of the said Act, exercises its jurisdiction in a

State, there must be a notification by the Central Government

specifying the offences to be investigated by CBI. Another condition

for invoking jurisdiction in a State is that there must be an order

passed by the Central Government extending the powers and

jurisdiction of CBI to any State in respect of offences specified under

Section 3 and lastly there must be consent of the State Government for

exercise of powers by CBI in the State.

13) Coming to the facts of the instant case, the petitioners have

themselves placed on record a copy of the Notification No.25/33/60-

AVD-II dated 01.04.1964, issued by the Central Government under

Section 3 of the DSPE Act, where-under certain offences punishable

under the provisions contained in the Jammu and Kashmir Ranbir

Penal Code, 1989 including Section 409, 420 and the conspiracies in

relation to these offences are included. The petitioners have also

placed on record copy of order dated 1st of April, 1964, issued by the

Government of India, Ministry of Home Affairs, in exercise of its

powers under Section 5 of the DSPE Act, whereby power and

jurisdiction of CBI has been extended to the erstwhile State of Jammu

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and Kashmir for investigation of offences specified in the Schedule

thereto, which includes the offences which are subject matter of the

instant petitions. A copy of the communication No.S-2533/57-PD

dated 7th of May, 1958, addressed by Secretary, Government of

Jammu and Kashmir to the Deputy Secretary to Government of India,

Ministry of Home Affairs, has also been placed on record by the

petitioners, according to which the Government of Jammu and

Kashmir has accorded its consent to Delhi Special Police

Establishment exercising powers and jurisdiction in the State of

Jammu and Kashmir for investigation of certain offences including

the offences which are subject matter of the instant petitions.

14) It is the contention of petitioners that the consent in terms of

Section 6 of the DSPE Act by the State Government for extending

jurisdiction of CBI to investigate the cases in the State of Jammu and

Kashmir has to be on case to case basis and not a general consent. The

petitioners have placed heavy reliance upon the contents of note

sheets of Government file and reply to the RTI query of one Mukesh

Khurana to advance their argument that the consent has to be on case

to case basis.

15) There can be no dispute to the fact that the consent in terms of

Section 6 of the DSPE Act by State Government can either be a

general consent or on case to case basis but in the instant case we have

on record copy of communication dated 7th of May, 1958, addressed

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by Secretary to Government of Jammu and Kashmir to the Deputy

Secretary to Government of India, Ministry of Home Affairs, whereby

a general consent with regard to exercising the powers and jurisdiction

in the State of Jammu and Kashmir for investigation of certain

offences, has been accorded. The petitioners have not placed on

record any document to show that the said general consent accorded

by the erstwhile State of Jammu and Kashmir has been withdrawn,

revoked or modified at any point of time. That being the position, an

answer to an RTI query based upon erroneous understanding of facts

and law by some official in the Government Department would not

nullify the general consent given by the Government of Jammu and

Kashmir in the year 1958. For nullification of this general consent,

there has to be a proper approval to this effect from the competent

authority and its subsequent communication to the Government of

India. The same is missing in the instant case.

16) The petitioners have also placed reliance upon communication

dated 15.11.2012 addressed by CBI to Government of Jammu and

Kashmir seeking permission to take up investigation in certain cases

enumerated therein as also the notification dated 11th March, 2013,

issued by the Government of Jammu and Kashmir in response to the

aforesaid communication of CBI. Vide the aforesaid notification, the

Government of Jammu and Kashmir has accorded consent for

investigation of case FIR No.7/2010 of P/S Pir Mitha, case FIR

No.3/2010 of P/S Gangyal and case FIR No.117/2011 of P/S Gangyal

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Jammu by the CBI. On the basis of these documents, it is contended

that consent of the Government of J&K has to be on case to case

basis.

17) A careful perusal of the above documents relied upon by the

petitioners reveals that in the three instances regarding which the

notification according permission to the CBI, to exercise its

jurisdiction of investigation, the FIRs had been already registered by

the State Police meaning thereby the investigation by the State Police

was already in progress in all these three cases and by virtue of the

notification dated 13th of March, 2013, the investigation of these cases

was transferred to the CBI. It was in these circumstances that a

specific notification according consent for investigation of the cases

by CBI had to be issued by the State Government. The facts of the

instant cases are quite different, as the same do not involve transfer of

investigation from the State Police to the CBI. The cases at hand

would very well be covered by the general consent accorded by the

State Government in terms of communication dated 7th of May, 1958.

18) In the face of this factual position, the contention of petitioners'

that in the absence of specific consent by the State Government to

exercise of jurisdiction by CBI for investigation of instant cases, the

aforesaid Investigating Agency lacks jurisdiction to take up the

investigation of these cases, is without any merit and the same

deserves to be rejected. Even otherwise, after the reorganization of

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erstwhile State of J&K and its bifurcation into two Union Territories,

the question of accord of consent in terms of Section 6 of the DSPE

Act becomes irrelevant.

19) The next contention raised by the petitioners is that after the

repeal of Ranbir Penal Code by virtue of the Jammu and Kashmir

Reorganization Act, 2019, the cases against the petitioners could not

have been registered under the repealed laws.

20) So far as the FIR which is subject matter of CRM(M)

No.375/2020 is concerned, the same has been registered prior to

coming into effect of the Jammu and Kashmir Reorganization Act,

2019 and repeal of the Ranbir Penal Code and, as such, no difficulty is

posed in this case in rejecting the contention of the petitioners.

21) So far as the FIR which is subject matter of CRM(M)

No.365/2020 is concerned, the same has been registered on 6 th

November, 2019, i.e. after the repeal of Ranbir Penal Code. However,

the offences which are subject matter of the said FIR, admittedly,

relate to a period when the Ranbir Penal Code was in operation. To

determine as to under which laws the cases are required to be

registered in relation to the offences that have taken place prior to

repeal of the laws, we need to have a look at clauses 13 and 14 of the

Jammu and Kashmir Reorganization (Removal Difficulties) Order,

2019. These Clauses read as under:

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(13) The Acts repealed in the manner provided in TABLE -3 of the Fifth Schedule, shall not affect--

(a) the previous operation of any law so repealed or anything duly done or suffered there under;

(b) any right, privilege, obligation or liability acquired, accrued or incurred under any law so repealed;

(c) any penalty, forfeiture or punishment incurred in respect of any offence committed against any law so repealed; or

(d) any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, and any such investigation, legal proceeding or remedy may be instituted, continued or enforced, and any such penalty, forfeiture or punishment may be imposed, as if this Act had not been passed. (14) Anything done or any action taken including any appointment or delegation made, notification, instruction or direction issued, form, bye-law or Scheme framed, certificate obtained, permit or licence granted or registration effected or agreement executed under any law shall be deemed to have been done or taken under the corresponding provisions of the Central laws now extended and applicable to the Union Territory of Jammu and Kashmir and the Union Territory of Ladakh and shall continue to be in force accordingly, unless and until superseded by anything done or any action taken under the Central laws now extended.

22) From a perusal of the afore-quoted Clauses, it is clear that any

legal proceeding for enforcing punishment relating to an offence

which has been committed prior to coming into effect of the Jammu

and Kashmir Reorganization Act, has to be conducted as if the said

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Act had not been passed, meaning thereby that an offence committed

during the period when Ranbir Penal Code was in operation would be

covered by the said Code and not by Indian Penal Code or in other

words, the date of occurrence of an offence would be the governing

factor for application of the laws.

23) The issue is no longer res integra. This Court in Sanjay Kumar

Rai v. Union Territory Of J&K & Anr. has already dealt with this

aspect of the matter and observed as under:

―At this stage, Mr Sunil Sethi, learned senior counsel, appearing on behalf of the appellant, submits that the sentence awarded by the Court below cannot be executed in view of the fact that no reference order has been made by the Court below in view of the mandate of the erstwhile State Criminal Procedure Code. It is submitted that since the date of occurrence of the proceedings in question happens to be prior to the passing of the Jammu & Kashmir Reorganization Act, 2019, therefore, the trial Court was obliged under law to deal with the case after taking recourse to the erstwhile State Criminal Procedure Code, but the learned trial Court, instead of doing so, has wrongly applied the Central Criminal Procedure Code to the facts and circumstances of the case on hand.

The submission of the learned senior counsel has all the substance as the right which has accrued to the Prosecution to investigate the crime which took place prior to the coming into force of the Central Criminal Procedure Code and which was covered by the erstwhile Act remained unaffected by reason of Clause (C) of Section 6 of the General Clauses Act, 1897 and the application of Clauses 13 and 14 of the Jammu and Kashmir Reorganization (Removal of Difficulties) Order, 2019. This view is fortified by the law rendered by Hon'ble the Supreme Court in case reported as '2012 8 SCC 669'.

In the above background, we are of the view that the trial Court has erred in law by applying the provisions of the Central Criminal Procedure Code to the facts and circumstances of the present case, when, in view of the date of occurrence of the crime, and with the

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application of Clause (C) of Section 6 of the General Clauses Act, 1897 and Clauses 13 and 14 of the Jammu and Kashmir Reorganization (Removal of Difficulties), Order, 2019, it was the erstwhile State Criminal Procedure Code which was to be made applicable to this case. In that context, we feel it necessary to clarify the position regarding this case, as well as all other cases/ proceedings where the date of occurrence/ institution is prior to the coming into force of the Jammu and Kashmir Reorganization Act, 2019, by observing that it is the repealed Act(s)/ Code(s) that shall be applied to all such cases, instead of the Act(s)/ Code(s) provided by the Jammu and Kashmir Reorganization Act, 2019.‖

24) From the foregoing discussion it is clear that the investigating

agency has rightly booked the petitioners in offences under Ranbir

Penal Code as the same relate to a period when the said Code was in

operation. The contention of petitioners in this regard is liable to be

rejected.

25) On merits, the petitioners vehemently contend that the

transaction between them and the respondent bank was purely of civil

nature, inasmuch as it related to advancement of loan and repayment

thereof. It has been contended that civil proceedings between the

parties in this regard are already pending and even negotiations

regarding settlement have also taken place between the parties from

time to time.

26) On the other hand, learned counsel for the respondents have

vehemently argued that the conduct of the petitioners has remained

deceitful and fraudulent right from the inception and, therefore, they

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are not only accountable under civil law but they are also criminally

liable.

27) In order to test the merits of these contentions, the legal

position on the subject needs to be noticed and appreciated.

28) In order to attract the ingredients of Section 420 read with

Section 415 RPC, there must be a fraudulent or dishonest inducement

on the part of a person and thereby the other party must have parted

with his property. To establish an offence under Section 420 RPC, it

must be shown that there was a fraudulent and dishonest intention at

the time of commission of the offence and that the person practising

deceit had obtained the property by fraudulent inducement and willful

representation. Mere breach of contract cannot give rise to a criminal

prosecution for cheating unless fraudulent, dishonest intention is

shown at the beginning of the transaction i.e. at the time when the

offence is alleged to have been committed.

3) The Supreme Court in the case of Hridaya Ranjan Prasad

Verma v. State of Bihar, (2000) 4 SCC 168, has observed that it is the

intention which is the gist of the offence and in order 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.

4) Again in Alpic Finance Ltd vs P. Sadasivan And Anr, (2001) 3

SCC 513, the Supreme Court held that ‗an honest man entering into a

contract is deemed to represent that he has the present intention of

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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'. Thus, it is necessary to show

that a person had fraudulent or dishonest intention at the time of

making of promise, to say that he committed an act of cheating.

5) ―Dishonestly‖ has been defined in Section 24 of RPC to mean

deliberate intention to cause wrongful gain or wrongful loss and

when, with such intention, deception is practised and delivery of

property is induced, then the offence under Section 420 RPC can be

said to have been committed.

6) In the face of aforesaid legal position, let us now advert to the

facts alleged in the impugned FIRs. In both these FIRs, it has been

alleged by complainant Bank that the companies belonging to

petitioners had misrepresented their financial position to obtain loan

and further dishonestly utilized the funds allocated to the companies

thereby causing wrongful loss to the respondent Bank. The complaints

contain the allegations that the loanee companies have diverted the

bank's funds and there have been instances of heavy cash withdrawal

by these companies. It is also alleged that loan amounts advanced by

the complainant Bank have been used for the purposes which were not

specified in the loan agreements. The companies represented by

petitioners are also alleged to have given inflated figures with regard

to sales, stocks etc. so as to induce the complainant Bank to advance

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loan(s) to these companies. There is also an allegation in the

complaint that petitioner No.1 has used two PAN numbers in order to

deceive the complainant Bank.

7) It is a settled law that where a complaint and the documents

annexed thereto make out a, prima facie, case of cheating, it is not for

the High Court to consider the version of the accused given out in

their petition filed under Section 482 Cr. P. C vis-à-vis that of the

complainant and enter into the debate area as to which of the versions

is true. In the instant case, there are clear cut allegations in the

complaint of the respondent Bank to show that intention of the

petitioners from the very inception has been dishonest and deceitful,

inasmuch as they are alleged to have made false representations to the

respondent Bank in order to obtain loan. The facts narrated in the

complaint may reveal a commercial or money transaction but that is

hardly a reason for holding that the offence of cheating would elude

such a transaction. In fact, many times a cheating is committed in the

course of commercial transactions.

8) The Supreme Court has repeatedly and consistently gone on to

hold that quashing of FIR or a complaint in exercise of the inherent

powers of the High Court should be limited to very extreme

exceptions and the High Court should not enter into arena of

investigating agency so as to test the merits of rival contentions raised

in a petition under Section 482 Cr. P. C.

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9) The principles relating to exercise of jurisdiction under Section

482 of the Code of Criminal Procedure to quash complaints and

criminal proceedings have been stated and reiterated by the Supreme

Court in its several decisions. To mention a few- Madhavrao Jiwaji

Rao Scindia v. Sambhajirao Chandrojirao Angre [1988 (1) SCC

692], State of Haryana vs. Bhajanlal [1992 Supp (1) SCC 335], Rupan

Deol Bajaj vs. Kanwar Pal Singh Gill [1995 (6) SCC 194], Central

Bureau of Investigation v. Duncans Agro Industries Ltd., [1996 (5)

SCC 591], State of Bihar vs. Rajendra Agrawalla [1996 (8) SCC

164], Rajesh Bajaj v. State NCT of Delhi, [1999 (3) SCC

259], Medchl Chemicals & Pharma (P) Ltd. v. Biological E. Ltd.

[2000 (3) SCC 269], Hridaya Ranjan Prasad Verma v. State of

Bihar [2000 (4) SCC 168], M. Krishnan vs Vijay Kumar [2001 (8)

SCC 645], and Zandu Pharmaceutical Works Ltd. v. Mohd. Sharaful

Haque [2005 (1) SCC 122]. The principles, relevant to our purpose,

which have been culled out by the Supreme Court in M/S Indian Oil

Corporation vs. M/S NEPC India Ltd. & Ors (2006) 6 SCC 736 are

as under:

(i) A complaint can be quashed where the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety, do not prima facie constitute any offence or make out the case alleged against the accused.

For this purpose, the complaint has to be examined as a whole, but without examining the merits of the allegations. Neither a detailed inquiry nor a meticulous analysis of the material nor an assessment of the reliability or

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genuineness of the allegations in the complaint, is warranted while examining prayer for quashing of a complaint.

(ii) A complaint may also be quashed where it is a clear abuse of the process of the court, as when the criminal proceeding is found to have been initiated with malafides/malice for wreaking vengeance or to cause harm, or where the allegations are absurd and inherently improbable.

(iii) The power to quash shall not, however, be used to stifle or scuttle a legitimate prosecution. The power should be used sparingly and with abundant caution.

(iv)The complaint is not required to verbatim reproduce the legal ingredients of the offence alleged. If the necessary factual foundation is laid in the complaint, merely on the ground that a few ingredients have not been stated in detail, the proceedings should not be quashed. Quashing of the complaint is warranted only where the complaint is so bereft of even the basic facts which are absolutely necessary for making out the offence.

(v) A given set of facts may make out : (a) purely a civil wrong; or (b) purely a criminal offence; or (c) a civil wrong as also a criminal offence. A commercial transaction or a contractual dispute, apart from furnishing a cause of action for seeking remedy in civil law, may also involve a criminal offence. As the nature and scope of a civil proceedings are different from a criminal proceeding, the mere fact that the complaint relates to a commercial transaction or breach of contract, for which a civil remedy is available or has been availed, is not by itself a ground to quash the criminal proceedings. The test is whether the allegations in the complaint disclose a criminal offence or not.

10) From the foregoing enunciation of law on the subject, it is clear

that the mere fact that complaint relates to a commercial transaction or

breach of contract, for which a civil remedy is available, is not by

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itself a ground to quash the criminal proceedings. In the instant case,

as already noted hereinbefore, the allegations laid in the complaint

made by the respondent Bank in both the cases make out a prima facie

case of cheating against the petitioners and, as such, the instant cases

are not fit for exercise of jurisdiction of this Court under Section 482

of Cr. P. C

11) For the forgoing reasons, the petitions are found to be without

any merit and, accordingly, the same are dismissed along with