Jammu & Kashmir High Court - Srinagar Bench

Director vs A. M. Mir India Handicrafts Pvt. ... on 25 May, 2022

 IN THE HIGH COURT OF JAMMU & KASHMIR AND LADAKH
                    AT SRINAGAR

                                           Reserved on:   19.05.2022
                                           Pronounced on: 25.05.2022


                      CRM(M) No.283/2019
                      CRM(M) No.284/2019


DIRECTOR, SPLENDOR LANDBASE LTD & ORS.
HARIDEV VIKRAM & OTHERS                ... PETITIONER(S)
                Through: - Mr. Syed Faisal Qadiri, Sr. Advocate
                           With Mr. Salih Pirzada, Advocate.

Vs.

A. M. MIR INDIA HANDICRAFTS PVT. LTD.
                                               ...RESPONDENT(S)
                Through: - Mr. A. H. Naik, Sr. Adv. with
                           Mr. Zia, Advocate.


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


                          JUDGMENT

1) By this common order, the afore titled two petitions

filed under Section 482 of the Code of Criminal Procedure

are proposed to be disposed of.

2) Through the medium of CRM(M) No.283/2019, the

petitioners have challenged the criminal complaint filed by

respondent against them before the Court of Judicial

Magistrate, 1st Class (City Munsiff), Srinagar. Challenge has

also been thrown to the proceedings initiated by the

CRM(M) No.284/2019

learned Magistrate against the petitioner on the basis of the

said complaint. In the complaint commission of offences

under Sections 406 and 420 RPC has been alleged against

the petitioners and the basis of the said complaint is

Memorandum of understanding dated 30th April, 2012.

3) Through the medium of CRM(M) No.284/2019, the

petitioners have challenged the criminal complaint filed by

respondent against them before the Court of Judicial

Magistrate, 1st Class (City Munsiff), Srinagar. Challenge has

also been thrown to the proceedings initiated by the

learned Magistrate against the petitioners on the basis of

the said complaint. The basis of the said complaint is

Memorandum of understanding dated 21st of January,

2013.

4) In both the impugned complaints, allegations made

against the petitioners are similar in nature. In these

complaints, it has been alleged by respondent/

Complainant Company that it was approached by the

accused persons and persuaded it to buy their product.

Accordingly, the complainant was induced to invest money

in the product of the petitioners/accused by giving false

hope of appreciation and lucrative assured returns on the

CRM(M) No.284/2019

investment. A further promise is stated to have been made

by the accused/petitioners to the respondent/complainant

that the property would be leased out at a very high rental

and that maintenance, leasing and upkeep of the property

shall be provided by them. It is averred in the complaints

that a Memorandum of Understanding was executed by the

petitioners and the respondent. Memorandum of

Understanding dated 30th April, 2012 is subject matter of

first complaint and Memorandum of Understanding dated

21st January, 2013 is subject matter of the second

complaint.

5) It is alleged that pursuant to the execution of

Memorandum of Understanding dated 30th April, 2012, the

respondent/complainant invested an amount of

R.1,0968,776/ whereas pursuant to Memorandum of

Understanding dated 21st January, 2013, the complainant

invested an amount of Rs.1,7009,850/ with the accused. It

is further alleged in the complaints that the petitioners

assured the complainant and undertook to pay a certain

amount of money till the time the building was constructed

and the units are leased out to prospective lessees/tenants.

It is also alleged that the petitioners undertook to pay a

monthly cheque of assured return to the

CRM(M) No.284/2019

respondent/complainant for every year till the execution of

first lease deed subject to deduction of TDS. It has been

alleged that the petitioners/accused have defaulted to pay

the assured return to the respondent/complainant with

effect from May/August, 2018, which, according to the

respondent/complainant, amounts to cheating, dishonesty

and intentional misrepresentation on the part of

petitioners/accused. It has also been alleged that by not

honouring the commitment in terms of MOUs, the accused

have made the complainant to suffer mental agony as also

made him to suffer financially. It is also averred in the

complaints that the legal notices were issued to the

petitioners but in spite of the same, the petitioners have

failed to honour their commitment. According to the

respondent, the petitioners had a criminal intention to

cheat the respondent/complainant so as to cause wrongful

loss to its company.

3) It appears that upon receipt of the aforesaid

complaints, the learned Magistrate, after recording the

preliminary statements of the complainant and its

witnesses on oath, recorded his satisfaction that, prima

facie, offences under Section 420, 406 RPC are made out

CRM(M) No.284/2019

against the petitioner and, as such, process was issued

against the petitioners in both the complaints.

4) The petitioners have challenged the impugned

complaints and the proceedings initiated thereon,

primarily, on the grounds that the transaction between the

petitioners and the respondents is purely of a civil nature

and by filing the impugned complaints, the

respondent/complainant is trying to give it a criminal

colour, which, according to the petitioners, is not

permissible in law. The petitioners have also contended

that the offences of which cognizance has been taken by

the learned Magistrate have not been committed within the

local jurisdiction of the said Court, as such, the learned

Magistrate had no jurisdiction to entertain the complaints

and issue process against the petitioners/accused. In

CRM(M) No.283/2019, an additional ground has been

urged by the petitioners that the respondent/complainant

has not impleaded the Directors of the accused company by

name and it has been contended that impleading the

Directors by their designation without there being any

specific allegations against them is not permissible in law.

CRM(M) No.284/2019

5) I have heard learned counsel for the parties and

perused the material on record including the record of the

trial court.

6) Learned senior counsel appearing for the petitioners

has, during the course of his arguments, reiterated the

aforesaid grounds projected in the two petitions whereas

learned senior counsel appearing for the respondent has

submitted that the proceedings before the trial court

cannot be quashed at this nascent stage and whatever

grounds the petitioners are urging in these petitions can be

gone into by the learned Magistrate during the trial of the

complaints.

7) The first and foremost ground which has been urged

by the petitioners is that the transaction between the

parties is purely of civil nature and from a bare perusal of

the contents of the complaints, no criminal offence is made

out against them.

8) As is clear from the allegations made in the impugned

complaints, two Memoranda of Understanding were

executed by the parties, pursuant to which the respondent

is alleged to have made certain investments with the

accused company. The grievance of the

CRM(M) No.284/2019

respondent/complainant is that the commitments made as

per the covenants of the aforesaid two Memoranda of

Understanding have not been honoured by the petitioners.

It is the case of the complainant/ respondent that by doing

so, the petitioners have committed the offences of cheating

and criminal breach of trust.

9) The question that falls for determination is whether in

the face of the aforesaid nature of dispute between the

parties, it would be open to a criminal court to set the law

into motion at the instance of one party to the dispute

against the other and whether this Court in exercise of its

jurisdiction under Section 482 Cr. P. C can quash the

proceedings.

10) The Supreme Court in the case of M/S Indian Oil

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

736, while noticing its earlier judgments on the issue

relating to exercise of jurisdiction under Section 482 of Cr.

P.C to quash the complaints and criminal proceedings, has

observed as under:

"12. 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 this Court in several decisions. To mention a few - Madhavrao Jiwaji Rao Scindia v.

Sambhajirao Chandrojirao Angre [1988 (1) SCC

CRM(M) No.284/2019

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 are:

(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 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

CRM(M) No.284/2019

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.

14.While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, in accordance with law. One positive step that can be taken by the courts, to curb unnecessary prosecutions and harassment of innocent parties, is to exercise their power under section 250 Cr.P.C., more frequently, where they discern malice or frivolousness or ulterior motives on the part of the complainant. Be that as it may."

11) From the aforequoted principles of law, it is clear that

before deciding as to whether proceedings in a criminal

complaint are to be quashed, the Court has to be satisfied

that the subject matter involved in the complaint is a

purely civil wrong and it has no criminal texture to it.

12) In the light of the aforesaid legal position, let us now

analyze the allegations made in impugned complaints. As

already noted, the petitioners are alleged to have committed

offences under Section 406 and 420 RPC. In order to

CRM(M) No.284/2019

attract the ingredients of Section 420, there has to be an

element of cheating on the part of the accused. Cheating

has been defined in Section 415 RPC. To constitute offence

under Section 420, 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.

13) "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.

CRM(M) No.284/2019

14) So far as offence under Section 406 RPC is concerned,

it provides punishment for criminal breach of trust.

Criminal breach of trust has been defined in Section 405 of

RPC, which reads as under:

"405. Criminal breach of trust.--Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits "criminal breach of trust".

15) From a perusal of the aforesaid provision, it is clear

that it entails misappropriation or conversion of another‟s

property for one‟s own use with a dishonest intention.

Cheating, as defined under Section 415 of the RPC, also

involves the ingredient of having dishonest and fraudulent

intention which is aimed at inducing the other party to

deliver a property to a specific person. Thus, both the

Sections postulate „dishonest intention‟ as a pre-condition

for even prima facie establishing the commission of said

offences. It is only if ingredients postulated in Sections 405

and 415 of the RPC are made out from the contents of the

CRM(M) No.284/2019

impugned complaint that offences under Section 420 and

406 RPC can be said to have been disclosed.

16) 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.

17) 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 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.

18) In the light of the aforesaid legal position, let us now

analyze the contents of the impugned complaints. The

grievance of the respondent/complainant is that he had

entered into two Memoranda of Understanding with the

CRM(M) No.284/2019

petitioners who made certain representations to him, on

the basis of which he was lured to execute these

Memoranda of Understanding. It is the contention of the

respondent/complainant that the petitioners had

undertaken to pay monthly assured returns to him with

effect from 1st May, 2012/21st January, 2013 till the

execution of the first lease deed subject to deduction of

TDS. According to respondent/complainant, a total

investment of Rs.1,09,68,776/ and Rs.1,70,09,850/ was

made him under the two MOU‟s but the petitioners failed to

pay assured returns to him with effect from May/August,

2018, which according to the respondent/complainant,

amounts to cheating and criminal breach of trust on the

part of the petitioners.

19) As already noticed, in order to commit an act of

deception or fraud, which is gist of both the offences i.e.

offence under Section 420 and 406, the complainant must

have been dishonestly induced to deliver the 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. This intention of deception or

fraud must be existent at the time of commission of the

offence. In the impugned complaints, the

CRM(M) No.284/2019

respondent/complainant has clearly stated that from the

date of execution of the MOUs i.e. April, 2012/January,

2013, upto May, 2018/August, 2018, there was no default

in payment of assured returns by the petitioners to the

respondent. The default, according to the complainant‟s

own case, started with effect from May/August, 2018. This

clearly shows that the petitioners had, at the time of

entering into Memoranda of Understanding with the

respondent/complainant, intention of honouring their

commitments towards the respondent/complainant. If a

person fails to honour the commitments under an

agreement relating to a commercial transaction, it does not

necessarily mean that he has committed the offence of

cheating or criminal breach of trust. I am supported in my

aforesaid view by the judgment of the Supreme Court in

Alpic Finance Ltd(supra). Para 10 of the aforesaid

judgment is relevant to the context and the same is

reproduced as under:

"10. The facts in the present case have to be appreciated in the light of the various decisions of this Court. When somebody suffers injury to his person, property or reputation, he may have remedies both under civil and criminal law. The injury alleged may form the basis of civil claim and may also constitute the ingredients of some crime punishable under criminal law. When there is dispute between the parties arising out of a

CRM(M) No.284/2019

transaction involving passing of valuable properties between them, the aggrieved person may have a 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 the respondents committed the offence under Section 420 IPC and the case of the appellant is that the 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 practising 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, the 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."

20) Relying upon the ratio laid down in Alpic Finance Ltd

(supra), the Supreme Court in the case of Anil Mahajan vs.

Bhor Industries Ltd. and another, (2005) 10 SCC 228,

has held that from a mere denial of a person to keep up

promise subsequently, a culpable intention right at the

CRM(M) No.284/2019

beginning, that is, when he made the promises cannot be

presumed. The Court went on to observe that a distinction

has to be kept in mind between mere breach of contract

and the offence of cheating. It depends upon the intention

of the accused at the time of the inducement. The

subsequent conduct is not the sole test. The Supreme

Court further observed that mere breach of contract cannot

give rise to criminal prosecution for cheating unless

fraudulent/dishonest intention is shown at the beginning

of the transaction and the substance of complaint is to be

seen. Mere use of the expression "cheating" in the

complaint is of no consequence.

21) From the foregoing enunciation of law on the subject,

it is clear that dishonest or fraudulent intention, which is

gist of criminal breach of trust and cheating, has to be from

the inception of the transaction, which in the instant case

is missing, as the petitioners have paid the assured returns

to the complainant/respondent for several years and it was

only in May/August, 2019, the payments of returns was

stopped by the petitioners.

22) There is yet another aspect of the matter which is

required to be noticed. In both the Memoranda of

CRM(M) No.284/2019

Understanding, which are subject matter of the impugned

complaints, there is an arbitration clause which provides

that in case of any dispute or difference between the parties

with respect to the Memoranda of Understanding, the same

can be referred for arbitration to be conducted by the sole

arbitrator to be appointed by the Chairman-cum-Managing

Director of the accused company. Admittedly, the disputes,

which are subject matter of the impugned complaints, have

arisen in respect of the rights and obligations of the parties

under the two Memoranda of Understanding. Therefore, it

was open to the respondent/complainant to avail the

remedy of arbitration but, it appears, instead of doing so,

the respondent/complainant has chosen to initiate the

criminal proceedings against the petitioners in order to

pressurize them to settle the accounts. The Supreme Court

in the case of M/S Indian Oil Corporation(supra), has,

while deprecating the tendency of business circles to

convert civil disputes in criminal cases, observed as under:

"(13) While on this issue, it is necessary to take notice of a growing tendency in business circles to convert purely civil disputes into criminal cases. This is obviously on account of a prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. Such a tendency is seen in several family disputes also, leading to irretrievable break down of marriages/families. There is also an impression that if

CRM(M) No.284/2019

a person could somehow be entangled in a criminal prosecution, there is a likelihood of imminent settlement. Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure though criminal prosecution should be deprecated and discouraged

(14) While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, in accordance with law."

23) Recently, the Supreme Court in the case of Mitesh

Kumar J. Shah vs. The State of Karnataka & Ors. 2021

SCC Online SC 976, has expressed its disapproval for

imparting criminal colour to a civil dispute merely to take

advantage of a relatively quick relief granted in a criminal

case in contrast to a civil dispute. The Court further went

on to observe that such an exercise is nothing but an

abuse of the process of law which must be discouraged in

its entirety.

24) In view of the foregoing discussion and the analysis of

the allegations made in the impugned complaints, it is clear

that the transaction between the petitioners and