Karnataka High Court

M/S Durga Projects Inc vs Sri B G Babu Reddy on 15 February, 2024

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                                        CRL.A.No.434 of 2014
                                    C/w CRL.A.No.433 of 2014

IN THE HIGH COURT OF KARNATAKA AT BENGALURU

  DATED THIS THE 15TH DAY OF FEBRUARY, 2024

                        BEFORE
       THE HON'BLE MR JUSTICE ANIL B KATTI
        CRIMINAL APPEAL No.434 OF 2014 (A)
                      C/W
        CRIMINAL APPEAL No.433 OF 2014 (A)

IN CRL.A.NO.434/2014:

BETWEEN:

M/S DURGA PROJECTS INC.,
A REGISTERED PARTNERSHIP FIRM
AT NO.703, 10TH 'A' MAIN ROAD,
4TH BLOCK, JAYANAGAR,
BANGALORE-560 011.
REPRESENTED BY ITS
MANAGING PARTNER
SRI. NIRAJ JHUNJHUNWALA,
AGED ABOUT 37 YEARS.
                                                 ...APPELLANT
(BY SMT. K.M.ARCHANA, ADVOCATE FOR
    SRI. H.S.DWARAKANATH, ADVOCATE)

AND:

SRI. B.G. BABU REDDY,
MAJOR,
S/O LATE SRI. GURUMURTHY REDDY,
NO.22, BGR COMPLEX,
BEHIND CANARA BANK,
NEW THIPPASANDRA MAIN ROAD,
H.A.L. 3RD STAGE,
BANGALORE-560075.

AND ALSO AT:
NO.300/2, BELLANDUR MAIN ROAD,
BANGALORE-560037.
                                               ...RESPONDENT
(BY SRI. N. KIRAN ADVOCATE)
                             -2-
                                        CRL.A.No.434 of 2014
                                    C/w CRL.A.No.433 of 2014

     THIS APPEAL IS FILED UNDER SECTION 378 CR.P.C,
PRAYING   TO    SET    ASIDE  THE   ORDER     PASSED   IN
C.C.NO.9212/2009 DATED 11.04.2014 BY THE XXII ADDL.C.M.M.,
BANGALORE CITY VIDE ANNEXURE-A ACQUITTING THE
RESPONDENT/ACCUSED FOR THE OFFENCE PUNISHABLE UNDER
SECTION 138 OF N.I. ACT.

IN CRL.A.NO.433/2014:

BETWEEN:

M/S DURGA PROJECTS INC.,
A REGISTERED PARTNERSHIP FIRM
AT NO.703, 10TH 'A' MAIN ROAD,
4TH BLOCK, JAYANAGAR,
BANGALORE-560 011.
REPRESENTED BY ITS
MANAGING PARTNER
SRI. NIRAJ JHUNJHUNWALA,
AGED ABOUT 37 YEARS.
                                                 ...APPELLANT
(BY SMT. K.M.ARCHANA, ADVOCATE FOR
    SRI. H.S.DWARAKANATH, ADVOCATE)

AND:

SRI. B.G. NARAYANA REDDY,
MAJOR,
S/O LAT SRI. GURUMURTHY REDDY,
NO.59, 3RD CROSS,
8TH 'B' MAIN ROAD, 4TH 'C' BLOCK,
KORAMANGALA,
BANGALORE-560034.

AND ALSO AT:
NO.300/2, BELLANDUR MAIN ROAD,
BANGALORE-560037.
                                               ...RESPONDENT
(BY SRI. H. PAVAN CHANDRA SHETTY, ADVOCATE)

     THIS APPEAL IS FILED UNDER SECTION 378 CR.P.C,
PRAYING   TO    SET    ASIDE   THE   ORDER   PASSED  IN
C.C.NO.9213/2009 DATED 11.04.2014 PASSED BY THE XXII
ADDL.C.M.M.,   BANGALORE     CITY  IN   ACQUITTING  THE
RESPONDENT/ACCUSED FOR THE OFFENCE PUNISHABLE UNDER
SECTION 138 OF N.I. ACT.
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                                         CRL.A.No.434 of 2014
                                     C/w CRL.A.No.433 of 2014

     THESE APPEALS HAVING BEEN HEARD AND RESERVED ON
05.02.2024, COMING ON FOR PRONOUNCEMENT OF JUDGMENT
THIS DAY, THE COURT PRONOUNCED THE FOLLOWING:

                         JUDGMENT

Appellant/complainant feeling aggrieved by Judgment

of Trial Court on the file of XXII Addl. Chief Metropolitan

Magistrate, Bangalore city, in C.C.No.9212/2019 and

C.C.No.9213/2009 dated 11.04.2014, preferred these

appeals.

2. Parties to both the appeals are referred with their

ranks as assigned in the Trial Court for the sake of

convenience.

3. These two cases are arising out of joint

development agreement dated 27.01.2005 between

complainant and accused, further, the cheque issued by

accused in respective case for return of security deposit

came to be dishonoured and the common question of law

is to be decided in both these cases. Hence, both the

appeals are taken up together for consideration.

4. Heard the arguments of both sides.

5. After hearing the arguments of both sides and on

perusal of the Trial Court records, so also the impugned

Judgment under appeal, the following points arise for

consideration:

i) Whether the impugned Judgment under appeal passed by the Trial Court in acquitting accused for the offence punishable under Section 138 of N.I.Act is perverse, capricious and legally not sustainable?

ii) Whether interference of this Court is required?

6. On careful perusal of oral and documentary

evidence placed on record, it would go to show that

Complainant-M/s.Durga Projects Inc., is a registered

partnership firm entered into registered joint development

agreement dated 27.01.2005 with B.G.Babu Reddy,

B.G.Seenappa and B.G.Narayana Reddy. The complainant

has deposited a sum of Rs.27,00,000/- as refundable

security deposit, which shall be refunded by the above

referred persons after completion of the

construction/project and after delivery of owner's share

without any interest thereon. Out of them, B.G.Narayana

Reddy and B.G.Babu Reddy issued cheque in respective

cases referred above for refund of security deposit being

their share amount. The said cheque, on presentation by

complainant, came to be dishonoured. Therefore,

complainant filed complaint against B.G.Narayana Reddy

and B.G.Babu Reddy for the offence punishable under

Section 138 of the Negotiable Instruments Act, 1881

(hereinafter referred as 'N.I.Act' for the sake of brevity).

7. The Trial Court, after hearing arguments of both

sides and on appreciation of oral and documentary

evidence placed before it, acquitted B.G.Narayana Reddy

and B.G.Babu Reddy in respective cases referred above

vide Judgment dated 11.04.2014.

8. Complainant has challenged the said Judgment of

acquittal in both these appeals contending that finding of

the Trial Court that pursuant to joint development

agreement dated 27.01.2005, the nature of dispute

attracts civil action and without approaching the arbitrator

under Arbitration and Conciliation Act, the complainant

cannot maintain the complaint against accused for the

offence punishable under Section 138 of the N.I.Act,

cannot be legally sustained. It is open for the complainant

to maintain parallel proceedings, both by invoking the

provisions of Arbitration Act and also penal action in terms

of Section 138 of N.I.Act.

9. Per contra, learned counsel for the accused in both

the appeals have argued that in view of the arbitration

clause in the joint development agreement dated

27.01.2005, the dispute ought to have been raised by the

complainant before the Arbitrator and criminal action

cannot be maintained for the offence under Section 138 of

N.I.Act. The liability of accused to pay the amount

covered under the cheque which was given as a security

refundable deposit could arise only when the completion

certificate is issued by the competent authority and the

possession is delivered to the accused.

10. On careful perusal of the Judgment of the Trial

Court in both the cases, it would go to show that the Trial

Court having recorded the finding that nature of dispute

between the parties purely attracts the civil nature and

without approaching the arbitrator under Arbitration and

Conciliation Act, the complaint filed by the complainant is

not maintainable. The Trial Court having recorded such

finding, did not address itself to the other aspects of the

matter and proceeded to acquit the accused. Whether

such acquittal order passed by the Trial Court can be

legally sustained or not is to be now decided.

11. Learned counsel for the complainant, in support

of her contention that not withstanding arbitration clause

in the joint development agreement dated 27.01.2005,

complainant can maintain criminal action in terms of

Section 138 of the N.I.Act on dishonour of cheque issued

by the accused, relied on the Judgment of Hon'ble Apex

Court in GURUCHARAN SINGH AND ANR. v. ALLIED

MOTORS LTD. AND ANR. reported in (2005)10 SCC

626, wherein, it has been observed and held as under:

The complaints were filed before the award was made. It is also not in issue that objections to the award are pending. It is elementary that the civil proceedings or arbitration proceedings for recovery and the criminal proceedings under Section 138 of the Negotiable instruments Act are based on independent cause of action. The making of the award may be a defence to such a complaint but to what extent the defence would be valid, shall

depend upon the facts and circumstances of each case. Mere making of the award cannot be a ground to stall or stay the proceedings initiated under Section 138 of the Negotiable Instrument Act.

12. Reliance is also placed on the Judgment of

Hon'ble Apex Court in STATE OF RAJASTHAN vs.

KALYAN SUNDARAM CEMENT INDUSTRIES LTD. AND

ORS. reported in (1996)3 SCC 87, wherein the High

Court stayed the proceedings of civil suits pending disposal

of criminal cases. The Hon'ble Apex Court held that it is

settled law that pendency of the criminal matters would

not be an impediment to proceed with the civil suits.

13. Learned counsel for the complainant also relied

on another Judgment of Hon'ble Apex Court in SRI

KRISHNA AGENCIES v. STATE OF A.P. AND ANR.

reported in (2009)1 SCC 69, wherein it has been

observed and held as under:

Section 138 of Negotiable Instruments-- Act Cannot be quashed on ground that arbitration proceedings between parties pending

-- No bar to simultaneous continuance of criminal proceeding--Impugned order set aside-- Complaint restored.

14. Reliance is also placed on another Judgment of

Hon'ble Apex Court in TRISUNS CHEMIAL INDUSTRY

vs. RAJESH AGARWAL AND OTHERS reported in

(1999)8 SCC 686, wherein, it has been observed and

held at Para No.9 as under:

We are unable to appreciate the reasoning that the provision incorporated in the agreement for referring the disputes to arbitration is an effective substitute for a criminal prosecution when the disputed act is an offence. Arbitration is a remedy for affording reliefs to the party affected by breach of the agreement but the arbitrator cannot conduct a trial of any act which amounted to an offence albeit the same act may be connected with the discharge of any function under the agreement. Hence, those are not good reasons for the High Court to axe down the complaint at the threshold itself. The investigating agency should have had the freedom to go into the whole gamut of the allegations and to reach a conclusion of it own. Pre-emption of such investigation would be justified only in very extreme cases.

It is also profitable to refer another Judgment of Hon'ble

Apex Court in D.PURUSHOTAMA REDDY AND

ANOTHER vs. K.SATEESH reported in (2008)8 SCC

505, wherein it has been observed and held as under:

"Although, it is beyond any doubt or dispute that for the same cause of action, both civil and a complaint petition under Section 138 of N.I .Act would be maintainable, in terms of Section 357 of Cr.P.C., a duty is cast upon the civil courts to take into consideration into

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account the sum paid or recovered as compensation in the criminal proceedings. The Judgment of conviction and sentence was passed by the Criminal Court on 15.12.2005. The suit was decreed by the Civil Court on 23.01.2006. Deposit of a sum of Rs.2,00,000/- by the appellants in favour of respondent was directed by the Criminal Court. Such an order should have been taken into consideration by the Civil Court."

15. In view of the principles enunciated in the

aforementioned Judgments of Hon'ble Apex Court, it is

evident that parallel proceedings under Arbitration Act

and criminal action in terms of Section 138 of the N.I.Act

can be maintained. If at all there is any award by the

proceedings before the arbitration, then at the most, it can

be a defence to the accused and cannot be a ground to

hold that complaint under Section 138 of N.I.Act is not

maintainable. Similarly, if the civil suit is decreed on the

same cause of action of the amount covered under the

cheque, the deposit made in criminal case has to be

adjusted.

16. The Trial Court undisputedly has acquitted the

accused on the sole ground that the joint development

agreement dated 27.01.2005 stipulates that any dispute

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has to be referred to the arbitrator and the matter being of

civil in nature, complainant cannot maintain complaint

under Section 138 of N.I.Act. In view of principles

enunciated in the afore mentioned Judgments of Hon'ble

Apex Court, the said finding of the Trial Court cannot be

legally sustained and as a consequent result, accused

cannot be acquitted on the said ground. The Trial Court

did not address itself on merits of the case and therefore,

the matter in both the cases are required to be remanded

to the Trial Court for disposal of the same in accordance

with law by giving opportunities to both the sides and for

the said purpose, interference of this Court is required.

Consequently, proceed to pass the following:

ORDER

Appeal filed by the appellant-complainant in Criminal

Appeal No.434/2014 and 433/2014 are hereby allowed.

The Judgment of the Trial Court on the file of XXII

Addl. Chief Metropolitan Magistrate in C.C.No.9212/2009

and 9213/2009 dated 11.04.2014 are hereby set aside.

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The matters are remanded to the Trial Court for

disposal of the same, in accordance with law, as

expeditiously as possible by giving top priority, since it is a

matter of 2009 and the counsels to co-operate for early

disposal of the cases.

In order to avoid further delay, the parties who are

now represented through their counsel, are directed to

appear before the Trial Court on 11.03.2024 to receive

further instructions from the Trial Court.