M/S Stone Age International, vs State Of A.P.
2023 Latest Caselaw 1807 Tel

 HON'BLE SMT. JUSTICE G. ANUPAMA CHAKRAVARTHY

                     Crl.P.No.98 OF 2014

ORDER :

This Criminal Petition is filed to quash the proceedings, in

Crime No.36 of 2013, on the file of Central Crime Station,

Hyderabad, for the offences punishable under Sections 406 and

420 r/w 34 of IPC.

2. The 2nd respondent is the complainant and petitioners

herein are arrayed as A-1 to A-3 in the FIR.

3. Heard the learned counsel for the petitioners and

Sri S. Ganesh, the learned Assistant Public Prosecutor.

4. A private complaint was filed by the 2nd respondent before

the III Additional Chief Metropolitan Magistrate and the same

was referred to Police under Section 156 (3) Cr.P.C. for

investigation. Basing on it, FIR has been registered by the Police

of C.C.S., Hyderabad.

5. The brief facts of the complaint are that accused Nos.1 to

3/petitioners and the 2nd respondent agreed for sale and purchase

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of goods respectively under various terms and conditions and

accordingly, the 1st petitioner sent a purchase order on

22.02.2012 and the 2nd respondent delivered goods on 05.04.2012

for a sum of Rs.7,41,048/- and also the goods worth of

Rs.1,47,147/- on 10.04.2012. The 1st petitioner paid an amount

of Rs.30 lakhs to show his intentions and placed another order

and that petitioner company was due to an amount of

Rs.3,01,12,166/- and in that manner, the petitioners cheated the

complainant.

6. Learned counsel for the petitioners contend that the

contents of the FIR does not disclose any offence of cheating or

criminal breach of trust and important ingredients of mens rea

from the date of inception is missing. The 2nd respondent

concealed an important fact that the petitioner No.1 in all placed

13 purchase orders with him in a span of last 1 ½ year and paid

total amount of Rs.10 crores. It is also contended that there are

instances, where petitioner No.1 raised protest when respondent

No.2 supplied adulterated mixed coal. Further, petitioner No.1

also received a notice from the Customs Department stating that

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respondent No.2 supplied certain material surreptitiously without

payment of proper customs for which customs duty along with

penalty was to be paid by petitioner No.1 company. It is further

contended that the 2nd respondent has not supplied the goods at

the agreed quality and quantity. In addition the 2nd respondent

has also added huge undue interest to their claim, which the

petitioners are not liable to pay. Petitioner No. 1 is the sole

proprietorship concern of petitioner No.3 and thus, petitioner

No.2 is of no way concerned with petitioner No.1 company either

as a partner or as an employee. Not a single averment is found in

the complaint for fastening 'vicarious liability' on petitioner

No.2. Therefore, prayed to quash the proceedings in Crime

No.36 of 2013.

7. In support of his contentions, learned counsel for the

petitioners relied on the judgment of the Apex Court reported in

Indian Oil Corporation vs. NEPC India Limited and Others1,

wherein it is held as follows:-

(2006) 6 SCC 736

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"The High Court by common judgment dated 23.3.2001 allowed both the petitions and quashed the two complaints. It accepted the second ground urged by the Respondents herein, but rejected the first ground. The said order of the High Court is under challenge in these appeals. On the rival contentions urged, the following points arise for consideration :

(i) Whether existence or availment of civil remedy in respect of disputes arising from breach of contract, bars remedy under criminal law?

(ii) Whether the allegations in the complaint, if accepted on face value, constitute any offence under sections 378, 403, 405, 415 or 425 IPC ?

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 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. In G. Sagar Suri vs. State of UP [2000 (2) SCC 636], this Court observed:

"It is to be seen if a matter, which is essentially of civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal court has to exercise a great deal of caution. For the accused it is a serious matter. This Court has laid certain principles on the basis of which High Court is to exercise its jurisdiction under Section 482 of the Code. Jurisdiction under this Section has to be exercised to prevent abuse of the process of any court or otherwise to secure the ends of justice."

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

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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."

8. Learned counsel also relied on the judgment of the Apex

Court reported in Indian Oil Corporation vs. NEPC India

Limited and Others2, wherein it is held as follows:-

"Having heard the learned counsel appearing on behalf of the respective parties and having perused the allegations int eh complaint/Fir, it can be seen that the main allegations are against the other co-accused - Arun Kumar Maheshwri and others. The only allegation against the appellants is that they have purchased the property in question, which was attached in the year, 1998-1999 against the amounts due and payable to the depositors, who had deposited in Kuber Mutual Benefits Ltd. Between 1998- 1999. It is to be noted that the property has been purchased by the appellants in the year, 2019. Nothing is brought on record that at the time when the property was purchased by the appellants, the attachment was continued and/or any attachment was registered. There are no allegations that the appellants are related to the other co-accused, Arun kumar Maheshwari and others. Even from the averments and the allegations in the FIR, it cannot be said that there is any prima facie case made out against the appellants for the offences under Sections 406, 420, 467, 468, 471 and 120-B IPC. The main allegations are against the other co-accused. Therefore, to continue the criminal proceedings against the appellants would be an abuse of process of law and the Court and unnecessary harassment to the appellants, who seem to the purchasers of the property on payment of sale

(2006) 6 SCC 736

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consideration. In the above facts and circumstances of the case, the High Court ought to have exercised its powers and discretion under Section 482 Cr.P.C. and ought to have quashed the criminal proceedings against the appellants.

7. In view of the above and for the reasons stated above, the present appeal succeeds. The impugned judgment and order passed by the High Court is hereby quashed and set aside. The criminal proceedings arising out of Case Crime No.48 of 2019 for the offences under Sections 406, 420, 467, 468, 471 and 120-B IPC, P.S. Hapur Nagar, District Hapur including the charge sheet are hereby quashed and set aise insofar as the appellants herein-Smt Rekha Jain and Smt Minakshi Jain are concerned. The present appeal is accordingly allowed."

9. Learned counsel further relied on the judgment of the

Apex Court reported in State of West Bengal And Others vs.

Swapan Kumar Guha And Others And State of West Bengal

and Others vs. Sanchaita Investment And Others3, wherein it is

held as follows:-

"In my opinion, the legal position is well-settled. The legal position appears to be that if an offence is disclosed, the Court will not normally interfere with an investigation into the case and will permit investigation into the offence alleged to be completed; if, however, the materials do not disclose an offence, no investigation should normally be permitted. The observations of the Judicial Committee and the observations of this Court in the various decisions which I have earlier quoted, make this position abundantly clear. The prepositions enunciated by the Judicial Committee and this Court in the various decisions which I have earlier noted, are based on sound principles of justice.

Once an offence is disclosed, an investigation into the

(1982) 1 SCC 561

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offence must necessarily follow in the interests of justice. If, however, no offence is disclosed, an investigation cannot be permitted, as any investigation, in the absence of any offence being disclosed, will result in unnecessary harassment to a party, whose liberty and property may be put to jeopardy for nothing. The liberty and property of any individual are sacred and sacrosanct and the Court zealously guards them and protects them. An investigation is carried on for the purpose of gathering necessary materials for establishing and proving an offence which is disclosed. When an offence is disclosed, a proper investigation in the interest of justice becomes necessary to collect materials for establishing the offence, and for bringing the offender to book. In the absence of a proper investigation in a case where an offence is disclosed, the offender may succeed in escaping from the consequences and the offender may go unpunished to the deteriment of the cause of justice and the society at large. Justice requires that a person who commits an offence has to be brought to book and must be punished for the same. If the Court interferes with the proper investigation in a case where an offence has been disclosed, the offence will go unpunished to the serious deteriment of the welfare of the society and the cause of the justice suffers. It is on the basis of this principle that the Court normally does not interfere with the investigation of a case where an offence has been disclosed. The decision on which Mr. Chatterjee has relied are based on this sound principle, and in all these cases, an offence had been disclosed. Relying on the well- settled and sound principle that the Court should not interfere with an investigation into an offence at the stage of investigation and should allow the investigation to be completed, this Court had made the observations in the said decisions which I have earlier quoted reiterating and reaffirming the sound principles of justice. The decisions relied on by Mr. Chatterjee, do not lay down, as it cannot possibly be laid down as a broad proposition of law, that an investigation must necessarily be permitted to continue and will not be prevented by the Court at the stage of investigation even if no offence is disclosed. While adverting to this specific question as to whether an investigation can go on even if no offence is disclosed, the judicial Committee in the case of King Emperor v. Khwaja Nizam Ahmed (supra) and this Court in R.P. Kapur v. State of Punjab (supra), Jehan Singh

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v. Delhi Administration (supra), S.N. Sharma v. Bipin Kumar Tiwari (supra) have clearly laid down that no investigation can be permitted and have made the observations which I have earlier quoted and which were relied on by Mr. Sen. As I have earlier observed this proposition is not only based on sound logic but is also based on fundamental principles of justice as a person against whom no offence is disclosed, cannot be put to any harassment by the process of investigation which is likely to put his personal liberty and also property which are considered sacred and sacrosanct into peril and jeopardy.

Whether an offence has been disclosed or not must necessarily depend on the facts and circumstances of each particular case. In considering whether an offence into which an investigation is made or to be made, is disclosed or not, the Court has mainly to take into consideration the complaint or the F.I.R. and the Court may in appropriate cases take into consideration the relevant facts and circumstances of the case. On a consideration of all the relevant materials, the Court has to come to the conclusion whether an offence is disclosed or not. If on a consideration of the relevant materials, the Court is satisfied that an offence is disclosed, the Court will normally not interfere with the investigation into the offence and will generally allow the investigation into the offence to be completed for collecting materials for proving the offence. If, on the other hand, the Court on a consideration of the relevant materials is satisfied that no offence is disclosed, it will be the duty of the Court to interfere with any investigation and to stop the same to prevent any kind of uncalled for and unnecessary harassment to an individual. "

10. He relied on the judgment of the Apex Court reported in

International Advanced Research Centre For Powder

Metallurgy and New Materials (Arci) And Others vs. Nimra

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Cerglass Technics Private Limited And Another4, wherein it is

held as under:-

"In the light of the well-settled principles, it is to be seen whether the allegations in the complaint filed against ARCI and its officers for the alleged failure to develop extruded ceramic honeycomb as per specifications disclose offences punishable under Sections 419 and 420 IPC. It is to be seen that whether the averments in the complaint make out a case to constitute an offence of cheating. The essential ingredients to attract Section 420 IPC are: (i) cheating; (ii) dishonest inducement to deliver property or to make, alter or destroy any valuable security or anything which is sealed or signed or is capable of being converted into a valuable security and (iii) mens rea of the accused at the time of making the inducement. The making of a false representation is one of the essential ingredients to constitute the offence of cheating under Section 420 IPC. In order to bring a case for the offence of cheating, it is not merely sufficient to prove that a false representation had been made, but, it is further necessary to prove that the representation was false to the knowledge of the accused and was made in order to deceive the complainant.

14. Distinction between mere breach of contract and the cheating would depend upon the intention of the accused at the time of alleged inducement. If it is established that the intention of the accused was dishonest at the very time when he made a promise and entered into a transaction with the complainant to part with his property or money, then the liability is criminal and the accused is guilty of the offence of cheating. On the other hand, if all that is established that a representation made by the accused has subsequently not been kept, criminal liability cannot be foisted on the accused and the only right which the complainant acquires is the remedy for breach of contract in a civil court. Mere breach of contract cannot give rise to criminal prosecution for cheating unless

(2016) 1 SCC 348

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fraudulent or dishonest intention is shown at the beginning of the transaction."

11. He relied on the judgment of the Apex Court reported in

Priyanka Srivastava And Another vs. State of Uttar Pradesh

and Others5,wherein it is held as under:-

"We have narrated the facts in detail as the present case, as we find, exemplifies in enormous magnitude to take recourse to Section 156(3) Cr.P.C., as if, it is a routine procedure. That apart, the proceedings initiated and the action taken by the authorities under the SARFAESI Act are assailable under the said Act before the higher forum and if, a borrower is allowed to take recourse to criminal law in the manner it has been taken it, needs no special emphasis to state, has the inherent potentiality to affect the marrows of economic health of the nation. It is clearly noticeable that the statutory remedies have cleverly been bypassed and prosecution route has been undertaken for instilling fear amongst the individual authorities compelling them to concede to the request for one time settlement which the financial institution possibly might not have acceded. That apart, despite agreeing for withdrawal of the complaint, no steps were taken in that regard at least to show the bonafide. On the contrary, there is a contest with a perverse sadistic attitude. Whether the complainant could have withdrawn the prosecution or not, is another matter. Fact remains, no efforts were made.

17. The learned Magistrate, as we find, while exercising the power under Section 156(3) Cr.P.C. has narrated the allegations and, thereafter, without any application of mind, has passed an order to register an FIR for the offences mentioned in the application. The duty cast on the learned Magistrate, while exercising power under Section 156(3) Cr.P.C., cannot be marginalized. To understand the real purport of the same, we think it apt to reproduce the said provision:

(2015) 6 SCC 287

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"156. Police officer's power to investigate congnizable case. - (1) Any officer in charge of a police station may, without the order of a Magistrate, investigate any cognizable case which a Court having jurisdiction over the local area within the limits of such station would have power to inquire into or try under the provisions of Chapter XIII.

(2) No proceeding of a police officer in any such case shall at any stage be called in question on the ground that the case was one which such officer was no empowered under this section to investigate.

(3) Any Magistrate empowered under section 190 may order such an investigation as above-mentioned."

Regard being had to the aforesaid enunciation of law, it needs to be reiterated that the learned Magistrate has to remain vigilant with regard to the allegations made and the nature of allegations and not to issue directions without proper application of mind. He has also to bear in mind that sending the matter would be conducive to justice and then he may pass the requisite order. The present is a case where the accused persons are serving in high positions in the bank. We are absolutely conscious that the position does not matter, for nobody is above law. But, the learned Magistrate should take note of the allegations in entirety, the date of incident and whether any cognizable case is remotely made out. It is also to be noted that when a borrower of the financial institution covered under the SARFAESI Act, invokes the jurisdiction under Section 156(3) Cr.P.C. and also there is a separate procedure under the Recovery of Debts due to Banks and Financial Institutions Act, 1993, an attitude of more care, caution and circumspection has to be adhered to.

At this stage it is seemly to state that power under Section 156(3) warrants application of judicial mind. A court of law is involved. It is not the police taking steps at the stage of Section 154 of the code. A litigant at his own whim cannot invoke the authority of the Magistrate. A principled and really grieved citizen with clean hands must have free access to invoke the said power. It protects the citizens but when pervert litigations takes this route to harass their fellows citizens, efforts are to be made to scuttle and curb the same.

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27. In our considered opinion, a stage has come in this country where Section 156(3) Cr.P.C. applications are to be supported by an affidavit duly sworn by the applicant who seeks the invocation of the jurisdiction of the Magistrate. That apart, in an appropriate case, the learned Magistrate would be well advised to verify the truth and also can verify the veracity of the allegations. This affidavit can make the applicant more responsible. We are compelled to say so as such kind of applications are being filed in a routine manner without taking any responsibility whatsoever only to harass certain persons. That apart, it becomes more disturbing and alarming when one tries to pick up people who are passing orders under a statutory provision which can be challenged under the framework of said Act or under Article 226 of the Constitution of India. But it cannot be done to take undue advantage in a criminal court as if somebody is determined to settle the scores."

12. He further relied on the judgment reported in Tilaknagar

Industries Limited And Others v. State of Andhra Pradesh and

another6, wherein it is held that power under Section 156 (3) of

Cr.P.C., can be exercised by Magistrate even he takes cognizance

provided complaint discloses commission of cognizable offence

and if the complaint does not disclose commission of cognizable

offence, order directing investigation cannot be sustained in law

and accordingly, liable to be quashed.

2012 (1) ALD (Crl.) 814 (SC)

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13. He also relied on the judgment of the Apex Court reported

in V.Y.Jose And Another vs. State of Gujarat And

Another7,wherein it is held as under:-

"An offence of cheating cannot be said to have been made out unless the following ingredients are satisfied :

"i) deception of a person either by making a false or misleading representation or by other action or omission;

(ii) fraudulently or dishonestly inducing any person to deliver any property; or

(iii) To consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit."

12. For the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in absence of a culpable intention at the time of making initial promise being absent, no offence under Section 420 of the Indian Penal Code can be said to have been made out.

There cannot, furthermore, be any doubt that only because civil law can be taken recourse to would not necessarily mean that criminal proceedings should be barred as has been opined by this Court in Pratibha Rani v. Suraj Kumar & Anr. [(1985) 2 SCC 370].

There exists a distinction between pure contractual dispute of civil nature and an offence of cheating. Although breach of contract per se would not come in the way of initiation of a criminal proceeding, there cannot be any doubt whatsoever that in absence of the averments made in the complaint

(2009) 3 SCC 78

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petition wherefrom the ingredients of an offence can be found out, the court should not hesitate to exercise its jurisdiction under Section 482 of the Code of Criminal Procedure.

We may reiterate that one of the ingredients of cheating as defined in Section 415 of the Indian Penal Code is existence of an intention of making initial promise or existence thereof from the very beginning of formation of contract.

Section 482 of the Code of Criminal Procedure, saves the inherent power of the court. It serves a salutary purpose viz. a person should not undergo harassment of litigation for a number of years although no case has been made out against him.

It is one thing to say that a case has been made out for trial and as such the criminal proceedings should not be quashed but it is another thing to say that a person should undergo a criminal trial despite the fact that no case has been made out at all.

A matter which essentially involves dispute of a civil nature should not be allowed to be the subject matter of a criminal offence, the latter being not a shortcut of executing a decree which is non-existent. The Superior Courts, with a view to maintain purity in the administration of justice, should not allow abuse of the process of court. It has a duty in terms of Section 483 of the Code of Criminal Procedure to supervise the functionings of the trial courts."

14. He also relied on the judgment of the Apex Court reported

in Babu Venkatesh And Others vs. State of Karnataka And

Another8,wherein it is held as under:-as under:-

"This court further held that, in an appropriate case, the learned Magistrate would be well advised to verify the truth

(2022) 5 SCC 639

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and also verify the veracity of the allegations. The court has noted that, applications under Section 156 (3) of the Cr.P.C. are filed in a routine manner without taking any responsibility only to harass certain persons.

27. This court has further held that, prior to the filing of a petition under Section 156 (3) of the Cr.P.C., there have to be applications under Section 154 (1) and 154 (3) of the Cr.P.C. This court emphasizes the necessity to file an affidavit so that the persons making the application should be conscious and not make false affidavit. With such a requirement, the persons would be deterred from causally invoking authority of the Magistrate, under Section 156 (3) of the Cr.P.C. In as much as if the affidavit is found to be false, the person would be liable for prosecution in accordance with law."

15. The above said citations clearly reveal that if the complaint

itself is civil in nature, the criminal case cannot be filed and

further Magistrate shall not refer the case under Section 156 (3)

of Cr.P.C. to the Police, if prima facie contents of the compliant

do not disclose commission of any cognizable offence.

16. Except FIR, there is no other material before the Court.

The FIR discloses that the accused persons collectively

participated to cheat the complainant company for a tune of

Rs.3,01,12,166/- on account of payment due for the supply of

South Africa steam coal and Indonesia coal. The FIR further

disclose that the C.D. file was received on 16.03.2013 and as per

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the endorsement of D.C.P., D.D. C.C.S., Hyderabad, the above

contents of case file relate to Crime No.36 of 2013 registered

under Sections, 420, 406 r/w. 34 of IPC, which has been received

under Section 156 (3) of Cr.P.C. for further investigation.

17. The present quash petition is filed basing on the FIR and

not the charge sheet. During the course of investigation,

petitioners have every opportunity to disclose the facts to the

Police and on investigation, the Police either file charge sheet or

final report basing on the facts and material collected by them.

The contents of the complaint disclose about the money

advanced by the accused/petitioners and coal supplied by the

complainant. It is the contention of the complainant that the

accused persons collectively participated and cheated him by not

paying an amount of Rs.3,01,12,166/-. There is no record before

the Court, to appreciate the fact, whether the case is exclusively

of civil nature or not? or whether the ingredients for the alleged

offences are attracted or not?

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18. During the course of investigation, if at all the Police

officials find that it is a civil dispute, the Police will necessarily

file a final report stating that the compliant itself is civil in

nature. Therefore, it is not a fit case to quash the FIR at this

stage, since the matter is being referred under Section 156 (3) of

Cr.P.C., after Magistrate coming to a conclusion that prima facie

case is made out.

19. In the result, this Criminal Petition is dismissed.

Pending miscellaneous applications, if any, shall stand

closed.

________________________________ G.ANUPAMA CHAKRAVARTHY, J

Date: 26.04.2023 dv