Shailesh Kumar Gujjar vs The State Of Telangana
2025 Latest Caselaw 5670 Tel

Telangana High Court

Shailesh Kumar Gujjar vs The State Of Telangana on 26 September, 2025

Author: Juvvadi Sridevi

Bench: Juvvadi Sridevi

     THE HONOURABLE SMT JUSTICE JUVVADI SRIDEVI

                CRIMINAL PETITION No.1076 OF 2022

O R D E R:

This Criminal Petition is filed by the petitioners-accused Nos.1

and 2 seeking to quash the proceedings against them in C.C.No.18 of

2021 pending on the file of the learned Special Court under the

Telangana Protection of Depositors of Financial Establishments Act-

cum-Metropolitan Sessions Judge at Hyderabad, registered for the

offences under Sections 406 and 420 read with Section 34 of the

Indian Penal Code (hereinafter referred as 'IPC') and Section 5 of the

Telangana Protection of Depositors of Financial Establishments Act,

1999 (hereinafter referred as 'the Act').

2. Heard Mr. P. Pratap, learned counsel for the petitioners,

Mr. Srinivas Polavarapu, learned counsel for respondent Nos.3 and 4

and Smt. S.Madhavi, learned Assistant Public Prosecutor for the State-

respondent Nos.1 and 2. Perused the record.

3. The petitioners-accused Nos.1 and 2, are the husband and wife

and they are the Managing Director and Director of M/s. Sri Rishab

Chit Fund India Private Limited (hereinafter referred to as 'Company'),

respectively.

4. The case of the prosecution, in brief, is that the petitioners have

induced the de facto complainants and several others to invest

amounts in their Company, thereby collecting approximately Rs.69.00

crores from around 622 members. Upon completion of chit period,

instead of disbursing the due amounts in cash, the petitioner-accused

No.1 has issued cheques and promissory notes as fixed deposit

receipts (FDRs). It is further alleged that the petitioners have

misappropriated the funds collected from the members of the chit for

their personal luxuries and acquired properties, thereby cheating the

general public. Basing on the two complaints lodged by the de facto

complainants, cases in Crime Nos.196 and 199 of 2018 were

registered against the petitioners. After completion of investigation, the

Police filed charge sheet in C.C.No.18 of 2021, clubbing both the

crimes.

5. Submissions of learned counsel for the petitioners:

5.1. The petitioners-accused Nos.1 and 2 are innocent and they have

nothing to do with the offences alleged against them. In fact, the

de facto complainants and other victims have voluntarily advanced

hand loan to the petitioners for an interest @ 2% per month and the

cheques and promissory notes were given towards security by the

petitioners to the de facto complainants and others. It is alleged in the

complaint that cheques and promissory notes were given as FDRs.

However, the petitioners never issued any FDRs in favour of the

de facto complainants and other victims. If really the petitioners have

issued FDRs, the de facto complainants would have produced the

same before the Investigating Officer during the course of

investigation. The de facto complainants have not mentioned any basic

particulars like tenure or maturity of the FDRs alleged to have been

issued by the petitioners to him. Even during the course of

investigation, though the Police have examined 65 victims, not even a

single FDR was produced by them.

5.2. The case of the petitioners is only that they have taken the

amount from the de facto complainants and others as a handloan and

cheques and promissory notes were given towards security. The

de facto complainants did not deposit any amount with the Company

for interest. Accepting hand loan by issuing collateral security does not

amount to 'deposit'. In fact, it is not the case of the de facto

complainants that they have deposited amounts in the Company for

interest and the said amount was misappropriated by the Company,

except stating that after completion of chit period, chit amounts were

not disbursed in their favour. Though there is no allegation either in the

FIR or in the charge sheet attracting the offence under Section 5 of the

Act, the Police purposefully filed charge sheet adding the said offence,

to harass the petitioners and the case is to be tried by the learned

Principal Sessions Judge. Invoking Section 5 of the Act is

unwarranted, as the Company is not a financial establishment

5.3. Assuming that some irregularities as alleged by the de facto

complainants have taken place in the chits subscribed by them, a case

could have been filed against the Company, but not against the

petitioners herein, who are the Managing Director and Director of the

Company. In the absence of Company being arrayed as an accused,

the proceedings against the petitioners are not maintainable.

5.4. The petitioner-accused No.2, who is the wife of petitioner-

accused No.1, is not an authorized signatory and the proceedings

against her are not maintainable. In support of the same, he relied on

the judgment of this Court in Crl.P.Nos.5600, 3940, 3930, 3931 and

3941 of 2022, wherein, the proceedings against the petitioner therein/

wife were quashed on the ground that she is not an authorized

signatory.

5.5. The allegations pertain to non-payment of chit amount and that

the Chit Funds Act, 1982, provides appropriate remedies before the

Registrar of Chits. The de facto complainants instead of availing the

remedy under law, foisted the present criminal complaints against the

petitioners with all false and baseless allegations.

5.6. In order to attract an offence under Section 420 of IPC,

inducement to deliver property with a fraudulent intention from the

inception is necessary, but there are no such averments in the

complaint. A mere deposit of money/giving hand loan does not create

an entrustment to commit criminal breach of trust under Section 406 of

IPC. Hence, the offences under Sections 406 and 420 of IPC are not

made out.

5.7. The victims have also initiated the proceedings against the

petitioners under the provisions of the Negotiable Instruments Act,

1881, however, most of the proceedings were dismissed. Several

victims, including respondent No.4-de facto complainant, have filed

civil suits against the petitioners. The suit filed by respondent No.4-

de facto complainant against the petitioners was decreed in his favour

and E.P. is also pending. Even in the said civil suit also, there is

neither any mention of the FDRs nor are they marked as exhibits.

Though the grievance of respondent No.4-de facto complainant was

redressed in the civil suit, he has filed the present complaint against

the petitioners colouring the civil dispute into a criminal offence and the

same amounts to initiation of parallel proceedings. The offences under

Sections 406 and 420 cannot be invoked simultaneously.

5.8. Learned counsel relied upon a decision of the Hon'ble Supreme

Court in Paramjeet Batra v. State of Uttarakhand 1, wherein, at

paragraph No.7, it is held as follows:

"7. While exercising its jurisdiction under Section 482 of the Code the High Court has to be cautious. This power is to be used sparingly and only for the purpose of preventing abuse of the process of any court or otherwise to secure ends of justice. Whether a complaint discloses a criminal offence or not depends upon the nature of facts alleged therein. Whether essential ingredients of criminal offence are present or not has to be judged by the High Court. A complaint disclosing civil transactions may also have a criminal texture. But the High Court must see whether a dispute which is essentially of a civil nature is given a cloak of criminal offence. In such a situation, if a civil remedy is available and is, in fact, adopted as has happened in this case, the High Court should not hesitate to quash criminal proceedings to prevent abuse of process of court."

5.9. In support of his contentions, learned counsel relied on the

judgment of the Hon'ble Supreme Court in S.W.Palanitkar and others

v. State of Bihar and another 2, wherein, it is re-emphasised that both

the offences under Sections 406 and 420 of IPC, are independent and

distinct. The two offences cannot co-exist simultaneously for the same

set of facts. While cheating involves dishonest intention at the time of

making a (false) representation, criminal breach of trust necessitates

(2013) 11 SCC 673

(2002) 1 SCC 241

evidence of property being entrusted to someone who then

misappropriates it. However, in both the offences, mens rea, i.e.,

intention to defraud or dishonest intention must be present, although,

in the case of cheating, it must be there from the very beginning or

inception.

5.10. The victims have formed into an association and approached

this Court by filing W.P.No.26770 of 2021 against the petitioners herein

and the same is pending. Even the allegations in the FIR as well as

charge sheet were taken on their face value and accepted in its

entirety, there are no specific allegations against the petitioners and no

case is made out against them. Hence, he prayed to quash the

proceedings against the petitioners.

6. Submissions of learned counsel for respondent Nos.3 and

4-de facto complainants:

6.1. The petitioners, being the Managing Director and Director of the

Company, are not only doing chit business, but also receiving fixed

deposits from the members of chits as well as the public.

6.2. Learned counsel has drawn attention of this Court to the

meanings of 'financial establishment' and 'deposit' as defined under

Sections 2(b) and 2(c) of the Act respectively, which are extracted

hereunder:

"deposit means the deposit of a sum of money either in lumpsum or installments made with a financial establishment for a fixed period, for interest or return in any kind.

Financial Establishment, means any person or group of individuals accepting deposit under any scheme or arrangement or in any other manner but does not include a corporation or a cooperative society owned or controlled by any State Government or the Central Government or a banking company as defined under Clause (c) of Section 5 of the Banking Regulation Act, 1949."

6.3. Instead of returning the matured chit amount, the petitioners

lured and deceived the victims to keep their matured amount by way of

periodical installment over a definite period with a particular rate of

interest, as such, the offence under Section 5 of the Act, is attracted

against the petitioners. In support of his contention, he relied on the

judgment of the High Court of Madras in S.Nandhini v. The State

Inspector of Police, Economic Offence Wing-II, Vellore 3, wherein,

at paragraph No.13, the judgment of the Hon'ble Supreme Court in

Union of India v. Margadarshi Chit Funds (P) Limited 4 was referred

to, which is as follows:

24) We have already noted that there are two types of chits, namely, simple chits and business chits. This categorisation was given by the Study Group headed by Dr. Bhabatosh Dutta constituted by the Banking Commission in 1970. The said description was given imprimatur by this Court in Reserve Bank of India v. Peerless General Finance and Investment Company Limited [(1987) 1 SCC 424: AIR 1987 SC 1203] The said

Crl.M.P.Nos.5146 and 5147 of 2017, dated 05.02.2015

(2017) 13 SCC 806

description along with the definition of the term 'chit' contained in Section 2(b) of the Chit Funds Act gives a fair idea of the nature of fund business. A person (known as foreman) enters into agreement with specified number of persons where under all those persons agree to subscribe a certain sum of money by way of periodical instalment over a definite period. Say, for example, this kind of agreement is entered into with 20 persons.

These 20 persons i.e. subscribers agree to subscribe Rs.5,000/- per month for 20 months. In this manner, every month Rs.1,00,000/- are contributed by these 20 persons. Out of this amount, foreman deducts his commission, say, Rs.10,000/- (which is regulated by the provisions of Chit Funds Act). Remaining amount of Rs.90,000/- would be the prize amount. This amount would be given to one of the subscribers as determined by lot or by auction or by tender or in such other manner as may be specified in chit agreement. If it is by auction, then the subscribers may give their bids offering the discount. The subscriber offering maximum discount shall be successful subscriber.

It may be mentioned that there is a cap on such a discount which laid down in the Chit Funds Act and a subscriber cannot offer more discount than the maximum limit stipulated under the Chit Funds Act. If there are more than one subscribers offering maximum discount, then the successful subscribers would be chosen by draw of lots. Successful subscriber would get the prize amount, i.e., the amount after deduction of the discount offered by him. The amount of discount shall be distributed among all the subscribers. In a way, the said amount of discount which the successful bidder has foregone becomes the dividend which is to be distributed to all the subscribers after deducting a fixed amount representing the commission payable to the foreman. Foreman is a person who organises the auction and conducts the proceedings. From the aforesaid procedure in which this business is conducted it also becomes clear that those subscribers, who delay the bidding or do not bid, stand to gain and they receive maximum share in the discounts. If seen from this angle, the chit is somewhat like a recurring deposit with the bank. In fact, there is no bar on the foreman of the chit fund also to participate in the bidding, as a subscriber."

6.4. The petitioners have intentionally cheated the de facto

complainants and others. Every breach of contract cannot be a civil

remedy. However, if the allegations disclose criminal offence, the same

can be tried by the competent Criminal Court. In support of the said

contentions, learned counsel relied on the judgments of the Hon'ble

Supreme Court in Kathyayini v. Sidharth P.S. Reddy and others 5;

Indian Oil Corporation v. NEPC India Limited and others 6 and

P.Swaroopa Rani v. M.Hari Narayana @ Hari Babu 7, wherein, it is

held that civil proceedings and criminal proceedings can proceed

simultaneously. Pendency of civil proceedings on the same subject

matter and involving the same parties is not a ground to quash the

criminal proceedings, if a prima facie case exists against the accused

persons.

6.5. With regard to the penal liability, learned counsel relied on the

judgment of the erstwhile High Court of Andhra Pradesh in V.Revathi

v. State of Andhra Pradesh 8 and drawn attention of this Court to

paragraph No.14, wherein, it is held as follows:

"14. There is no penal provision under the 1971 Act providing for punishment in case of 'default' committed by organizer/foreman of the chit by not paying prize amount to the successful highest bidder or in case the organizer/foreman of the chit absconds by discontinuing the chit during the course of its currency and by not repaying or refunding the subscription amounts already collected from the members. The 1971 Act predominantly deals with regulatory measures for starting chit fund business, for commencement of a chit and running of the chit tillthe end of the chit period. In case, the organizer/foreman of the chit commits 'default', no penal remedy is prescribed and no penal liability is attached to such organizer/foreman of the chit under the 1971 Act. Similarly, even if the 1982 Act comes into force, it also does not contain any provision dealing with penal remedy against organizer/foreman of the chit and attaching penal liability for 'default' committed by such

(2025) SCC Online SC 1428,

(2006) 6 SCC 736

7 AIR 2008 SCC 1884 8 2012 (2) ALD (Crl.) 238 (AP)

organizer/foreman of the chit. Therefore, I have no hesitation to conclude that the 1999 Act is equally applicable in the case of a chit fund transaction also in addition to applicability of the existing 1971 Act and also the 1982 Act as and when it comes into force."

6.6. The victims never advanced any handloan to the Company or

the petitioners and collected promissory notes or cheques towards

security. The petitioners in their confessional statements clearly

admitted that they have lured the victims. The petitioners are the

Directors in their individual capacity, as such, the question of arraying

the Company as an accused does not arise. The judgments relied on

by the learned counsel for the petitioners are not applicable to the facts

of the present case. There are specific allegations against the

petitioners and the truth or otherwise of the allegations levelled against

them can only be known after conducting full-fledged trial before the

trial Court. Hence, he prayed to dismiss the petition.

7. On the other hand, learned Assistant Public Prosecutor

appearing for the State-respondent Nos.1 and 2 contended that the

petitioners have committed misappropriation of huge amounts by

cheating the general public. There are specific allegations against the

petitioners and they are triable issues. Hence, it is not a fit case to

quash the proceedings against the petitioners at this juncture.

8. Having regard to the submissions advanced by both sides and

upon perusal of the material available on record, it prima facie appears

that the petitioners are engaged in the business of operating chit fund,

and that respondent Nos.3 and 4-de facto complainants and many

others have subscribed to the chit scheme and made regular payments

towards chit installments. The sole allegation attributed to the

petitioners is that after completion of maturity period, instead of

disbursing the chit amount, the petitioners have converted the said

amounts into deposits and issued cheques and promissory notes as

fixed deposit receipts towards security. It is the contention of the

petitioners that the de facto complainants and other victims have

advanced the said amounts as hand loan and the financial instruments

like cheques and promissory notes were given towards security.

However, the petitioners denied about issuing fixed deposit receipts.

9. Upon a meticulous scrutiny of the averments in the charge sheet,

it is evident that the Investigating Officer has taken considerable effort

in examining several individuals as victims. As many as 65 witnesses

were examined, but not even a single FDR was produced either by the

de facto complainants or victims. Even the basic particulars like tenure

or maturity of the FDRs alleged to have been issued by the petitioners

to the de facto complainants were not mentioned. In the charge sheet,

it is mentioned that the cheques and promissory notes were given as

FDRs. However, the cheques and promissory notes cannot be termed

as FDRs because they are fundamentally different financial

instruments with distinct purposes and legal standings.

10. The entire case is based on the confessional statements of the

petitioners. It is settled law that the confessional statement made by

the accused before the Police is inadmissible in evidence.

11. In the absence of any evidence to establish the allegations

against the petitioners, it shall be presumed that the financial

instruments were given by the petitioners to the de facto complainants

and victims towards security for hand loan. However, it is equally

settled that mere failure or inability to repay an amount does not, by

itself, constitute the offence of cheating, in the absence of any

fraudulent or dishonest intention from the inception. Apart from that, if

really there was dishonest or fraudulent intention on the part of the

petitioners at the very inception of the transaction, they would not

have issued cheques and promissory notes as security to the de facto

complainants and others.

12. When the said cheques issued by the petitioners were

presented for clearance with the Bank, they were dishonoured for the

reason 'insufficient funds'. Questioning the dishonour of cheques,

many of the victims have initiated proceedings under N.I. Act against

the petitioners, but many of them were dismissed, according to the

learned counsel appearing for the petitioners as well as learned

counsel for the de facto complainants.

13. Civil suits were also filed by the victims. Almost all the suits filed

by the victims were decreed in their favour. The suit filed by

respondent No.4-de facto complainant was decreed in his favour

directing the respondents therein i.e., the petitioners herein to pay

Rs.17,39,276/- with interest @ 12% per annum from the date of filing

of the suit till the date of decree and future interest @ 6% per annum

from the date of decree till the date of realization and E.P. is also

pending.

14. The dispute between the parties is purely civil in nature. The

issue involved in the present matter was already adjudicated upon by

the Civil Court in N.I. Act proceedings as well as the civil suit filed by

the de facto complainants. With respect to the offence under Section 5

of the Act, the victims, by forming into an association, have filed

W.P.No.26770 of 2021 before this Court, wherein the issue of

incriminating material arising out of the provisions of the Act, is under

consideration.

15. It is settled law that the offences under Sections 406 and 420 of

IPC, cannot subsist in the same transaction. It is apposite to refer to a

recent decision of the Hon'ble Suprme Court in Delhi Race Club

(1940) Ltd., v State of UP 9, wherein, at paragraph Nos.30 and 43, it is

held as follows:

"30. There is a distinction between criminal breach of trust and cheating. For cheating, criminal intention is necessary at the time of making a false or misleading representation i.e., since inception. In criminal breach of trust, mere proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriated the same. Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver any property. In such a situation, both the offences cannot co-exist simultaneously.

43. It is high time that the police officers across the country are imparted proper training in law so as to understand the fine distinction between the offence of cheating viz-a-viz criminal breach of trust. Both offences are independent and distinct. The two offences cannot coexist simultaneously in the same set of facts. They are antithetical to each other. The two provisions of the IPC (now BNS, 2023) are not twins that they cannot survive without each other."

16. Having gone through the contents of the charge sheet, it is clear

that the Xerox copies of cheques and promissory notes which were

issued by the Company as FDRs were collected from the victims.

When there are specific allegations against the Company and its

Management, the present complaint was lodged against the petitioners

prosecuting them in their individual capacity, without arraigning the

Company as an accused. Hence, no vicarious liability can be fastened

2024 INSC 626

on the petitioners, without the Company being arrayed as an accused.

Furthermore, the petitioner-accused No.2 is not an authorized

signatory of the Company.

17. In the case on hand, it is the case of the prosecution that the

petitioners are doing chit fund business, but it is not the case of the

prosecution that the petitioners were running financial establishment

and in the absence of producing FDRs, prosecuting the petitioners for

the offence under Section 5 of the Act, does not arise. Additionally, no

independent witnesses have been examined by the Police to

corroborate the allegations made against the petitioners.

18. In view of the foregoing discussion, this Court is of the

considered view that the disputes between the parties are purely civil

in nature, which were essentially given a criminal texture, and the

present complaint was lodged with an intent to settle the civil disputes

through criminal proceedings. In fact, civil remedies were already

availed by the de facto complainants and Execution Petition is also

pending to recover the amount in question. In view of the law laid down

by the Hon'ble Supreme Court in Paramjeet Batra's case, I am of the

considered opinion that it is a fit case to exercise the powers under

Section 482 of Cr.P.C., so as to prevent an abuse of the process of

Court.

19. Accordingly, this Criminal Petition is allowed and the criminal

proceedings against the petitioners-accused Nos.1 and 2 in C.C.No.18

of 2021 pending on the file of the learned Special Court under the

Telangana Protection of Depositors of Financial Establishments Act-

cum-Metropolitan Sessions Judge, Hyderabad, are hereby quashed.

As a sequel, pending miscellaneous applications, if any,

shall stand closed.

__________________ JUVVADI SRIDEVI, J Date: 26.09.2025 rev