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2010 INSC 646
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
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Acts
  • Sections 540, 542 of the Companies Act, 1956
  • Sections 120-B, 420, 406 of the Penal Code
  • [no other legislative acts or articles mentioned]
  • Sick Industrial Companies (Special Provisions) Act, 1985
  • Sections 540 and 542 of the Companies Act, 1956
  • Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)
  • Section (a), Insurance Act, 1948 (34 of 1948)
  • Section 482 of the Code of Criminal Procedure, 1973
  • Section 5, Subsection 2 of the 1983 Income Tax Act
  • Section 617 of the Companies Act, 1956
  • Sections 420, 406 and 120-B of the Penal Code, 1860
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Cites
Cited by
Citation Codes
Neutral Citations
2010 INSC 646
Equivalent Citations
citation codes
Case Number
Disposition
Advocates
Judges
Acts
  • Sections 540, 542 of the Companies Act, 1956
  • Sections 120-B, 420, 406 of the Penal Code
  • [no other legislative acts or articles mentioned]
  • Sick Industrial Companies (Special Provisions) Act, 1985
  • Sections 540 and 542 of the Companies Act, 1956
  • Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952)
  • Section (a), Insurance Act, 1948 (34 of 1948)
  • Section 482 of the Code of Criminal Procedure, 1973
  • Section 5, Subsection 2 of the 1983 Income Tax Act
  • Section 617 of the Companies Act, 1956
  • Sections 420, 406 and 120-B of the Penal Code, 1860
Smart Summary

Factual and Procedural Background

Indian Explosives Ltd. (“IEL”) purchased ammonium nitrate from Fertilizer Corporation of India Ltd. (“FCIL”), a Government company that had already been declared a “sick company” under the Sick Industrial Companies (Special Provisions) Act, 1985. In 2001 FCIL, IEL and Bharat Coking Coal Ltd. (“BCCL”) entered into a tripartite arrangement under which FCIL would supply ammonium nitrate to IEL; IEL would supply explosives of equal value to BCCL; and BCCL would, in turn, supply coal of equal value to FCIL. After some supplies were made, FCIL stopped deliveries citing machinery breakdown and financial distress.

On 22 May 2003 IEL filed Criminal Complaint No. 2560/2003 before the Chief Metropolitan Magistrate, Kolkata, accusing two senior former FCIL officers (the present appellants) and another colleague of offences under Sections 420 (cheating), 406 (criminal breach of trust) and 120-B (criminal conspiracy) of the Indian Penal Code (“IPC”) as well as Sections 540 and 542 of the Companies Act, 1956. Simultaneously IEL instituted Title Suit No. 34/2003 in the IVth Civil Judge’s Court, Alipore for recovery of ₹4,20,41,622.

The Magistrate took cognizance and issued summons on 30 October 2003. The accused moved the Calcutta High Court under Section 482 CrPC to quash the complaint. By judgment dated 28 February 2007 the High Court refused to interfere, holding that the allegations required full trial. The present appeals by special leave challenge that refusal.

Legal Issues Presented

  1. Whether, taking the allegations in the complaint at face value, the essential ingredients of offences under Sections 420, 406 and 120-B IPC are disclosed.
  2. Consequently, whether the High Court erred in declining to exercise its inherent power under Section 482 CrPC to quash the criminal proceedings.

Arguments of the Parties

Appellants’ Arguments

  • The complaint does not contain the foundational allegations of dishonest or fraudulent intent required for offences under Sections 420 or 406 IPC.
  • IEL was fully aware of FCIL’s weak financial position; there was no suppression of material facts.
  • The dispute is purely civil in nature and is already the subject-matter of a civil suit; criminal prosecution is mala fide and constitutes abuse of process.
  • Cited All Cargo Movers (India) (P) Ltd. v. Dhanesh Badarmal Jain to contend that pleadings and documents in the civil suit can be looked at to decide whether criminal allegations survive.

Respondent’s Arguments

  • The appellants concealed the fact that FCIL had been referred to the BIFR and was on the verge of winding up, thereby inducing IEL to enter the tripartite agreement and part with huge sums through supplies to BCCL.
  • Such deliberate suppression constitutes cheating (Section 415 IPC) and criminal breach of trust (Section 405 IPC).
  • At the preliminary stage the High Court correctly refrained from evaluating evidence; the appellants could seek discharge before the trial court.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
R.P. Kapur v. State of Punjab, AIR 1960 SC 866 Enumerated categories where High Court may quash proceedings under Section 482 CrPC. Formed the analytical framework for assessing whether the complaint disclosed any offence.
Dinesh Dutt Joshi v. State of Rajasthan (2001) 8 SCC 570 Scope of inherent powers—must be exercised sparingly to secure justice and prevent abuse. Court reiterated caution in using Section 482 but emphasised its availability in clear cases.
G. Sagar Suri v. State of U.P. (2000) 2 SCC 636 High Court must see if a civil dispute is being cloaked as a criminal offence. Supported conclusion that present dispute was essentially contractual/civil.
Ram Jas v. State of U.P. (1970) 2 SCC 740 Enumerated ingredients of the offence of cheating (Section 415 IPC). Used to test the complaint’s averments; found lacking in dishonest inducement.
Medchl Chemicals & Pharma (P) Ltd. v. Biological E. Ltd. (2000) 3 SCC 269 Mens rea at the time of making the promise is essential for cheating. Helped establish that subsequent non-performance does not ipso facto amount to cheating.
Hira Lal Hari Lal Bhagwati v. CBI (2003) 5 SCC 257 Culpable intention must exist at inception; cannot be presumed from later breach. Reinforced absence of initial dishonest intent in facts at hand.
Anil Mahajan v. Bhor Industries Ltd. (2005) 10 SCC 228 Mere use of words “cheat” or “defraud” in a complaint is insufficient without factual foundation. Relied upon to discount bare assertions of cheating in IEL’s complaint.
Onkar Nath Mishra v. State (NCT of Delhi) (2008) 2 SCC 561 Two-stage analysis of criminal breach of trust: entrustment and dishonest misappropriation. Applied to show absence of entrustment of property by IEL to appellants.
Common Cause v. Union of India (1999) 6 SCC 667 Entrustment is sine qua non for Section 405 IPC. Supported finding that complaint lacked allegation of entrustment.
All Cargo Movers (India) (P) Ltd. v. Dhanesh Badarmal Jain (2007) 14 SCC 776 Court may consider pleadings/documents in civil suit when examining criminal complaint. Permitted Court to look at plaint averments demonstrating IEL’s knowledge of FCIL’s condition.

Court's Reasoning and Analysis

The Supreme Court restated that to attract Section 420 IPC the prosecution must allege dishonest or fraudulent intention at the very inception of the transaction. Examination of the complaint showed:

  • No specific assertion that the appellants fraudulently induced IEL to enter the agreement; the complaint itself acknowledged IEL’s awareness of FCIL’s precarious finances.
  • Failure to supply ammonium nitrate stemmed from breakdowns and financial constraints—facts pleaded by IEL in the parallel civil suit—suggesting, at most, breach of contract.
  • Mere use of expressions like “defraud” and “cheat” could not substitute for the statutory ingredients of cheating.

Regarding criminal breach of trust, the Court found no allegation that IEL had entrusted any property to the appellants or that they exercised dominion over such property; consequently the foundational element of “entrustment” was absent.

With allegations under Sections 420 and 406 IPC unsustainable, the charge of conspiracy under Section 120-B necessarily collapsed for want of an unlawful object.

Applying the principles in R.P. Kapur and allied authorities, the Court concluded that continuation of the criminal proceedings would be an abuse of process, warranting quashing under Section 482 CrPC.

Holding and Implications

Appeals Allowed – Criminal Complaint and Summoning Order Quashed.

Direct Consequences: The private complaint (Case No. 2560/2003) and the Magistrate’s order taking cognizance stand annulled; the appellants face no criminal trial arising out of the disputed transaction.

Broader Implications: The decision reinforces the principle that contractual disputes lacking allegations of initial dishonest intent should not be converted into criminal prosecutions, and underscores the High Courts’ duty to deploy Section 482 CrPC to prevent misuse of the criminal process. No new legal test was created, but existing jurisprudence on distinguishing civil disputes from criminal offences was emphatically applied.

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    V.P Shrivastava v. Indian Explosives Limited And Others

    D.K Jain, J.— Leave granted. These appeals, by special leave, arise out of the judgment and order dated 28-2-2007 delivered by the High Court of Calcutta in CRR No. 2898 of 2004 in a common petition filed by the two appellants herein and one Mr A.K Mukherjee, who is now deceased, under Section 482 of the Code of Criminal Procedure, 1973 (in short “the Code”). By the impugned judgment, the High Court has declined to quash a private complaint filed by Respondent 1 Company against the appellants and Mr A.K Mukherjee for the offences under Sections 420, 406 and 120-B of the Penal Code, 1860 (for short “IPC”).

    2. Shorn of unnecessary details, the facts, material for the purpose of disposal of these appeals may be stated thus: both the appellants in these appeals were senior employees of the Fertilizer Corporation of India Ltd. (hereinafter referred to as “FCIL”), a government company within the meaning of Section 617 of the Companies Act, 1956.

    3. On 20-4-1992, FCIL's Board of Directors passed a resolution to the effect that the Company had become a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as “SICA”) and hence a reference should be filed with the Board of Industrial and Financial Reconstruction (hereinafter referred to as “BIFR”). On 6-11-1992, FCIL was declared a “sick company” under Section 3(1)(o) of SICA by BIFR.

    4. The complainant, Indian Explosives Ltd. (hereinafter referred to as “IEL”), Respondent 1 in these appeals, is engaged in the manufacture and sale of industrial explosives. Ammonium nitrate is a major raw material for the manufacture of explosives, and the same was procured by IEL from FCIL. Sometime in the year 2001, FCIL entered into a tripartite agreement with M/s Bharat Coking Coal Ltd. (hereinafter referred to as “BCCL”) and IEL. As per the arrangement under the agreement, it was agreed that FCIL would supply ammonium nitrate to IEL and against this supply, IEL would supply explosives of an equivalent value to BCCL, which in turn would supply coal of equivalent value to FCIL. It is an undisputed fact that pursuant to the said arrangement ammonium nitrate was supplied by FCIL to IEL for some time. However, due to the breakdown of a synchronised gas compressor and other financial difficulties, FCIL stopped supplies of ammonium nitrate to IEL.

    5. On 2-11-2001, BIFR formed its final opinion recommending winding up of FCIL and forwarded the same to the High Court of Delhi. Sometime in December 2001, FCIL aggrieved by the opinion of BIFR, preferred a statutory appeal under Section 25 of SICA before the Appellate Authority for Industrial and Financial Reconstruction (hereinafter referred to as “Aaifr”). However, on 16-4-2002, Aaifr dismissed the said appeal and confirmed the order of BIFR for the winding up of FCIL.

    6. In June 2002, FCIL and its employees preferred a writ petition (CWP No. 3298 of 2002) before the High Court of Delhi challenging the said order of Aaifr. The writ petition was disposed of by the High Court by its order dated 26-11-2002, whereby it remitted the matter back to BIFR for fresh consideration on the revival of the closed units of FCIL. BIFR, upon receiving the reference, directed the winding up of FCIL, except the JMO unit and on 2-4-2004 sent its opinion to the High Court for confirmation.

    7. During the pendency of the writ petition before the High Court, the Government of India, on 30-7-2002, issued a memorandum for closing of all the units of FCIL except the Sindhri and JMO units. On 10-9-2002, the Government of India issued yet another memorandum directing closure of the Sindhri unit as well. It was further directed that FCIL shall implement Voluntary Suppression Scheme in all its units, and all the employees shall be discharged of their employment. The appellants herein availed of the Voluntary Suppression Scheme and were discharged from the service of FCIL.

    8. On 22-5-2003, IEL instituted a criminal complaint (Case No. 2560 of 2003) in the Court of Chief Metropolitan Magistrate, Kolkata under Sections 406, 420 and 120-B IPC read with Sections 540 and 542 of the Companies Act, 1956 against both the appellants and Mr A.K Mukherjee. Simultaneously, on 25-5-2003, IEL also filed Title Suit No. 34 of 2003 before the IVth Civil Judge, Alipore for recovery of the outstanding amount of Rs. 4,20,41,622 along with future and pendente lite interest against FCIL. IEL, on 23-1-2004, obtained and was granted permission by BIFR to continue with the said civil suit subject to the condition that they will not execute the decree in the suit without the permission of BIFR.

    9. On 30-10-2003, the Chief Metropolitan Magistrate referred the complaint to the Metropolitan Magistrate, 8th Court, Kolkata, who issued summons against the appellants and Mr A.K Mukherjee. Aggrieved by the order of the Magistrate taking cognizance of the complaint, the appellants together with Mr A.K Mukherjee preferred the aforestated petition under Section 482 of the Code for quashing of the order summoning them to stand trial before the Calcutta High Court.

    10. As stated above, the High Court, vide its impugned judgment has dismissed the said petition. The High Court has inter alia, observed that if the fact that FCIL, of which the accused were senior functionaries, had become sick and the question of its winding up was under consideration by BIFR was made known to the complainant Company, it would not have agreed to the proposal of the accused persons. According to the High Court, in order to arrive at a conclusion whether or not on the available materials the accusation against the appellants would be sustained or not, a detailed enquiry by appreciation of the evidence would be required and such an exercise, being entirely a matter of trial, cannot be undertaken in proceedings under Section 482 of the Code. Hence the present appeals.

    11. Mr Jaideep Gupta, learned Senior Counsel appearing for the appellants strenuously urged that the complaint deserves to be quashed as it ex facie lacks the basic ingredients of Sections 420 or 406 IPC. It was argued that in the complaint it is not even averred that the accused had a fraudulent or dishonest intention to induce the complainant to enter into the tripartite agreement. Similarly, there is no allegation that the appellants herein had dishonestly misappropriated or converted to their use any property of IEL, which had been entrusted to them. Further, from a bare perusal of the complaint, it is evident that the complainant was aware of the financial health of FCIL and, therefore, it cannot be said that the appellants had suppressed the fact that FCIL was likely to be declared as a sick company.

    12. To buttress the plea, the learned Senior Counsel referred to the plaint in the suit. Relying on the decision in All Cargo Movers (India) (P) Ltd. v. Dhanesh Badarmal Jain (2007) 14 SCC 776 it was submitted that the averments and the documents in the civil suit could be taken into consideration to find out as to whether the allegations in the complaint were correct. Additionally, the learned Senior Counsel argued that the disputes between FCIL and IEL were essentially civil in nature, and the complaint only against the erstwhile employees of FCIL was mala fide and an abuse of the process of court and, therefore, deserves to be quashed.

    13. Per contra, Mr Sanjoy Ghosh, learned counsel appearing on behalf of IEL, supported the impugned judgment and argued that the appellants had only disclosed to IEL that FCIL was going through a financial crunch and, therefore, withholding of material information regarding its moving BIFR for being declared a sick company was clearly suppression of material facts from IEL with a mala fide intention to induce them to enter into the said agreement with them, knowing fully well that FCIL will not be able to honour its commitment under the arrangement. According to the learned counsel, this tantamounts to cheating as also criminal breach of trust within the meaning of Sections 415 and 405 IPC respectively. The learned counsel thus, contended that the High Court was justified in not analysing and returning a finding on the truthfulness or otherwise of the allegations in the complaint at such a preliminary stage of the proceedings, when only summons have been issued to the appellants to appear in the court and it is always open to the appellants to apply for discharge before the trial court.

    14. The question for consideration, therefore, is whether or not in the light of the allegations in the complaint against the appellants, the High Court was correct in law in declining to exercise its jurisdiction under Section 482 of the Code?

    15. Before evaluating the contentions advanced on behalf of the parties, it will be useful to briefly notice the scope and ambit of the inherent powers of the High Court under Section 482 of the Code. The section itself envisages three circumstances under which the inherent jurisdiction may be exercised, namely; (i) to give effect to an order under the Code; (ii) to prevent an abuse of the process of court; and (iii) to otherwise secure the ends of justice. Nevertheless, it is neither possible nor desirable to lay down any inflexible rule which would govern the exercise of inherent jurisdiction of the court. Undoubtedly, the power possessed by the High Court under the said provision is very wide but is not unlimited. It has to be exercised sparingly, carefully and cautiously, ex debito justitiae to do real and substantial justice for which alone the court exists. It needs little emphasis that the inherent jurisdiction does not confer an arbitrary power on the High Court to act according to whim or caprice. The power exists to prevent abuse of authority and not to produce injustice.

    16. In one of the earlier cases in R.P Kapur v. State of Punjab AIR 1960 SC 866, 1960 Cri LJ 1239 this Court had summarised some of the categories of cases where the inherent power under Section 482 of the Code could be exercised by the High Court to quash criminal proceedings against the accused. These are: (AIR p. 869, para 6)

    (i) where it manifestly appears that there is a legal bar against the institution or continuance of the proceedings e.g want of sanction;
    (ii) where the allegations in the first information report or the complaint taken at their face value and accepted in their entirety do not constitute the offence alleged;
    (iii) where the allegations constitute an offence, but there is no legal evidence adduced or the evidence adduced clearly or manifestly fails to prove the charge.

    17. In Dinesh Dutt Joshi v. State of Rajasthan (2001) 8 SCC 570, while dealing with the inherent powers of the High Court, this Court has observed thus:

    “6. … The principle embodied in the section is based upon the maxim: quando lex aliquid alicui concedit, concedere videtur et id sine quo res ipsae esse non potest i.e when the law gives anything to anyone, it gives also all those things without which the thing itself would be unavailable. The section does not confer any new power, but only declares that the High Court possesses inherent powers for the purposes specified in the section. As lacunae are sometimes found in procedural law, the section has been embodied to cover such lacunae wherever they are discovered. The use of extraordinary powers conferred upon the High Court under this section are however required to be reserved, as far as possible, for extraordinary cases.”

    18. In G. Sagar Suri v. State of U.P (2000) 2 SCC 636 this Court had opined as follows:

    “8. Jurisdiction under Section 482 of the Code has to be exercised with great care. In exercise of its jurisdiction the High Court is not to examine the matter superficially. It is to be seen if a matter, which is essentially of a 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 down certain principles on the basis of which the 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.”

    19. Bearing in mind the aforestated legal position in regard to the scope and width of power of the High Court under Section 482 of the Code, we shall now advert to the facts at hand.

    20. As noted above, the complaint against the appellant alleges commission of offences by them of cheating and dishonestly inducing delivery of property; criminal breach of trust and of criminal conspiracy punishable respectively under Sections 420, 406 and 120-B IPC.

    21. Section 415 IPC deals with “cheating” and reads as follows:

    “415. Cheating.—Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to ‘cheat’.
    Explanation.—A dishonest concealment of facts is a deception within the meaning of this section.”

    22. It is plain from a bare reading of the section that to hold a person guilty of cheating, as defined in Section 415 IPC, it is necessary to show that at the time of making the promise he had fraudulent or dishonest intention to retain the property or to induce the person so deceived to do something which he would not otherwise do.

    23. The ingredients required to constitute an offence of cheating have been succinctly laid down in Ram Jas v. State of U.P (1970) 2 SCC 740 as follows:

    “(i) there should be fraudulent or dishonest inducement of a person by deceiving him;
    (ii)(a) the person so deceived should be induced to deliver any property to any person, or to consent that any person shall retain any property; or
    (b) the person so deceived should be intentionally induced to do or omit to do anything which he would not do or omit if he were not so deceived; and
    (iii) in cases covered by (ii)(b), the act or omission should be one which causes or is likely to cause damage or harm to the person induced in body, mind, reputation or property.”

    (Hridaya Ranjan Prasad Verma v. State of Bihar (2000) 4 SCC 168, S.W Palanitkar v. State of Bihar (2002) 1 SCC 241, Kuriachan Chacko v. State of Kerala (2008) 8 SCC 708)

    24. Similar views were echoed in Medchl Chemicals & Pharma (P) Ltd. v. Biological E. Ltd. (2000) 3 SCC 269 wherein it was observed that:

    “11. … In order to attract the provisions of Sections 418 and 420 the guilty intent, at the time of making the promise is a requirement and an essential ingredient thereto and subsequent failure to fulfil the promise by itself would not attract the provisions of Section 418 or Section 420. Mens rea is one of the essential ingredients of the offence of cheating under Section 420. As a matter of fact Illustration (g) to Section 415 makes the position clear enough to indicate that mere failure to deliver in breach of an agreement would not amount to cheating but is liable only to a civil action for breach of contract.…”

    25. It is well settled that in order to constitute an offence of cheating, it must be shown that the accused had fraudulent or dishonest intention at the time of making the representation or promise and such a culpable intention right at the time of entering into an agreement cannot be presumed merely from his failure to keep the promise subsequently. (Also see Hira Lal Hari Lal Bhagwati v. CBI (2003) 5 SCC 257.)

    26. In the instant case, it has been alleged by IEL that at the time of entering into the tripartite agreement, the appellants, by having suppressed the fact that FCIL was likely to be declared a sick company and was, in fact, declared to be so by BIFR, had dishonest intention to induce IEL to enter into the said agreement, which amounted to cheating. A bare reading of the complaint would show that there is not even a whisper let alone a specific averment that the appellants had dishonestly “induced” IEL to enter into the said agreement/arrangement. On the contrary, the complaint clearly reveals that IEL was fully conscious of the precarious financial health of FCIL at the time it had decided to enter into contract with FCIL and BCCL to ensure a regular supply of its basic raw material from FCIL so that its production of explosives did not suffer.

    27. At this juncture it would be apposite to extract relevant portions of the complaint:

    “6. That the complainant Company approached the accused persons at their office at 41, Chowringhee Road, Kolkatta-700 071 to supply a large quantity of ammonium nitrate and at last the accused persons had agreed to such proposal. The complaint (sic complainant) had been to the office of the accused persons on several occasions and had several discussions in this regard with some terms and conditions.
    7. That the accused persons supplied ammonium nitrate to the complainant Company for some time. The accused persons who were officers-in-charge of (sic) and were responsible for the supply of ammonium nitrate to the complainant's Company made the following representations to the complainant and other officers of the complainant's Company:
    (a) That it would not be possible for the accused persons to maintain regular supply of ammonium nitrate to the complainant's Company. Due to acute shortage of funds the Company of the accused persons was not in position to lift coal from M/s Bharat Coking Coal Ltd., hereinafter referred as “BCCL” which is one of the subsidiaries of Coal India Ltd. and unless regular supply of coal is received by the Company of the accused persons from BCCL, the manufacture of ammonium nitrate would be hampered and consequently the Company of the accused persons would not be able to supply the same to the Company of the complainant.
    (b) That it was represented by the accused persons that as BCCL purchases huge industrial explosives from the complainant Company, for using explosives in their coal mines for mining/procuring coal, and as BCCL supplies coal to the Company of the accused persons, for the purpose of its manufacturing ammonium nitrate, which would be supplied to the Company of the complainant, the accused persons would make arrangements with BCCL so that instead of making payment to the Company of the accused persons for supply of ammonium nitrate, the complainant's Company would make an advance payment of Rs. 4,20,41,622 by supply of explosives to BCCL and the same would be adjusted for its supply of coal to the Company of the accused persons against supply of ammonium nitrate of equivalent value by the Company of the accused persons to the complainant's Company.
    8. That on such representations the accused persons induced the complainant and the officers of the Company to pay a sum of Rs. 4,20,41,622 and equivalent to BCCL between September 2001 to November 2001 on the specific representations that the accused persons would supply ammonium nitrate to IEL and the said sum would be adjusted towards the supply of ammonium nitrate.
    10. That the enquiry revealed that the accused persons deliberately and with fraudulent intentions while making the aforesaid representations to the complainant and other officers of IEL for dishonestly inducing them to pay Rs. 4,20,41,622 and or equivalent to and the said amount and or equivalent was entrusted to BCCL in the false representation of the accused persons and the said entrustment was made to BCCL on behalf of the accused persons. The accused persons deliberately suppressed that FCIL was already declared to be a ‘sick company’ and was referred to BIFR after eroding its net worth and became a ‘sick company’. The accused persons also suppressed the fact that BIFR was considering winding up of FCIL by recommending to the Hon'ble High Court at Delhi.
    11. That it was further learned that the accused persons with deceptive and fraudulent intentions deliberately suppressed that a huge amount was already due to various other suppliers of raw materials and other creditors, that the complainant would have not parted with such a huge amount of Rs. 4,20,41,622 and or equivalent to BCCL if they were not deceived by the false and fraudulent representation of the accused persons and induced to part with the said sum.
    12. That the accused persons had therefore acted in collusion and connivance with each other in order to defraud and cheat the Company of the complainant to make entrustment of the said sum of Rs. 4,20,41,622 and or equivalent to BCCL for and on the behalf of the Company of the accused persons.
    13. That the accused persons were party to a criminal conspiracy and criminal design. They were in collusion with each other and intentionally deceived the complainant and officers of IEL and by their false and fraudulent representation made the Company of the complainant to believe that they would supply ammonium nitrate to IEL of Rs. 4,20,41,622 and or equivalent is paid by IEL to BCCL and by such representation induced the complainant and other officers of IEL to pay a sum of Rs. 4,20,41,622 and or equivalent to BCCL knowing it fully well that the representations made by them were false and they would not supply ammonium nitrate to IEL in respect of the said sum advanced by IEL to BCCL on their behalf and thus they have committed offences rendering themselves liable to be prosecuted under the provisions of Sections 120-B/420/406 of the Penal Code and also under Sections 540/542 of the Companies Act, 1956.”
    (emphasis supplied by us)

    28. It is manifest from the afore-extracted paragraphs of the complaint that the basis of the complaint is that by deliberately suppressing the fact that FCIL had already been referred to BIFR after the erosion of its net worth and was likely to be declared a “sick company”, the appellants induced IEL to pay Rs. 4,20,41,622 to BCCL and in return did not supply ammonium nitrate to them.

    29. In our view, a mere mention of the words “defraud” and “cheat” in Para 12 of the complaint, in the setting that these have been used, is not sufficient to infer that the appellants had dishonest intention right at the beginning when, demonstrably, after due deliberations a tripartite agreement was signed, which, under the given circumstances at that juncture, was considered to be in the interest of all the three parties to the agreement. In this regard, it would be useful to advert to the following observations made by this Court in Anil Mahajan v. Bhor Industries Ltd. (2005) 10 SCC 228:

    “8. The substance of the complaint is to be seen. Mere use of the expression ‘cheating’ in the complaint is of no consequence. Except mention of the words ‘deceive’ and ‘cheat’ in the complaint filed before the Magistrate and ‘cheating’ in the complaint filed before the police, there is no averment about the deceit, cheating or fraudulent intention of the accused at the time of entering into MoU wherefrom it can be inferred that the accused had the intention to deceive the complainant to pay.”

    30. In our opinion, in the present case, at best, it was a case of breach of contract on the part of FCIL, for which the said Company is already defending a civil suit filed by IEL. In this behalf, it is also pertinent to note that in Para 5 of the plaint filed by IEL it is averred that:

    “While the aforesaid arrangement was continuing and Defendant 1 supplied various quantities of ammonium nitrate malt to the plaintiff in the years 2000-2001, Defendant 1 ran into serious difficulties in continuing its production due to breakdown of synchronised gas compressor and the other financial problems….”

    31. In our view, the averment strikes at the root of the allegation that at the time of entering into the agreement sometime in the year 2001, the appellants had fraudulent intention to somehow induce IEL to enter into the said agreement and part with a huge sum of money. It bears repetition that on their own showing IEL was fully aware of the financial health of FCIL at the time the said contract was entered into, as also the reason why FCIL was unable to continue the production of ammonium nitrate. It needs little emphasis that in order to constitute an offence of “cheating”, the intention to deceive should be in existence at the time when the alleged inducement was made. In the instant case, such an intention cannot be inferred from the aforenoted allegations in the complaint and averments in the plaint.

    32. In our opinion, therefore, even if the allegations made in the complaint are taken to be correct on their face value, may amount to breach of terms of contract by FCIL but do not constitute an offence of “cheating”, punishable under Section 420 IPC.

    33. We may now consider whether the allegations in the complaint make out a case of criminal breach of trust, as defined in Section 405 IPC, the section reads as follows:

    “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 wilfully suffers any other person so to do, commits ‘criminal breach of trust’.
    Explanation 1.—A person, being an employer of an establishment whether exempted under Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952) or not, who deducts the employee's contribution from the wages payable to the employee for credit to a provident fund or family pension fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.
    Explanation 2.—A person, being an employer, who deducts the employees' contribution from the wages payable to the employee for credit to the Employees' State Insurance Fund held and administered by the Employees' State Insurance Corporation established under the Employees' State Insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.”

    34. According to the section, a criminal breach of trust involves the following ingredients:

    “(a) a person should have been entrusted with property, or entrusted with dominion over property;
    (b) that person should dishonestly misappropriate or convert to his own use that property, or dishonestly use or dispose of that property or wilfully suffer any other person to do so; and
    (c) that such misappropriation, conversion, use or disposal should be in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract which the person has made, touching the discharge of such trust.”

    35. In Onkar Nath Mishra v. State (NCT of Delhi) (2008) 2 SCC 561, a Bench of two Judges of this Court, in which one of us (D.K Jain, J.) was a member, had observed that two distinct parts were involved in the commission of the offence of criminal breach of trust. The first part consists of the creation of an obligation in relation to the property over which dominion or control is acquired by the accused. The second is the misappropriation or dealing with the property dishonestly and contrary to the terms of the obligation created.

    36. Therefore, in relation to the offence under Section 405 IPC, the first ingredient that needs to be established is “entrustment.” In Common Cause v. Union of India (1999) 6 SCC 667 this Court held that:

    “168. A trust contemplated by Section 405 would arise only when there is an entrustment of property or dominion over property. There has, therefore, to be a property belonging to someone which is entrusted to the person accused of the offence under Section 405. The entrustment of property creates a trust which is only an obligation annexed to the ownership of the property and arises out of a confidence reposed and accepted by the owner.”

    37. However, it must be borne in mind that Section 405 IPC does not contemplate the creation of a trust with all the technicalities of the law of trust. It contemplates the creation of a relationship whereby the owner of property makes it over to another person to be retained by him until a certain contingency arises or to be disposed of by him on the happening of a certain event. (See Jaswantrai Manilal Akhaney v. State of Bombay AIR 1956 SC 575, 1956 Cri LJ 1116 and Indian Oil Corpn. v. NEPC India Ltd. (2006) 6 SCC 736)

    38. In the instant case, there is nothing in the complaint which may even suggest remotely that IEL had entrusted any property to the appellants or that the appellants had dominion over any of the properties of IEL, which they dishonestly converted to their own use so as to satisfy the ingredients of Section 405 IPC, punishable under Section 406 IPC.

    39. Having come to the conclusion that no prima facie case had been made out against the appellants in respect of the alleged offences under Sections 420 and 406 IPC, the question of alleged conspiracy between the appellants does not arise. Nevertheless, in order to bring home the charge of conspiracy within the ambit of Section 120-B IPC, it is necessary to establish that there was an agreement between the appellants for doing an unlawful act. The complaint lacks any such substance.

    40. The upshot of the foregoing discussion is that no prima facie case is made out against the appellants in respect of the alleged offences under Sections 420, 406 and 120-B IPC and, in our opinion, it was a fit case where the High Court should have exercised its jurisdiction under Section 482 of the Code quashing the complaint against the appellants.

    41. For the aforegoing reasons, the appeals are allowed; the impugned order is set aside and the order of the Magistrate taking cognizance in Complaint Case No. 2560 of 2003 is quashed.

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