| An Agreement dated 21/2/1995 was
executed between Appellant 1 (the company) and Respondent
2 under which he was appointed as a consignment stockist of
the company subject to certain terms and conditions. On 3/10/1997
Respondent 2 (complainant) served a notice on the company
requesting them to make payment of Rs.15,00,000/- to him or
in the alternative refer the disputes and differences to arbitration
in terms of the agreement. The Respondent filed a complaint
on 8/12/1997 alleging offences under Sections 406 and 420
read with Section 120B of the Indian Penal Code (IPC). The
learned Chief Judicial Magistrate by his Order dt.6/1/1998
issued summons against the Appellant. The Appellants approached
the High Court by filing a Petition under section 482 CrPC
for quashing the aforementioned order of the learned Magistrate.
The High Court dismissed the Petition of the Appellants. In
these circumstances, the present appeal was filed before the
Supreme Court.
The Appellants urged that the High Court failed to exercise
its power under Section 482 CrPC having regard to the facts
and circumstances of the case in order to prevent abuse of
process of Court and/or to secure the ends of justice; that
the disputes between the Appellants and Respondent 2 were
purely of a civil nature arising out of contractual relationship
relating to commercial transaction; even looking to the sworn
statements, terms of the agreement and the notice dated 3/10/1997,
no case is made out to proceed against the Appellants on the
criminal side, that the essential ingredient of the offence
under Section 405 IPC is not made out as the Appellants were
not entrusted with any property or with domain over property;
similarly the ingredients of the offence under Sections 415
and 120-B IPC were also not satisfied. According to the Appellants,
the learned Magistrate committed a serious error in issuing
the process; unfortunately the High Court also failed to correct
the same exercising jurisdiction under Section 482 CrPC.
The Supreme Court held that every breach of trust may not
result in a penal offence of criminal breach of trust unless
there is evidence of a mental act of fraudulent misappropriation.
An act of breach of trust involves a civil wrong in respect
of which the person wronged may seek his redress for damages
in a Civil Court but a breach of trust with mens rea gives
rise to a criminal prosecution as well.
The ingredients in order to constitute a criminal breach
of trust are: (i) entrusting a person with property or with
any dominion over property, (ii) that person entrusted (a)
dishonestly misappropriating or converting that property to
his own use; or (b) dishonestly using or disposing of that
property or wilfully suffering any other person so to do in
violation (i) of any direction of law prescribing the mode
in which such trust is to be discharged, (ii) of any legal
contract made, touching the discharge of such trust.
The ingredients of an offence of cheating are: (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 of
omission should be one which causes or is likely to cause
damage or harm to the person induced in body, mind, reputation
or property.
The Supreme Court in Hridaya Ranjan Prasad Verma vs. State
of Bihar held that “ to hold a person guilty of cheating
it is necessary to show that he had fraudulent or dishonest
intention at the time of making the promise. From his mere
failure to keep up promise subsequently such a culpable intention
right at the beginning, that is, when he made the promise
cannot be presumed.” The same view was held by the Supreme
Court in G.V.Rao vs. L.H.V.Prasad.
In Trisuns Chemical Industry vs. Rajesh Agarwal dealing with
the effect of existence of arbitration clause in the Agreement
on criminal prosecution on the ground that civil proceedings
are also maintainable, the Supreme Court has held that quashing
of FIR or a complaint exercising power under Section 482 CrPC
should be limited to a very extreme exception; merely because
an act has a civil profile is not enough to stop action on
the criminal side. It was further held that a provision made
in the agreement for referring the disputes to arbitration
is not an effective substitute for a criminal prosecution
when the disputed act constitutes a criminal offence.
In case of a complaint under Section 200 CrPC or IPC a Magistrate
can take cognisance of the offence made out and then has to
examine the complainant and his witnesses, if any, to ascertain
whether a prima facie case is made out against the accused
to issue process so that the issue of process is prevented
on a complaint which is false or vexatious or intended to
only to harass. The words “sufficient ground”
used under Section 203 have to be construed to mean the satisfaction
that a prima facie case is made out against the accused and
not sufficient grounds for conviction.
In the present case, the Supreme Court observed that there
is nothing either in the complaint and/or in the sworn statements
of the complainant and three witnesses that any property was
entrusted to any of the Appellants at all or the Appellants
had domain over any of the properties of Respondent 2 which
they dishonestly converted to their own use so as to satisfy
the ingredients of Section 405 IPC punishable under Section
406 IPC. Further, the agreement also did not require entrustment
of any property to the Appellants. The Supreme Court said
that taking the complaint and the statements of the witnesses
as they are, it cannot be said that even prima facie that
the Appellants committed any offence punishable under Section
406 IPC, since the ingredients of that offence were not satisfied.
Hence the learned Magistrate committed a serious error in
issuing process against the Appellants for the said offence.
Unfortunately, the High Court also failed to correct this
manifest error. No doubt, exercise of inherent power under
Section 482 CrPC by the High Court should be limited to very
extreme exceptions but in a case where ingredients of alleged
offences are not satisfied, the exercise of inherent power
is not only desirable but necessary also, to prevent judicial
process from being an instrument of oppression or harassment
in the hands of frustrated or vindictive litigants.
The Supreme Court held that except against Appellant 7, no
offence was made out against the remaining Appellants as the
ingredients of offences alleged against them were not satisfied.
The issue of process against Appellants 1 to 6 and 8 was set
aside and process issued against Appellant 7 for offences
under Section 406 and 120-B was also set aside. However, the
issue of process against Appellant 7 under Section 420 IPC
was maintained
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