Sharon Michael &
Ors. Vs. State of Tamil Nadu & ANR.  INSC 2252 (19 December 2008)
IN THE SUPREME COURT
OF INDIA CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 2089 OF 2008
(Arising out of SLP (Crl.) No.3600 of 2006) Sharon Michael & Ors. ...
Appellants Versus State of Tamil Nadu & Anr. ... Respondents
S.B. Sinha, J.
are before us being aggrieved by and dissatisfied with the judgment and order
dated 2.3.2006 passed by a learned Single of the High Court of Judicature at
Madras in Criminal Appeal No.26498 of 2005 dismissing their applications for
quashing the summons issued to them in Crime No.32 of 2005 on a complaint filed
by one of the partners of M/s Aarbee Apparels Impex, Tiruppur under Sections
120-B, 409 and 420 of the Indian Penal Code (for short, "IPC").
T.M.S. Fashion Private Limited, Chennai (for short, "the Company") is
a certifying agent. Appellant No.1 is the Assistant General Manager of the
company engaged in export of garments. Appellant No.2 is the Accounts Manager,
Appellant No.3 is the Shipping Manager, Appellant No.4 is one of its Directors
and Appellant No.5 is a Consultant for the Company. Appellant No.6 is an
employee of Bax Global Private Ltd. who has nothing to do with the appellant
the complaint petition, the complainant alleged that the appellant Nos.1 to 4
had approached the Aarbee Apparels Impex which is engaged in the manufacture of
Hosiery Garments in the month of December 2004 for supply of men's cardigan and
sweat shirts for the total value of 76,197.60 Euros to Ultimate Buyers at
Germany. Pursuant thereto or in furtherance of the said contract entered into
by and between the parties, export of the said garments were made by Respondent
No.2. The Company is said to have issued various inspection certificates in the
following terms :
"This is to
certify that the goods of above Order have been inspected prior to shipment and
found in order and good conditions. This certificate shall be entirely without
prejudice and shall not absolve the seller from liability in respect of any 3
actions, claims, demand of proceedings subsequently taken or made by TMS
(Fashion) Pvt. Ltd. and/or their customer."
The supplier company
Aarbee apparel, however, stood guarantor for `skip stitches after checking'.
buyer company by an email refused to accept the shipment on the premise that on
a random checking too many defects disqualifying the goods to be shipped were
found and, thus, the goods being sub-standard, were not acceptable. They asked
the company to pick up the goods from their warehouse. Respondent No.2,
however, did not make any attempt to re-export the said goods from Germany to
On or about
18.3.2005, it filed a complaint petition with the Superintendent of Police,
Coimbatore to help it to recover dues from the appellant company.
thereafter sent a legal notice to Respondent No.2 on or about 25.3.2005, inter
alia, stating :
state that you were clearly informed that quality control checks would be very
stringent and unless quality norms are met, the buyer would not accept the
consignment leading to large losses all around. You accepted the terms and
promise to deliver the finished goods in time. Accordingly, 4 three purchase
orders were placed on you by TMS, details as follows :
SPO No. Style No.
Rate ? PC
1. 051949 P30837
2. 7051961 P30857
3. 7051964 P30858
Euro10.26 (C&F) The delivery date was stipulated as 15.01.2005, payment on
L/C basis at sight. The letter of credit was accordingly established by
Manhattan on you expiring on 25.01.2005 for the sum of 84.486.00 Euro you have
accepted the purchase order and claimed to have commenced manufacture.
Our clients state
that within a few days, it was found that your factory was having only around
15 machines and worse, the factory itself as not running for a few months and
you had given the entire order on job work basis to various smaller units in
Tirupur. At that stage, our client had committed the delivery schedule to the
buyer in Germany and also accepted heavy penalties in case of delayed delivery
of short supply. Thus, there was no choice for our clients to cancel the order
with you and find another manufacturer. Further, rejection would be automatic
and you were directed to ensure very strict quality checks and delivery
schedules. You have assured TMS that despite the out sourcing of the work,
quality and delivery schedule would not be an issue since you would personally
see the order is carried out categorically.
Our clients state
that despite these assurance, you could not stick to the schedule delivery date
and ultimately, even the letter of credit opened on you by Manhattan expired.
To our clients short and dismay, it was found that practically none out of the
garment were defective. A Complete quality 5 check was proving difficult
because of your non- cooperation and finally TMS had to send its staff from
Chennai to supervise the quality check by end January 2005. The order was
coming into your factory from various jobbers in bits and much time the garment
was checked, it could not be the checked garment factory since you did not even
have an repeating apparently, many of the pieces rejected to TMS quality
control staff were repeated and brought by you as if it had passed scrutiny.
Ultimately by middle of February 2005, our client already threatened with huge
penalties by the buyer due to delay, decided that 7.080 pieces would be shipped
out on the understanding that you will receive payment only for those garments
accepted by the buyer. The final inspection reports from TMS passed these items
only under your letter of guarantee for the various defects pointed out in the
reports. It is relevant that Order No.7051949 Styles P30837 totally rejected by
TMS, Tirupur, since the fabric did not meet the specifications given in the
other shipments pertaining to Order No.7051961 & 7051964 left Chennai under
Airway Bill Nos.020-34456435 dated 18.02.2005 and No.020-34456413 dated
19.02.2005 destination D|sseldorf, Germany. By e-mail dated 1.3.2005, the buyer
Exprit, Germany have informed TMS, Channai that the entire consignment was
rejected by them. Our client's enquiries with the buyer revealed that on random
checking, it was found that practically every piece checked had some defect or
the other and their stores could not retail such poor quality stock.
Our clients have
pleaded with the buyer to salvage at least those few pieces which they would
feel acceptable qualitywise and that process is still underway. However, our
clients have been informed clearly that there is no obligation on the 6 part
of the buyer to accept even a single garment since it is not their job to check
each and every garment before accepting the goods. Such random checks are the
accepted trade practice and failure to adhere to such strict quality norms has
resulted in huge losses to our clients. Our clients state that in particular,
TMS has lost commission amounting to 1882-90 Euros (Rs. One lac three thousand
five hundred and sixty only) and Manhattan have been threatened by the buyer
with a claim equal to five time the FOB value (Rs.2,58,90,000). In fact
Manhattan have already received a debit note from the buyer for style P30857
for 52020.54 Euro.
Further claims are
expected any moment. Our clients state that you are directly responsible for
these losses. You have deliberately made our clients risk their reputation in
the international market and you have exposed our clients to severe losses by
your irresponsible and dishonest acts.
You have deceived our
clients into placing the order with you by falsely representing that you have
the experience, infrastructure and means to carryout the order on top of all
these you appear to have given some false complaint to the Crime Branch,
Tirupur as if TMS has cheated you. You are hereby called upon to immediately
withdraw this complaint which clearly amounts to malicious prosecution meant to
harass our clients failing which our clients would take severe action against
you. Our clients also hereby put you on notice that the consignment is lying at
Germany and despite our clients repeated mails to you, you have neither
bothered to respond and explain and rejection of the goods nor have you agreed
to make arrangements to take back the consignment.
Our clients have been
informed by the buyer that they will not be responsible for the consignment
after 10.4.2005. The warehousing and handling charges would have to be borne by
you. Having guaranteed the quality of the consignment to the standards set by the
buyer, you cannot today claim 7 the value of the order from our clients and
instead you are due to our clients the damage suffered by them by your
non-performance. On behalf of our clients, we hereby call upon you to pay our
clients a sum of Rs.28,61,130/- being the rupee equivalent of 52,020.54 Euro
within 15 days of receipt of this notice, failing which our clients will
institute appropriate legal action for the recovery thereof, needless to add at
your costs and consequences. Further, be forewarned that further claims from
the buyer to our client's account will be in turn claimed by our clients from
you. This notice is issued without prejudice to our clients rights to you for
malicious prosecution and damages on account of your complaint to the Police
against our clients, if the need arises."
first information report was lodged by respondent No.2 before the Coimbatore
Police Station on or about 4.6.2005, inter alia, requesting the officer in
charge of the Police Station to take legal action for the alleged offences
committed by the appellants and help it to recover the amount from them.
Thereupon Crime No. 32 of 2005 was registered.
It is not in dispute
that after two employees of the appellant company were arrested, a sum of
Rs.30,00,000/- (Rupees thirty lacs only) was paid by the appellant company to
the respondent No.2. It is further stated that another sum of Rs.18,00,000/-
(Rupees eighteen lacs only) is owing and due to them. It is at that stage, the
appellants filed an application under Section 482 of the Code of Criminal
8 By reason of the
impugned judgment, while dismissing the said application, the High Court held:
"9. The facts
and circumstances of this case would reveal that M/s. ESPRIT EUROPE TRADING AND
PRODUCT DEVELOPMENT had approached the Manhattan Limited in Hong Kong to supply
"men's cardigan and sweat shirts".
Manhattan Limited had
contacted TMS fashions Pvt. Ltd. to procure those goods and supply them to
Esprit Europe Trading and Product Development, based on the Letter of Credit
opened by Manhattan Limited, TMS Fashions Pvt.
Ltd., approached M/s.
Aarbee Exports Impex to produce "men's cardigan and sweat shirts" for
10. As far as the De
facto complainant is concerned, the de facto complainant was not approached by
M/s. Espirit Europe Trading and Product Development or Manhattan Ltd. TMS
Fashions Pvt. Ltd. alone contacted the de facto complainant and persuaded them
to manufacture the specified goods for export to Germany. The documents would
show that quality check had been done by the TMS Fashions Pvt. Ltd. The whole
production done by the d facto complainant was completely controlled by TMS
Fashions Pvt. Ltd.
11. There is a
specific allegation in the complaint that the de facto complaint refused to go
in for shipment of the goods as they understood that the Letter of Credit
opened by M/s. Manhattan Ltd. with State Bank of India, Tirupur Branch was not
renewed on 25.1.2005. It has also been stated in the complaint that TMS
Fashions Pvt. Ltd.
informed the de facto
complainant that the Letter of Credit opened by Hong Kong Company was
revalidated upto 28.2.2005, having consigned the 9 goods, the de facto
complainant approached the State Bank of India, Tirupur Branch but was
unfortunately informed by the State Bank of India, Tirupur Branch that the
Letter of Credit was never revalidated, it is further contended in the
complaint. The allegations of criminal conspiracy and cheating have been made
in the complaint."
It was furthermore
"16. In the
instant case, it has been specifically contended in the complaint that the
petitioners herein enticed the de facto complainant to part with the goods
having made misrepresentation that the Letter of Credit opened by the Hong Kong
Company was extended for a further period and thereby the accused de facto
complainant was duped by the petitioners herein. Therefore, the above authority
will not apply to the facts and circumstances of this case."
The High Court
"20. It is not
as if that the complaint lacks ingredients of the offence of cheating and
criminal breach of trust. The petitioners cannot wriggle out of the
investigation process embarked upon by the second respondent-police on the
ground that they acted as an agent of their principal M/s. Manhattan Ltd. The
allegation in the complaint would reveal that the whole transaction was
clinched by the de facto complainant only with the petitioner herein.
But for the
representation made and the assurance given by the petitioners, the goods would
not have been shipped by the de facto complainant, it has been contended in the
complaint. The whole gamut of the allegation will have to be probed into 10 by
the investigation agency. When the complaint reflects commission of cognizable
offence and the same will have to be thoroughly investigated by the second
respondent-police, the question of quashing the case registered against the
petitioners does not arise for consideration."
G.V. Rao, learned counsel appearing on behalf of the appellant would contend
that the dispute between the parties having arisen out of a contract qua
contract, the complaint petition was not maintainable.
V. Kanagaraj, learned senior counsel appearing on behalf of Respondent No.2, on
the other hand, submitted that the complaint petition had to be filed only
because the appellant did not pay the entire amount representing the value of
the garments exported. It was contended that the appellants having made part
payment of the entire dues cannot be permitted now to turn round and contend
that they have no liability in the matter at all.
Respondent No.2 is the producer of the garments. The buyer is a German Company.
Rightly or wrongly, the buyer refused to accept the goods, inter alia, on the
premise that the same were defective and sub-standard. We will assume that the
appellant company was assured payment for such supplies. Even if that be so, it
would be a del credere agent. Its liability is, therefore, a civil liability.
The allegations contained 11 in the First Information Report did not reveal
that any misrepresentation was made at the time of formation of the contract.
The goods were to be supplied by Respondent No.2. They were presumably required
to meet the requirements of the buyer. Even if the certificate granted by the
appellant company was incorrect, an appropriate action against them could have
been taken for breach of contract.
ingredients of an offence as contained in Section 420 of IPC are as under:
"i) Deception of
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."
Criminal breach of
trust is defined in Section 405 of IPC. The ingredients of an offence of the
criminal breach of trust are :
any person with property or with any dominion over property.
2. That person
entrusted (a) dishonestly misappropriating or converting to his own use that
property; or (b) dishonestly using or disposing of that property or willfully
12 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, or (ii) of
any legal contract made touching the discharge of such trust."
Section 409 of IPC read as under :
"(i) The accused
must be a public servant;
(ii) He must have
been entrusted, in such capacity, with property.
(iii) He must have
committed breach of trust in respect of such property."
First Information Report contains details of the terms of contract entered into
by and between the parties as also the mode and manner in which they were
implemented. Allegations have been made against the appellants in relation to
execution of the contract.
No case of criminal
misconduct on their part has been made out before the formation of the
contract. There is nothing to show that the appellants herein who hold
different positions in the appellant-company made any representation in their
personal capacities and, thus, they cannot be made vicariously liable only
because they are employees of the company.
R. Kalyani v. Janak C. Mehta & Ors. [2008 (14) SCALE 85], this Court held :
"24. As there
had never been any interaction between the appellant and them, the question of
any representation which is one of the main ingredients for constituting an
offence of cheating, as contained in Section 415 of the Indian Penal Code, did
not and could not arise.
25. Similarly, it has
not been alleged that they were entrusted with or otherwise had dominion over
the property of the appellant or they have committed any criminal breach of
So far as allegations
in regard to commission of the offence of forgery are concerned, the same had
been made only against the respondent No. 3 and not against the respondent No.
2. Sending a copy thereof to the National Stock Exchange without there being
anything further to show that the respondent No. 2 had any knowledge of the
fact that the same was a forged and fabricated document cannot constitute
in the FIR are for commission of offences under a general statute. A vicarious
liability can be fastened only by reason of a provision of a statute and not
otherwise. For the said purpose, a legal fiction has to be created.
Even under a special
statute when the vicarious criminal liability is fastened on a person on the
premise that he was in- charge of the affairs of the company and responsible to
it, all the ingredients laid down under the statute must be fulfilled. A legal
fiction must be confined to the object and purport for which it has been
It was furthermore
observed:- 14 "27. If a person, thus, has to be proceeded with as being
variously liable for the acts of the company, the company must be made an
In any event, it
would be a fair thing to do so, as legal fiction is raised both against the
Company as well as the person responsible for the acts of the Company."
The liability of the
company is, therefore, a civil liability. It is also not a case where although
a prima facie case had been made out disclosing commission of an offence, the
court is called upon to consider the defence of the accused. The First
Information Report itself refers to the documents.
They can, therefore,
be taken into consideration for the purpose of ascertaining as to whether the
allegations made in the complaint petition read as a whole, even if taken to be
correct in its entirety, discloses commission of any cognizable offence or not.
As admittedly Respondent No.2 was the supplier of garments which were found out
to be defective in nature, we are of the opinion that the dispute between the
parties is civil in nature.
the reasons aforementioned, the impugned judgment cannot be sustained. It is
set aside accordingly. The appeal is allowed. The impugned summons issued to
the appellants are quashed.