Central
Bureau of Investigation, SPE, SIU (X), New Delhi Vs. Duncans Agro Industries
Ltd., Calcutta [1996] INSC 778 (9 July 1996)
Ray,
G.N. (J) Ray, G.N. (J) G.B. Pattanaik (J) G.N Ray, J.
CITATION:
JT 1996 (6) 227 1996 SCALE (5)99
ACT:
HEAD NOTE:
The 9th
Day of July, 1996 Present:
Hon'ble
Mr. Justice G.N Ray Hon'ble Mr. Justice G.B.Pattanaik K.T.S.Tulsi, Additional
Solicitor General, Vikas Pahwa, A.S.Bhasme, P.Parmeswaran, and A.Bhattacharya,
Advs. with him for the appellant Shanti Bhushan and Rajinder Singh, Sr. Advs.,
and P.N.Misra, Advs. with them for the Respondent
The
following judgment of the Court was delivered:
Central
Bureau of Investigation, V. Duncans Agro Industries Ltd., Calcutta
The
appeals are directed against a common Judgment dated December 23, 1992 Passed by the Calcutta High Court in Crl.R.No. 859 of 1991
and Crl. R. No. 1203 of 1991. By the impugned judgment, the High Court allowed
the said criminal revisions and quashed the impugned FIR Nos, RC-4/87-SIU(X)
dated August 14, 1987 and RC-I(8)/89-SIU(x) dated June 12, 1989. The respondent, Duncans Agro
Industries Ltd., moved the Calcutta High Court for quashing the said FIRs
lodged by the Central Bureau of Investigation.
It was
inter alia alleged in the FIR dated August 14, 1987 that reliable information
was received by the complainant, the Superintendent of Police, CBI, SIU(x), New
Delhi, that M/S National Tobacco Company which was a division of M/s Duncans
Agro Industries Ltd, had cash credit facilities on hypothacation of stocks etc,
with United Bank of India, Royal Exchange Branch, Calcutta. The ultimate credit
facilities limit sanctioned to m/s Duncans Agro Industries Ltd., in the account
of M/s National Tobacco Company as on January 12, 1984 was to the tune of Rs. 17.50 crores
subject to the drawing power according to hypothecation of raw materials/stocks
etc. M/s Duncans Agro Industries Ltd, was submitting the monthly statements of
raw materials held by its division, M/s National Tobacco Company and such
hypothecated raw materials were liable to Physical inspection and verification
by Bank authorities. In 1984, M/s Duncans Agro Industries Ltd, mode an
application before the Calcutta High Court and obtained an order from the High
Court on August 10,1984 that National Tobacco Company, a Tobacco Division of Duncans
Agro Industries Ltd, would henceforth function under the name and style of new
Tobacco Company Limited which would be fully downed subsidiary of M/s Duncans
Agro Industries Ltd and the management of the said newly constituted company
would be carried as per the Scheme of Arrangement approved by the High Court.
It was further alleged in the said FIR that after the approval of the aforesaid
Scheme of Arrangement, M/s Duncans Agro Industries Limited approached the
United Bank on December 3, 1984, to transfer the credit limits standing in
their name to M/s New Tobacco Company Limited and Shri S.K.Ghosh, Chief Officer
(Legal) of the United Bank of India gave opinion on January 22, 1985 that the
order of the Calcutta High Court was binding on the Bank and consequently the
Bank would either continue the advances with transferee Company or to sue
transferee Company i.e. M/s New Tobacco Company Limited, for recovery of its
dues. The said Chief Officer of the Bank advised the Bank that the Bank would
not be in a position the enforce its right in respect of doubts and immovable
assets of the transferor company. The Board of Director of United Bank of India
resolved that the credit limits of the Bank in respect of National Tobacod
Company would be allowed to be transferred in the new account of New Tobacod
Company limited with retrospective effect from April 1, 1984 subject to the
condition that the company would furnish an undertaking to create mortgage on
all their assets and properties in favour of the Bank and without written
consent of the Bank, holding level of percentage share of M/s Duncans Agro
Industries Limited in the National Tobacod Company would not undergo any
change. Such resolution was drafted in the meeting of the Board of Directors
held on May 30, 1985. The note of Shri S.K.Ghosh, Chief
Officer (Legal) along with a Board Note dated May 30,1985 prepared by Shri S.N.Ghoshal,
General Manager of the Bank were placed before the Board of Directors, while
recommending transfer limits in favour of New Tobacoo Company, the Bank
officials did not specify whether stocks had been inspected and how the Bank
would remain a secured creditor of M/s Duncans Agro Industries Limited for
National Tobacco Company. It was also not mentioned by the officials of the
Bank as to whether stocks had been inspected and verified and whether
registration of hypothecation charged under Section 125 of the Companies Act
was valid and effective or whether the bank was holding certificate of
registration from the Registrar of Companies as provided for by the Companies
Act.
It was
further alleged in the FIR that the Board of Directors of United Bank of India
were misled because of the omissions and commissions of the officials of the
Bank and the said Board of Directors acted on legal opinion of Shri Ghosh
although such opinion was detrimental to the interest of the Bank. In the FIR,
it was also alleged that credit limits were got transferred to the New Tobacco
Company and M/S DUNCANS Agro Industries Limited had managed with the executive
and Directors of the Bank to transfer the debts of the said Duncans Agro
Industries Limited to Nil without any payment. It was alleged that M/s Duncans
Agro Industries Limited instead of filing a memorandum of complete satisfaction
of charge with the Registrar of Companies, itself managed with Shri D.K.Sengupta,
Asstt. Manager (Advances) to issue a memorandum of complete satisfaction of
charge when there had been no repayment whatsoever. It was also Shri G.N.Ghoshal
General Manager, Shri N. Ganguli, Chief Manager, Shri S.K.Ghosh, Chief Officer
(Legal), Shri S.K. Hajra, Law Officer, Shri D.K. Sengupta, Assistant Manager
(Advances) of United Bank of India and other persons had conspired with a
criminal design to defraud the Bank and to deliberately misappropriate the huge
stock lying at different places. It was alleged that the said facts had
disclosed commission of offences under Section 1208 read with Sections 409,
420,467,468 and 471 Indian Penal Code.
In the
second FIR dated 12.6.1989 field by the superintendent of Police, CBI, SPE, STU
(X), New Delhi against (i) Sri Gauri Prasad Goenka, Director Duncans Agro
Industries Limited, (2) Sri B. Mukherjee Manager, Tobacco Accounts and Authorised
Signatory, Duncans Agro Industries Ltd and (3) M/s Duncans Agro Industries Ltd.
It was alleged that during the course of investigation of RC-4/37-SIU (x),CBI,SPE,
New Delhi it transferred that Tobacco Division of M/s Duncans Agro Industries
Limited had been enjoying credit facilities against hypothecation of stocks and
shares of tobacco in the name of M/s National Tobacco Company Limited form the
United Bank of India, Royal Exchange Branch, Calcutta and Andhra Bank, Kakinada
Branch (A.P) to the tune of 15.25 crores till 1935. The credit limits were
enhanced by Reserve Bank of India from 15.25 crores to 17.50 crores on the
request of the Company and recommended by United Bank of India. Out of enhanced
alleged in the FIR that the Directors of the New Tobacco Company in their
lather dated June 26, 1985 addressed to chief Manager, United Bank of India,
Royal Exchange Branch, Calcutta, assured that the Board's resolution would be
furnished to the Bank to the effect that without the Bank's written consent,
the holding level of percentage of shares in the New Tobacco Company by Duncans
Agro Industries Limited would not undergo any change. It was also alleged in
the FIR that in order to defraud the Bank and to nullify the assurance given to
the Bank, M/s Duncans Agro Industries Limited entered into a memorandum of understanding
with M/s New Tobacco Company on March 6, 1986 in order to render the very basis
of the scheme approved by the High Court infructuous and to complete the delinking
of Duncans Agro Industries Limited and New Tobacco Company so that the assets of
Duncans Agro Industries Limited would remain out of reach of its creditors. By
such process, the United Bank of India was defrauded. It was alleged in the FIR
that the stock worth about Rs.12 crores were either fraudulantly of dishonestly
removed or disposed of without any payment to the Bank although the same were
hypothecated with the Bank. In the FIR, it was alleged that Shri G.P. Goenka,
Chairman of M/s Duncans Agro Industries Limited, Shri N.K. Jain, Director, New
Tobacco Company Limited and Shri Bhasker Banerjee, Director, National Tobacco
Company along with some Bank Officers, namely credit facilities, a sum of Rs.
1.58 crores was to be financed by the Canara Bank, Lake Road Branch, Calcutta
with the concurrence of United Bank of India and Andhra Bank. Sri G.P.Goenka
was one of the Directors of Duncans Agro Industries Ltd and was having the
control over the affairs of the said company. Sri B. Mukherjee was manager
(Accounts) and responsible for preparation of accounts of Tobacco Division and
both the said G.P. Goenka and B. Mukherjee were also amongst the authorised
signatories for operating current account.
It was
alleged in the FIR that after getting the sanction of enhanced credit
facilities. Sri G.P. Goenka, Sri B. Mukherjee and other officials of Tobacco
Division of Duncans Agro Industries Limited entered into a criminal conspiracy
to cheat Canara Bank, Lake Road Branch and to obtain credit in their account by
falsely and dishonestly declaring that tobacco stocks and stores were available
at Guntur for hypothecation to Canara Bank, Lake Road Branch over and above the
stocks hypothecated to United Bank of India and Andhra Bank. Pursuant to the
authorities given by the Board of Directors Sri G.P.Goenka executed documents
with Canara Bank creating a floating charge of stocks and stores at Guntur
valuing 158 Lakhs and B. mukherjee declared to Canara Bank that tobacco stocks
worth Rs.1,44,40,122/- were lying at Guntur as on 28.3.84 over and above the
stocks hypothecated to United Bank and Andhra Bank. A balance sheet of Tobacco
Division of Duncans Industries Limited was prepared under the overall charges
of B. Mukherjee and audited by M/s Price water House and Company, Calcutta, showing total value of stocks and
stores of tobacco at Rs.12,39,27,002.19 p. In the said Balance Sheet, advance
against hypothecation in the stocks and stores have been shown
Rs,13,78,82,585.17 from United Bank and Rs,2,27,12,86,350 from Andhra Bank
making a total of Rs.16,05,95,408.17 No. available stocks were indicated free
from any hypothecation. Sri B. Mukherjee in the stock statement submitted to
United Bank of India declared that value of Tobacco stocks and stores as on
31,3,1984 was Rs.16,92,75,446/-. On the same date, the value of stocks and
stores worth more than Rs.3 crores was declared to Andhra Bank. Thus although
no stocks and stores of Tobacco beyond the hypothecated stocks and stores to
the said two Banks were available, the officials of the Canara Bank acting upon
the documents executed by G.P.Goenka and declaration given by B. Mukherjee were
induced to sanction and release interim loan of Rs. 1 crore in April 1984 and
balance of Rs. 58 lakhs in June 1984. It was alleged in the FIR that above
facts disclose commission of offence under Section 120B read with 420 IPC and
substantive offences under Section 420 IPC against G.P.Goenka, B. Mukherjee and
others.
Mr Tulsi,
learned Additional Solicitor General appearing for the appellants, has
submitted that both the FIRs contain allegations of facts which constitute
essential ingredients of the offence referred to in the respective FIR. Mr. Tulsi
has submitted that the essential ingredients for the offence of criminal breach
of trust defined in Section 405 and punishable under Sections 406 and 409 IPC
are:
a)
Entrustment of property in any manner or creation of dominion over property;
b)
Dishonest misappropriation, conversion to his own use of disposal of the said
property;
c)
Misappropriation etc. In violation of any legal contract touching the discharge
of such trust;
d) Misappropriation
either by the Person entrusted with property or through any other person.
He has
submitted that allegations in FIR No. RC-4/1987 satisfy each of the essential
ingredients of the offences under Suction 403. It has been submitted by Mr. Tulsi
that the ultimate credit facility limit sanctioned to M/s Duncans Agro
Industries Limited (hereinafter referred to as DAIL) in the account of National
Tobacco Company as on January
12, 1984 was to the
tune of Rs.17.50 crores subject to drawing power. In view of hypothecation of
raw materials stocks etc., DAIL was submitting the monthly statement of raw
materials held by its division. National Tobacco Company and the same was
liable to physical inspection and verification by Bank officials. Such facts
clearly constitute entrustment as envisaged under Section 405 IPC. The
allegations in the FIR about the request made by DAIL to the United Bank of
India for transfer of credit facilities in their name to M/s New Tobacco
Company on December 3, 1984 and as a result of conspiracy a wrong opinion was
given by the Chief Officer (Legal) and the Board of Directors of the Bank was
misled so that the transfer limit in favour of New Tobacco Company was allowed
by the Board without inspection and verification of the stocks and by
deliberately withholding of relevant material from the Board by the officials
of the Bank and the allegations that later on, a memorandum of understanding
was entered between DAIL and New Tobacco Company by which the shareholding of
DAIL as per the scheme of arrangement approved by the High Court was altered,
clearly constitute an offence of misappropriation of the property entrusted to
the Bank. Mr, Tulsi has also submitted that the allegations that stock worth
about Rs. 12 crores were fraudulently or dishonestly removed or disposed of
without any payment to the Bank with whom the same were hypothecated with the
connivance of the concerned Bank official prima facie make out the offence of
misappropriation of the entrusted property in clear breach of trust. Mr. Tulsi
has also submitted that essential ingredients of the offence of forgery
Punishable under Section 468 and 471 IPC as contained in Section 464 IPC have
also been made out in the FIR . Mr. Tulsi has submitted that the essential
ingredients for creating false document as contained in Section 464 are:
a)
Dishonest or fradulently making of the document;
b)
Intention to create a belief that it was made by or by the authority of a
person;
c)
Knowledge that it was not made with the authority of that person.
Mr. Tulsi
has also submitted that the allegations to the following effect that: "Shri
D.K. Sengupta signed the memorandum as Chief Manager, which post was not being
occupied by him not he had any authority to sign as such.
Shri
S.K. Hajra, Law Officer has willfully and unauthorisedly filled up the body
portion of the said memorandum of satisfaction." - Prims facie make out an
offence under Section 468 and 471 IPC.
Mr. Tulsi
has also submitted that the essential ingredients of the offence of cheating as
contained in Section 415 IPC are:-
a)
Dishonest inducement;
b)
Delivery of any property as a result of inducement;
c)
Damage or harm to the person induced.
Mr. Tulsi
has submitted that each of such ingredients of the said offence is satisfied on
the face of the allegations made in the FIR. There is specific allegation that
the representation was made by the officers of the Bank with regard to the
existence of stock worth Rs. 17.50 crores for hypothecation to the Bank and
credit facility was granted to the tune of Rs. 17.50 crores on the belief of
due hypothecation of stock. There is also allegation in FIR that stock worth
Rs.12 crores had been fraudulently or dishonestly used or disposed of without
any payment to the Bank. Such allegations constitute ingredients of cheating,
causing damage to the Bank which was induced because of false statement made by
DAIL and its officials. Mr. Tulsi has submitted that entrustment of physical
possession of the property is not essential for the offence defined in Section
405 IPC. The expression "whoever being in any manner entrusted with
property or with any dominion over property", clearly negatives the
contention that since physical possession was not exclusively transferred to
the Bank, there can not be a case of entrustment. If the offence under Section
405 IPC is interpreted in the aforesaid manner, it will open the flood gate for
Bank frauds, corruption amongst public servants and will endanger the smooth
flow of trade and commerce. In support of this contention, Mr. Tulsi has relied
in the decision of this court in The Superintendent and Remembrance of Legal
been held in the said decision that:
There
are, however, two distinct parts involved in the commission of the offence of
criminal breach of trust. The first 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 a misappropriation or dealing with the property
dishonestly and contrary to the terms of the obligation created.
In the
case of an offence by a public servant punishable under Section 409, I.P.C. the
acquisition of dominion or control over the property must also be in the
capacity of a public servant. This is not the same thing as having the
authority, as a public servant to get the control or dominion over property
annexed with an obligation. The gravamen of the offence is the dishonest
misappropriation of the money or property which comes into the possession or
under the control of a public servant who has the ostensible authority to
receive it even though, technically speaking, form the point of view of view of
the distribution of departmental duties under internal rules of an offence, it
may not be within the scope of his authority or duty to accept the money. The
fact that a public servant acts fraudulently in the exercise of his duties as a
public servant to get dominion or control over some property will be an
aggravating and not an exculpating circumstance. The "entrustment"
results from what the person handing over money or property to a public
servant, servant, and believe about the purpose for which he which he hands
over money or property is made to think, understand and believe about the
purpose for which he hands over money or property to a public servant. It this
place because of and due to the exercise of the official authority the
requirements of Section 409, IPC, are satisfied.
Ordinarily,
it is the ostensible or apparent scope of a public servant's authority when
receiving property and not its technical limitations, under some internal rules
of the department or office concerned, and the use made by the servant of his
actual official capacity which determine whether there is a sufficient nexus or
connection between the acts complained of and the official capacity so to bring
it within the ambit of Section 409 IPC.
To
constitute an offence under Section 409, IPC it is not required that mis-appropriation
must necessarily take place after the creation of a legally correct entrustment
of dominion over property. The entrustment may arise in "any manner
whatsoever", That manner whatsoever", That manner may or may not
involve fraudulent conduct of the accused. Section 409, IPC covers dishonest
misappropriation in both types of cases; that is itself fraudulent or improper
and those where the public servant misappropriation what may have been quite
properly and innocently received. All that is required is what may by described
as "entrustment" or acquisition of dominion over property in the
capacity of a public servant servant who, as a result of it, becomes charged
with a duty to act in a particular way, or, at least honestly.
The
obligation to act in a certain manner with regard to or to deal honestly with
property, over which a public servant obtains dominion or control the use of
his official capacity may arise either expressly or impliedly.
Mr. Tulsi
has also submitted that the investigations had not been completed in respect of
the allegations made in the FIR. At that stage, the High Court must accept each
of the allegations made in the FIR as correct on its face value for the purpose
of determining as to whether the ingredients of the offences alleged in the FIR
are contained therein or not. Mr.Tulsi has submitted that the High Court has
grossly erred in quashing the complaints. Mr. Tulsi has also submitted that the
High Court is not justified in quashing the FIRs so as to strangulate the
investigations at the inception. What value to be attached to the allegations
made in the FIR is to be examined at trial when on the basis of FIR charge
sheet will be framed. It is not the duty of the High Court to embark upon
appreciation of evidence in quashing the proceedings. In support of this
contention, Mr. Tulsi has relied in the decisions of this Court in State of H.S Choudhary (1992 (4) SCC 305).
Mr. Tulsi
has also submitted that it is not alleged that the FIRs were made with an
oblique or mala fide purpose. Hence, the same are not liable to be quashed even
before completing the investigations.
Mr. Tulsi
has also submitted that a particular act may constitute booth civil wrong as
well as criminal wrong but merely because civil action is also pursued, such
course of action does not render criminal action impermissible. It has been
contended by Mr. Tulsi that since the very definition of offence of criminal
breach of trust is founded on legal contract touching upon the discharge of trust,
almost every case of criminal breach of trust is bound to have an element of
civil liability. Policy of the legislature in enacting the offence under
Section 405 IPC, therefore, is to treat the breach of contract in the matter of
property which is entrusted as an aggravated civil wrong and thereby
constituting a criminal offence. That being the policy, to quash a FIR on the
ground that a civil remedy has already been invoked would be destructive of the
object of the legislation. In this connection, Mr. Tulsi has relied on the
decision of this Court in Collector of Customs and Central and Another (1990
(4) SCC 205). It has been held in the said decision that:- Where the same act
or event constitutes an offence under Chapter XVI and at the same time
constitutes a contravention or abetment of contravention of any of the
provisions of the Customs Act or failure to perform any duty prescribed under
the Act or amounts to non-compliance with any of the provisions of the Act,
there will be possibility of prosecutions and punishment under Chapter XVI of
the Act and any other provision of law and at the same time confiscation and
penalty under Chapter XVI of the Act.
Mr. Tulsi
has also submitted that in cases were civil and criminal remedies are sought to
be pursued, the criminal case has to be given preference over civil cases. In
support of this submission, Mr. Tulsi has referred to a decision of Others
(1954 SCR 1144). It has been held in the said decision that :
Simultaneous
prosecution of civil and criminal proceedings regarding the same matter is
likely to embarrass the accused and so ordinarily, and in the absence of
special circumstances, the criminal proceedings should be given precedence and
the civil proceedings should be stayed pending the termination of the criminal.
Mr. Tulsi
has also submitted that in a case of grove misappropriation of huge amounts of
public funds, delay caused by the accused was not a valid ground for quashing
the criminal proceedings. In this connection, Mr. Tulsi has B. R. Bajaj (1994
(2) SCC 277). In the said case, the FIR of 1984 was quashed by the Court in
1986 but nine years, the decision of the High Court was set aside and it was
directed that the investigation should recommence. Mr. Tulsi has submitted that
FIRs disclose the offences of cheating the nationalised Banks of huge sum of
money by the accused in calculated manner. In such circumstances, it will be
only proper that the CBI should be permitted to continue with further
investigations and on the face of the allegations in the FIRs which clearly
constitute offences against the accused, there was no reason to quash the FIRs
and thereby stopping the investigation at the threshold. He has, therefore,
submitted that the appeal should be allowed and the CBI should be permitted to
proceed with the investigation for the purpose of framing the chargesheet.
Mr. Shanti
Bhushan, learned Senior Counsel appearing for the respondents, has disputed the
contentions made by Mr. Tulsi. He has submitted that the two FIRs did not made
out any offence of criminal breach of trust, forgery or cheating and,
therefore, the High Court was justified in quashing the said FIRs. Referring to
the allegations made in the FIR No. RC-4/87 dated September 14, 1987 that inspite
of the Scheme of Arrangement approved by the High Court of Calcutta separating
the Tobacco Division of DAIL into a new company i.e. new Tobacco Company
Limited M/s DAIL would remain liable for all assets and liabilities of the
newly formed subsidiary Company, Mr. Shanti Bhushan has submitted that pursuant
to the Scheme of Arrangement duly sanctioned by the Calcutta High Court on or
about July 31, 1984, the Tobacco Division of DAIL was transferred to and vested
along with all its assets and liabilities in New Tobacco Company Limited with
effect from April 1, 1984. DAIL was the transferor Company and New Tobacco
Company Limited was the transferor Company. The order of the High Court was to
the effect that all the assets and liabilities and duties of the said
transferor Company relating the its Tobacco Division be transferred from the
said date without further act or deed to the said transferee Company.
Accordingly and also pursuant to Section 394 (2) of the Companies Act, 1965 all
the assets and liabilities of the Tobacco Division stood transferred to the New
Tobacco Company Limited and such assets and liabilities became assets and
liabilities of the said transferee Company. The liability of DAIL to the United
Bank of India as on APRIL 1, 1984 stood transferred to New Tobacco Company Limited. The order
of the High Court clearly provided that no further act or deed was necessary to
give effect to the Scheme of Arrangement. In view of such Scheme of
Arrangement, the Board of Directors of the United Bank of India approved the transfer of credit
facilities from M/s DAIL to the New Tobacco Company Limited. There was no
question of the Board being misinformed of the material facts in the matter.
Further in June/July 1985 fresh hypothecation documents were executed by the
New Tobacco Company Limited and a memorandum of satisfaction of charge was
filed by the Bank in respect of DAIL to the Registrar of Companies. The
necessary documents were also filed by the Bank with the Registrar evidencing
the charge created in favour of New Tobacco Company Limited.
Mr. Shanti
Bhushan has also submitted that the allegation in the FIR that the opinion of Shri
S.K.Ghosh, Chief Officer (Legal) of the United Bank of India to the effect that
the bank would not be in a position to enforce its right in respect of the
transferor Company was erroneous and designedly made, is also incorrect and
without any basis. Mr. Shanti Bhushan has submitted that as a matter of fact,
the said opinion of Shri S.K.Ghosh in accordance with the Scheme of Arrangement
since all the assets and liabilities of the Tobacco Division of DAIL stood
transferred to New Tobacco Company form April 1, 1984, Mr. Shanti Bhushan has
further submitted that even if it is assumed that such legal opinion was not
correct, no ill motive can be assigned to the said Officer because the opinion
itself was placed for consideration by the highest administrative body of the
Bank, namely, the Board of Directors. Mr. Shanti Bhushan has also referred to
the allegation in the FIR that;
"On
March 6, 1996 M/s New Tobacco Company Limited
submitted a statement to United Bank of India wherein the aggregate value of stocks etc. was to the tune of Rs.5.13 crores
only as against Rs.16.55 crores on November 30, 1985. It is alleged that the stocks
worth about Rs.12 crores were either fraudulently and dishonestly removed or
disposed of without any payment to the bank with whom the same were
hypothecated, with the connivance of the concerned bank officials." Mr. Shanti
Bhushan has submitted that it is not alleged that the statement of stocks was
incorrect ether on March
6, 1985. In fact, two
statements correctly pointed out that while the value of the stocks on November
30,1985 was Rs.16.58 crores, the value of stocks on March 6, 1986 had gone down
to Rs.5.13 crores. There was, therefore, no false statement in the declaration
of stocks. Mr. Shanti Bhushan has submitted that since the stocks were
hypothecated and not pledge with the bank the possession over the stocks was
with the Company and not with the bank. The difference between a pledge and a
hypothecation is that while in the case of pledge the stocks are give in the
custody in the bank and are kept under their key and any removal of any part of
those stocks by the debtor, without the consent of the Band would be an
offence, it would not be so in the case of hypothecation. In a case of
hypothecation, there is only a floating charge on various assets. The
possession over those assets continues to be with the debtor and debtor was
always entitled to remove any part of those stocks and sell them from time to
time. Mr. Shanti Bhushan has submitted that if there is a contractual term that
the value of the hypothecated stocks should not be allowed to go down below a
particular amount, there may be a breach of contract the Bank to take civil
proceeding for damages against the debtor. However, it has not been alleged
that there has been breach of any such contract particularly when documents
which are being relied upon by the Bank themselves show that the value of the
hypothecated property continued to be much more than the amount of loan at any
point of time, much more than the amount of loan at any point of time. If a
reference is made to the said balance sheet, it would show that the advances
under the cash credit facility granted by the United Bank of India ware secured
not only the hypothecation of stocks but also by the hypothecation of book
debts and plant and machinery of the Company's Tobacco Division. Mr. Shanti Bhushan
has submitted that while the loans due to the United Bank of India amounted to Rs.13,78,82,685.17, the
value of the hypothecated property on the same date was nearly double of that
amount. Reference to the balance sheet would show that the book debts comprised
goods worth Rs.15,34,82,521.12 and machinery as on March 31, 1984 worth
Rs.1,14,71,499 and the stocks and spares were of the value of
Rs.12,39,27,002.19 as on March 31, 1984.
Mr. Shanti
Bhushan has further submitted that even in the case of the FIR relating to the Canara
Bank, it is apparent that the balance sheet of Tobacco Division of DAIL as on
March 31, 1984 which was filed by the CBI, showed that the value of the
property hypothecated to united Bank of India exceeded the amount of the loan
as on that date by mare than Rs.15 crores and thus some part of the stocks
worth more than Rs.2 crores were available for being hypothercated to Canara
Bank. Mr. Shanti Bhushan has submitted that the CBI had misread the balance
sheet and erroneously proceeded on the footing that it was only the stocks
which were alone hypothecated to the United Bank of India. Balance Sheet itself
indicated that book debts of more than Rs. 15 crores and the machinery worth
more than Rs. 2 crores were also hypothecated to the United Bank of India and
thus stocks worth more than Rs.2 crores were clearly available for
hypothecation to the Canara Bank.
Mr. Shanti
Bhushan has referred to the allegations in the FIR that:
"The
Ultimate credit facility limit sanctioned to M/s DAIL in the account of M/s New
Tobacco Company as on 12.1.1984 was to the tune of Rs.17.50 crores subject to
drawing power agreeing to hypothecation of raw materials, stocks etc, M/s DAIL
was submitting the statements of raw materials held by its division M/s New
Tobacco Company and the same was liable for physical inspection and
verification by Bank officials." Mr. Shanti Bhushan has submitted that the
above allegations did not make out any offence of criminal breach of trust. According
to Mr. Shanti Bhushan, the essential ingredients of criminal breach of trust is
entrustment of property or entrustment of dominion over property. The grant of
credit facility giving of a loan in pursuance of that credit facility cannot
possibly amount to entrustment of property. A loan is quite different form
entrustment of money. Similarly, when the debtor hypothecates his goods to Bank
by way of security, there is no entrustment of those goods to the bank by the
debtor. Even if there is any contravention of the terms of the contract under
which credit facilities are given, it will be merely a breach of contract for
which the Bank may made debtor liable for damages under the civil law. There
will be no occasion for committing any offence of criminal breach of trust. In
support of this contention, Mr Shanti Bhushan has relied on State of Maharashtra
(1965 (2) SCR 429). It has been held in the said decision that in order to
establish entrustment of dominion over property to an accused person, the mere
existence of that person's dominion over property is not enough. It must be
further shown that his dominion was the result must be further shown that his
dominion was the result of entrustment.
Mr. Shanti
Bhushan has also referred to a decision of (1968 (2) SCR 408). In the said
decision it has been indicated that the term ' entrusted' found in Section 405
IPC Governs not only the words with the property immediately following it but
also the words with the property immediately following it but also the words or
'with any dominion over the property' occurring thereafter.
Before
there can be any entrustment, the entrustment carries with it the implication
that the person handing over any property or on whose behalf that property is
handed over to another, continues to be its owner. A mere transaction of sale
cannot amount to an entrustment. It has been observed in the said decision that
although the government had sold the cement in question to BSS solely for the
purpose of being used in connection with the construction work referred to
earlier, that circumstance does not make the transaction in question anything
other than a sale, After delivery of the cement, the government has neither any
right not dominion over it, It the purchaser had failed to comply with the
requirements of any law relating to cement control, he should have been
prosecuted for the same, But the court was unable to hold that there was any
breach of trust.
Coming
to the question of offences under Sections 467, 468 and 471 IPC Mr. Shanti Bhushan
has also submitted that no offence under the aforesaid Sections even prima
facie, has been committed even on the face value of the Allegations in the FIR.
Mr. Shanti Bhushan has submitted that it is the case of the CBI claims of both
the Banks have been satisfied and the disputes have been compromised in the
civil suits field by the Banks. Accordingly, it will no longer be a fit case
for carrying out further investigation in respect of the offences alleged.
eferring
to a recant decision of this Court in Feroze 131). MR. Shanti Bhushan has
submitted that in that case although a clear offence of fabrication of evidence
had been establish against Godrej Company and its Directors and officials, the
Supreme Court set aside the order of the High Court directing a complaint to be
filed holding that in view of all the circumstances including the payment of
the Excise Duty, it would bot be expedient to proceedagainst the accused
persons, Mr. Shanti Bhushan has submitted that any further investigation in the
matter of offences alleged in the FIRs after such a long lapse of time and
after the claims of the Banks have been satisfied in Civil Suits instituted by
the Banks, is not at all expedient and on that score also no interference by
this Court under the discretionary jurisdiction under Article 136 of the
Constitution against the impugned decision of the High Court is not called for.
Mr. Shanti
Bhushan has also submitted that the first FIR was registered in 1987 and the
second one was registered in 1989. The challenge to the Firs. were made in the
Calcutta High Court only in 1991. The CBI therefore, had more than four years
time to complete the investigations without any interruption. But admittedly
the investigations have not yet been completed. Mr. Shanti Bhushan has
submitted that FIRs have been filed in order to resort to are twisting tactics
by the CBI and for launching an fishing and roving enquiry without any
reasonable basis. In any event, When the interest of the Banks have been
safeguarded in the civil suits instituted by the Banks having ended in
compromise, no useful propose will be served in proceeding with further
investigation after such a long lapse of time.
Such
course of action, in the facts of the case, will be an abuse of the process of
law and impugned order of quashing the FIRs being reasonable no interference by
this Court is warranted. The appeals, therefore, should be dismissed.
After
giving our careful consideration to the facts and circumstances of the case and
the submission made by the respective counsel for the parties, it appears to us
that for the purpose of quashing the complaint, it is necessary to consider
whether the allegations in the complaint prima facie make put an offence or
not. It is not necessary to scrutinize the allegations for the purpose of
deciding whether such allegations are likely to be upheld in the trial. Any
action by way of quashing the complaint is an action to be taken at the
threshold before evidences are led in support of the complaint. For quashing
the complaint.
therefore,
had more than four years time to complete the investigation without any
interruption. But admittedly the investigations have not yet been completed.
Mr. Shanti Bhushan has submitted that FIRs. have been filed in order to resort
to arm twisting tactics by the CBI and for launching a fishing and roving
enquiry without any reasonable basis.
In any
event, when the interest of the Banks have been safeguarded in the civil suits
instituted by the Banks having ended in compromise, no useful purpose will be
served in proceeding with further investigation after such a long laps of time.
Such course of action, in the facts of the case, will be an abuse of the
process of law and impugned order of quashing the FIRs being reasonable no
interference by this Court is warranted. The appeals, therefore, should be
dismissed.
After
giving our careful consideration to the facts and circumstances of the case and
the submissions made by the respective counsel for the parties, it appears to
us that for the purpose of quashing the complaint, it is necessary to consider
whether the allegations in the complaint prima facie make out an offence or
not. It is not necessary to scrutinize the allegations for the purpose of
deciding whether such allegations are likely to be upheld in the trial. Any
action by way of quashing the complaint is a action to be taken at the
threshold before evidences are led in support of the complaint. For quashing
the complaint by way of action at the threshold. It is, therefore, necessary to
consider whether no the face of the allegations, a criminal offence is
constituted or not. In recent decisions of this Court, the case of Bhajan Lal
(supra), since relied on by Mr. Tulsi, the guiding principles in quashing a
criminal case have been indicated.
In the
instant case, a serious dispute has been raised by the learned counsel
appearing for the respective party as to whether on the face of the
allegations, an offence of criminal breach of trust is constituted or not. In
our view, the expression 'entrusted with property' or 'with any dominion over
property' has been used in wide sense in Section 405 I.P.C. Such expression
includes all case in which goods are entrusted, that is, voluntarily handed
over for a specific purpose and dishonestly disposed of in violation of law or
in violation of contract. The expression 'entrusted appearing in Section 405
I.P.C. is not necessarily a term of law. It has wide and different implication
in different context. It is, however, necessary that the ownership or
beneficial interest in the ownership of the property entrusted in respect of
which offence is alleged to have been committed must be in some person other
than the accused and the latter must hold it on account of some person or in
some way for his benefit. The expression 'Trust' in Section 405 I.P.C. is a
comprehensive expression and has been used to denote various kinds of
relationship like the relationship of trustee and beneficiary, bailer and bailee,
master and servant, pledger and pledger. When some goods are hypothecated by a
person to another person. the ownership of the goods still remains with the
person who has hypothecated such goods. The property in respect of which
criminal breach of trust can be committed must necessarily be the property of
some person other than the accused or the beneficial interest in or ownership
of it must be in other person and the offender must hold such property in trust
for such other person or for his benefit. In a case of pledge, the pledged
article belongs to some other person or for his benefit. In a case of Pledge,
the pledged article belongs to some other person but the same is kept in trust
by the pledgee. In the instant case, a floating charge was made on the goods by
way of security to cover up credit facility. In our view, in such case for
disposing of the goods covering the security to cover up credit facility. In
our view, In such case for disposing of the goods covering the security to
cover up credit facility. In our view, in such case for disposing of the goods
covering the security against credit facility the offence of criminal breach of
trust is not committed. In the facts and circumstances of the case, it,
however, appears to us that the Respondents moved the High Court only in 1991
although the first Fir was filed in 1987 and the second was filed in 1989. The
CBI, therefore, Got sufficient time to complete the investigation for the
purpose of framing the charge.
Although
Mr. Tulsi, the learned Additional Solicitor General, is justified in his
submission that a particular act may constitute both civil wrong as well as
criminal wrong and merely because a civil action is also pursued, it does not
render the criminal action impermissible, in the facts of the case, it appears
to us that long after the completion of civil suits, the further investigation
in connection with the complaints may not be expedient. It may be noted that
the opinion given by the Senior Manager (Legal) that the credit facility which
was given to DAIL for its tobacoo division should be transferred to the newly
formed Company, namely, New Tabacoo Company Limited, cannot be held to be per
se malafide or illegal in vies of the provisions of Section 394 of the
Companies Act. That apart, the legal opinion of the said Senior Manager (Legal)
was placed for consideration by the highest administrative body of the bank
i.e. the Board that the credit liability which stood in favour of DAIL should
be transferred in favour of the New Tobacoo Company Limited. In the aforesaid
circumstances, it appears to use that even if the Senior Manager (Legal) or any
other officer of the bank had not acted properly, in view of the fact that the
ultimate decision was taken by the Board of Directors, it cannot be reasonably
held that some of the Officers of the Bank connived and misled the Board. It
may be noted that no allegation has been made against the members of the Board.
In the
facts of the case, it appears to use that there is enough justification for the
High Court to hold that the case was basically a matter of civil dispute. It
Banks had already filed suits for recovery of the dues of the Banks on account
of credit facility and said suits have been compromised on receiving the
payments from the concerned Companies. Even if an offence of cheating is prima
facie constituted, such offence is compoundable offence and compromise decrees
passed in the suits instituted by the banks, for all intents and purposes,
amount to compounding of the offence of cheating. It is also to be noted that
long time has elapsed since the complaint was filed in 1987. It may also be
indicated that although such FIRs were filed in 1987 and 1989, the Banks have
not chosen to institute any case against the alleged erring official despite
allegations made against them in the FIRs. Considering that the investigations
had not been completed till 1991 even though there was no impediment to
complete the investigations and further investigations are still pending and
also considering the fact that the claims of the Banks have been compromised on
receiving payments, we do not think that the said complaints should be pursued
any further, In our view proceeding further with the complaints will not be
expedient. In the special facts of the case, it appears to us the decision of
the High Court in quashing the complaints does not warrant any interference
under Article 136 of the Constitution. We, therefore, dismiss these appeals.
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