Shyam Bihari Gupta @ Bihari Lal Sah v. The State Of Bihar

Order

Mr. M.K. Gautam, A.P.P. 12 13-08-2013 Heard learned counsel for the petitioner and learned counsel for the State as well as opposite party no.2. This application has been filed for quashing the order dated 18.10.2012 passed in Durgawati P.S. Case No.125 of 2012 by the Chief Judicial Magistrate, Bhabua by which he has taken cognizance against the petitioner under Sections 420 and 406 of the Indian Penal Code. From the record it appears that an F.I.R. was instituted by the Branch Manager of Durgawati Madhya Bihar Gramin Bank, District- Kaimur making an allegation petitioner had taken loan of Rs.12,00,000/- on 15.1.2010 for running rice mill from the Bank and during enquiry it was

Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 2 found that hypothecated paddy were sold without obtaining permission from the Bank which is against the agreement dated 15.1.2010. The outstanding debt of Bank on petitioner till 31.7.2012 is Rs.12,55,951.55, made the recovery of said loan amount doubtful. The Bank under an agreement, an amount of Rs.12,00,000/- and odd was given to the petitioner for running the rice mill with stipulation 30% of the total paddy rice were hypothecated to the Bank. As per the First information Report it has been alleged that the said hypothecated grain were sold by the petitioner and the same was invested in the brick kiln business against the terms and condition of agreement which has been denied by learned counsel for the petitioner. Learned counsel for the petitioner submits that it is inherently a civil dispute and no criminal case is made out against petitioner, so much so no case is made out under Sections 406 and 4230 of the Indian Penal Code. It has further been submitted that there was no entrustment of material and the question of misappropriation does not arise as hypothecated rice was under the ownership and possession of the petitioner, no benefit has been attached to the Bank save and except on failure of payment they can claim possession of Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 3 rice or price value of rice. It has further been submitted that the account of the petitioner has not been declared as NPA apart from said stock petitioner has given other collateral security against the loan which is in the nature of fixed deposits and fixed assets. It is submitted in First Information Report there is allegation of violation of terms of agreement, sold off hypothecated materials will not constitute criminal offence, at worst, the bank can go for civil suit for proper relief. Learned counsel for the Bank has submitted that on reading of the First Information Report the case of misappropriation and cheating is made out as in the terms of agreement the petitioner was required to keep 30% stock of total rice and paddy and on enquiry it transpired that all the paddy which were kept on stock were sold without due permission of the Bank. Hypothecated material was given to the petitioner, he was not authorized to sell out the same without the permission of the Bank and in support of his contention he has relied on Clause 2 of the agreement which says “without permission from the Bank the petitioner would not sell or dispose of either as a whole or part hypothecated article and in the event, the same is sold, the consideration Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 4 amount fetched would be deposited in the loan account or article of equal value would be deposited. But it does not disclose as to whose authority the article of equal value will be deposited at whose custody. Having considered the rival contentions of learned counsel for the parties similar issue of hypothecation was raised before the Hon’ble Supreme Court in the case of Indian Oil Corporation Vs. NEPC India Ltd. and others, reported in (2006) 6 SCC 736 where hypothecated articles were sold without due permission, point was raised, misappropriation of the article would constitute an offence under Section 406 of the Indian Penal Code. There the Hon’ble Supreme Court has considered that essential ingredients of constituting an offence under Section 406 of the Indian Penal Code where it was found that an entrustment of the property is sine qua non. The Court has quoted the meaning of hypothecation which is as follows: “Hypothecation.- It is the act of pledging an asset as security for borrowing, without parting with its possession or ownership. The borrower enters into an agreement with the lender to hand over the possession of the hypothecated assets whenever called upon to do so. The charge of hypothecation is then converted into that of a pledge and the lender enjoys the rights of a pledge.” Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 5 In the case of hypothecation of property and ownership of the property remains with the borrower in case of default of payment of loan the Bank can take possession of the property. As the Court has concluded that in hypothecation there is no entrustment of the property as such the same cannot constitute an offence under Section 406 of the Indian Penal Code. He has further relied on the judgment of the Hon’ble Supreme Court in the case of Central Bureau of Investigation, SPE, SIU(X), New Delhi Vs. Duncans Agro Industries Ltd., Calcutta, reported in (1996)5 SCC 591 where the similar type of issue was raised and the Court held that by creating hypothecation no benefit is created in favour of Bank. It will be appropriate to quote paragraph 27 of the aforesaid judgment: “27. 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 a wide sense in Section 405 I.P.C. Such expression includes all cases 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 implications in different contexts. It is, the ownership of however, necessary Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 6 interest the ownership of beneficial 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, bailor and bailee, master and servant, pledger and pledgee. 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 of 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 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.” In view of the aforesaid discussion this Court is of the view that in the case of hypothecation there is no entrustment of the property to the borrower. Ownership and possession Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 7 remains with the borrower and entrustment of property does not arise. So much so looking to the nature of terms of agreement it is evident borrower has been given three options, either to keep the stock intact or in the event of sale of stock he would deposit the money in the loan account of bank or if he has sold, the article of same value in same ratio would be kept. In this view of the matter, this Court is of the view that as there is no entrustment of property and the terms of agreement provides three options which shows it is not mandatory required to keep 30% of stock and agreement is also not clear about 30% of what quantity of grain and as such no case is made out under Section 406 of the Indian Penal Code. So far cheating is concerned, as provided under Section 420 of the Indian Penal Code, it is required that it is basically to be seen ingredients of cheating as provided under Section 415 of the Indian Penal Code which says that deception of a person either by making a false or misleading representation or by other action or omission or fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person to do or omit to do Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 8 anything which he would not do or omit if he was 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. It will be appropriate to quote Clause (g) of the illustration which is as follows: “(g) A intentionally deceives Z into a belief that A means to deliver to Z a certain quantity of indigo plant which he does not intend to deliver, and thereby dishonestly induces Z to advance money upon the faith of such delivery, A cheats; but if A, at the time of obtaining the money, intends to deliver the indigo plant, and afterwards breaks his contract and does not deliver it, he does not cheat, but is liable only to a civil action for breach of contract.” The definition set forth two separate classes of acts which the person deceived may be induced to do. In the first place he may be induced fraudulently or dishonestly to deliver any property to any person. The second class of acts set forth in the section is doing or omitting to do anything which the person deceived would not do or omit to do if he was not so deceived. In the first class of cases the inducing must be fraudulent or dishonest. In the second class of acts, the inducing must be intentional but not fraudulent or dishonest. In determining the question, it has be kept in mind that the distinction between mere breach of contract or offence of Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 9 cheating is fine one. It depends upon the intention of accused at the time of inducement which may be judged by his subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of transaction, that is, the time when the offence is said to have been committed. In this view of the matter, it is the intention for constituting the offence, mere failure to keep promise subsequently later on, such culpable intention right at the beginning, that is, when he made the promise cannot be presumed. It is clear, when from the inception there was dishonest mind of petitioner to induce the bank to part with the money will amount to cheating but when in a case at initial stage there was no intention to cheat but later on breaks agreement would not constitute a case of cheating. In this case statement in the First Information Report has been made the petitioner had hypothecated the grain to the bank, sold the same invested the same in the brick kiln business, which has been claimed to be constituting criminal offence. The essential elements as aforesaid are not there in the F.I.R. Patna High Court Cr.Misc. No.580 of 2013 (12) dt.13-08-2013 10 This Court is of the view that it is primarily a civil dispute and petitioner has wrongly been framed in a criminal offence. The Hon’ble Supreme Court in the same judgment has held if from narration of facts primarily constitutes civil dispute and has wrongly been given colour of criminal offence it will amount to an abuse of the process of the Court and higher court should interfere with criminal proceeding. The above view has been reiterated in the recent judgment of the Hon’ble Supreme Court reported in the case of Chandran Ratnaswami Vs. K.C. Palanisamy and others, reported 2013(6) SCC 740 has reiterated the same. Accordingly the order of cognizance dated

18.10.2012 passed in Durgawati P.S. Case No.125 of 2012 is set aside and this application is allowed. Vinay/- (Shivaji Pandey, J)