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1987 DIGILAW 50 (PAT)

Hari Prasad Nathani v. State of Bihar

1987-03-02

S.N.JHA

body1987
JUDGMENT : S.N. Jha, J. In this application these two petitioners have prayed for quashing the ORDER :dated 25.1.1983. whereby cognizance was taken against the petitioners under Sections 406, 408, 420, 109 and 120 B of the Indian Penal Code (in short 'Penal Code') including the entire criminal proceeding initiated on the basis of a petition of complaint filed by opposite party no. 2 against them and other accused persons named therein. 2. The facts which led to the filing of this application, in short, are that a private limited company described as Shanker Glass Works Private Ltd. (hereinafter referred to as the Private Company) which carries on its business at Muzaffarpur applied for certain banking facilities to the Punjab National Bank (in short 'Bank') at its Muzaffarpur Branch. A deed of hypothecation was drawn up between the Bank and accused no. 1, private limited company. It appears that an agreement was entered into between the Bank and the aforesaid private company and its directors under which a cash credit limit of Rs.10,00,000/. (ten lacs), documentary issuance bills up to a limit of Rs.2,50,000/- (two lacs fifty thousand), demand draft purchase limit to the extent of Rs.2,50,000/(two lacs fifty thousand) and letter of credit limit of Rs.5,00,000/- (five lacs) was sanctioned in favour of the loanee private company and first charge was created against hypothecation of the stocks in trade of the private company and the second charge against the fixed assets of the private company. Petitioner no. 1 was the director of the private company at the relevant time and petitioner no. 2 was the Chief Executive of the said private company. 3. From the statements made in the petition of complaint, it appears that a first charge against hypothecation of goods of the private company and second charge against the fixed assets of the private company was created by accused nos. 1 to 3. A Documentary Promissory Notes for a sum of Rs.10,00,000/- (ten lacs) with interest @ 6% over the Reserve Bank Rate with a minimum of 15% per annum with quarterly rests was also executed by accused nos. 1 to 3. One of the conditions as stipulated in the deed was that the borrower i.e. the private company shall not, except with the previous written consent of the Bank, sell or dispose of in any manner the hypothecated goods or any part thereof. 1 to 3. One of the conditions as stipulated in the deed was that the borrower i.e. the private company shall not, except with the previous written consent of the Bank, sell or dispose of in any manner the hypothecated goods or any part thereof. It was further stipulated that the borrower private company would pay the value in advance of all such goods into the said Account of the Bank or substitute the same by other approved goods of at least equal value for the goods so sold or disposed of. 4. Opposite party no. 2, the Branch Manager of the Bank filed a petition of complaint alleging, inter alia, that in between the period of May, 1982 and August, 1982, the manufactured goods of the said private company worth rupees several lacs were disposed of by the private company and the sale proceeds thereof were not brought to the Account of the Bank and thus, these petitioners alongwith other accused persons have committed an offence punishable under the aforesaid Sections of the Penal Code. It is also stated in the petition of complaint that the agreement between the private company and the Bank was entered into and executed by the directors of the private company and as such petitioner no. 1, who was one of the directors has been made accused no. 3 in the said petition of complaint and petitioner no. 2 has been shown as the Chief Executive of the said private company. 5. The complainant/opposite party also alleged that one Sanjeeva Agency, a firm which acted as an agent of the said private company and the partners of the said firm also had hand in the disposal of the goods worth Rs.9,65,197/- (nine lacs sixty five thousand one hundred and ninety seven) in between 8.5.1982 to 16.7.1982 and that the consideration received on the disposal of the stock in trade either in cash or in bank drafts had been received by the directors of the said private company. 6. It is relevant to mention here that the said Sanjeeva Agency and its partners, who were made accused nos. 5 to 8, moved this Court in Criminal Miscellaneous No. 1233/1983 for quashing of the criminal proceeding against them and this Court by its JUDGMENT : dated 11th May, 1983 quashed the criminal proceedings against those accused persons and exonerated them from any criminal liability. 7. 5 to 8, moved this Court in Criminal Miscellaneous No. 1233/1983 for quashing of the criminal proceeding against them and this Court by its JUDGMENT : dated 11th May, 1983 quashed the criminal proceedings against those accused persons and exonerated them from any criminal liability. 7. The learned Counsel for the petitioners submitted that in the facts and circumstances of this case, there is no criminal liability against these petitioners at all. It was further contended that so far as petitioner no. 1 and 2 are concerned, Petitioner no. 1 was removed from the directorship on 6.4.1982 and petitioner no.2 was removed from the post of Chief Executive from February, 1982 i.e. prior to the alleged occurrence. Therefore, they are not at all liable for the said offences, if any. It was also contended that the case is of civil nature and the Bank has already filed a Money Suit No. 51 of 1983 for realisation of the amount in the Court of First Subordinate Judge, Muzaffarpur which is pending. Therefore, the cognizance taken against these petitioners is illegal and fit to be set aside. It was also pointed out by the learned Counsel appearing for the petitioners that In view of the exoneration of Sanjeeva Agency and its partners by this Court in Cr. Misc. No. 1233/83, the offences alleged under Sections 406, 409, 420 read with Section 109 of the Penal Code and Section 120B of the Penal Code against these petitioners go out of picture. It was also contended that offence under Section 420 of the Penal Code has no application at all because there was no intention on he part of these petitioners to cheat the Bank. 8. In ORDER :to appreciate the contentions raised on behalf of the petitioners, it is necessary to examine as to whether the hypothecation of the goods attracts the offences under Section 405 of the Penal Code. Section 405 of the Penal Code defines criminal breach of trust and Section 406 is a punishable Section. The main ingredient of Section 406 of the Penal Code is entrustment of the property or dominion over the property and dishonest means of misappropriation. Section 405 of the Penal Code defines criminal breach of trust and Section 406 is a punishable Section. The main ingredient of Section 406 of the Penal Code is entrustment of the property or dominion over the property and dishonest means of misappropriation. To constitute the offence of criminal breach of trust, there must be dishonest misappropriation by a person in whom confidence is placed as to the custody or management of the property in respect of which the breach of trust is charged. There must be entrustment; there must be misappropriation or conversion to one's own use in violation of any contract and lastly the misappropriation or conversion must be with a dishonest intention. In my view Section 406 of the Penal Code is not at all attracted in the present case as hypothecation of the goods does not have the effect of transferring any interest in the property in favour of the hypothecate. In case of hypothecation possession of the goods remains with the hypothecator and the: hypothecate has only right to take possession of the hypothecated property and to sell it for realisation of the debts. My view is fully supported by the principle, which has been elucidated in the case of Syndicate Bank v. Official Liquidator reported in 59 Company Cases 301. In the said case the Bank was claiming as secured creditor which was negatived by Delhi High Court saying that by hypothecation no interest in the property nor possession is transferred. In the said case the property was sold by Official Liquidator and it was held that the Bank cannot claim as secured creditor and it can only rank as unsecured creditor. It is well settled that unlike a mortgage, a pledge or hypothecation does not have the effect of transferring any interest in the property in favour of the pledge or the hypothecate. The pledge and hypothecation, however, create a special property in the goods in favour of the pledge or hypothecate. In case of hypothecation possession remains with the hypothecator but the hypothecate has the right to take possession of the hypothecated property and to sell it only for the realisation of the debt secured by hypothecation. The entrustment of property by the owner is one of the essential ingredients for attracting the offences punishable under Section 406 of the Penal Code. The entrustment of property by the owner is one of the essential ingredients for attracting the offences punishable under Section 406 of the Penal Code. The expression 'entrustment' also 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. In the instant case the goods were never transferred to the Bank and the possession of the goods remained with the hypothecator and the Bank had only the right to take possession of the hypothecated property and to sell it for the realisation of the debt. 9. Regarding the offence under Section 409 of the Penal Code it may be stated that the same is not at all applicable in the facts and circumstances of this case because it relates to criminal breach of trust by a clerk or servant. 10. So far as offences under Section 420 of the Penal Code is concerned, it is relevant to state here that to bold a person guilty of the offence of cheating, in has to be shown that his intention was dishonest at the time of making the premise. Such dishonest intention cannot be inferred from the mere fact that he could not subsequently fulfil the promise. Mere breach of contract by a person is not liable to be proceeded under the Criminal law. 11. On the other hand it was contended on behalf of the Bank that civil as well as criminal case may be proceeded against the petitioners for the same cause of action. The same set of acts may give rise both to a civil liability and a criminal prosecution. Therefore, according to him this Court may not quash the ORDER :of cognizance. It is manifest that such an argument in its bald form cannot be acceptable if there is no mens rea or if the other essential ingredients of an offence are lacking, the same facts may not sustain a criminal prosecution, though a civil action may lie I feel that there is no criminal intention on the part of the petitioners on the facts and circumstances of this case. If at all there is any liability, there may be a civil liability. 12. If at all there is any liability, there may be a civil liability. 12. Having given my most anxious consideration to the submissions urged on behalf of the petitioners and having heard the learned Counsel appearing on behalf of the Bank, I am of the view that it is a case of civil nature and in view of the fact that the matter is pending before the Civil Court for the realisation of the money from the petitioners, it is nor desirable and proper that the petitioners should also be dragged in the Criminal Court for the same cause of action. Therefore, in such circumstances the continuance of the criminal proceeding shall be an abuse of the process of the Court and it must be quashed. 13. For the reasons stated above, the application is allowed and the impugned ORDER :dated 25.1.1983 taking cognizance, and the entire Criminal proceeding is hereby quashed so far as these two petitioners are concerned. Application allowed.