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2021 DIGILAW 472 (GUJ)

SANJAY KASHIRAM GOYAL v. STATE OF GUJARAT

2021-06-24

NIKHIL S.KARIEL

body2021
JUDGMENT : 1. Heard learned Senior Counsel Shri N.K. Pahwa for learned Advocate Shri Nandish H. Thackar for the applicants, learned APP Ms. Moxa Thakkar for the respondent No.1 – State and learned Advocate Shri S.S. Panesar for the respondent No.2 – original complainant. 2. Rule. Learned APP Ms. Moxa Thakkar waives service of Rule on behalf of the respondent No.1 – State and learned Advocate Shri S.S. Panesar waives service of Rule on behalf of the respondent No.2 – original complainant. With consent of the parties, this application is taken up for final hearing today. 3. By way of this application, the applicants seek quashing of criminal complaint being C.R. No. I - 10 of 2017 registered with Nilambaug Police Station, Bhavnagar, for the offences punishable under Sections 406, 420 and 409 of Indian Penal Code, dated 27.01.2017. It appears that vide an order dated 06.03.2017, this Court while issuing Notice upon the respondents had directed that the investigation may continue further and whereas no coercive action shall be taken against the present applicants herein. 4. Brief facts leading to this application as well as relevant facts, which have occurred during the pendency of this application, are summarized as hereunder: 4.1 The applicants herein were doing business at Bhavnagar in the name of “M/s. Aman Ispat” and whereas the applicants had approached the respondent No.2 Dena Bank, Panwadi Branch, Bhavnagar, for availing cash credit facility in the year 2011 and a loan amounting to Rs.3 Crores had been sanctioned, which was primarily secured by security being hypothecation of stocks and book debts and collateral security namely mortgage of immovable properties. That the terms of cash credit facility included that sale purchase of scrap materials, which was the primary business of the Firm, would be through the respondent Bank and whereas from the year 2011 to 2016, numerous transactions had happened in cash credit facilities and at various points of time, account had become overdue and after accepting penalties from the applicants, the account had been regularized by the bank. It is the case of the applicants that there was an over payment of interest between 2015 to 2016 to tune of Rs. 6 Lakhs and whereas the bank had returned an amount of Rs.3 Lakhs, whereas since this issue is not touching upon the criminal complaint per se, this Court is not delving into the same. It is the case of the applicants that there was an over payment of interest between 2015 to 2016 to tune of Rs. 6 Lakhs and whereas the bank had returned an amount of Rs.3 Lakhs, whereas since this issue is not touching upon the criminal complaint per se, this Court is not delving into the same. Be that as it may, since the applicants allegedly did not conduct the transactions as per the terms of the loan agreement and whereas since the applicants had not paid the interest levied upon them inspite of reminders from the bank, therefore, in the month of September, 2016 as per the Regulations of RBI, said account was declared as NPA (Non-Performing Assets). Thereafter, the officials of the bank as well as Stock Auditor had visited the office and godown of the applicants and whereas it was found that the sufficient stock was not found as per the declaration of existing stocks and book debts. It appears that the bank had thereafter approached the Chartered Accountant of the applicant, who had certified the statement of existing stock and book debts and had sought for addresses of sundry debtors and the bank had been provided list of 8 debtors upon which the bank had written to the said debtors requesting them to give credit of respective book debts directly to the account of the applicants with the Dena Bank. Some of the debtors had replied intimating that they have no outstanding payable to the applicants. It is also the case of the bank that upon inquiry, it was revealed that the applicants had opened an account with M/s. HDFC Bank Ltd., Waghvadi Branch, which was in contravention of the terms of the agreement with the complainant bank and in which account, the applicants had deposited the receivables of the transactions including transaction whereby existing stock had been sold. 4.2. Thereafter the aforementioned criminal complaint came to be filed inter alia alleging that the applicants having availed cash credit loan had not paid the interest charges and other charges and whereas an amount of Rs.3,25,00,000/- was overdue and the applicants had sold off the stock and transacted the sale proceedings through their account in HDFC Bank and the amount received had been misappropriated by them and whereas the applicants had produced false and fabricated stock and book debts statement and misused the money of the bank. 4.3 It is the case of the applicants that they had regularly paid interest and whereas due to loss suffered by them in business, they may have not paid the interest regularly for which Recovery Proceedings had been initiated against the applicants before the learned Debts Recovery Tribunal. 4.4 At this stage, it would be pertinent to mention that after filing of the application in the year 2017, the bank as well as the applicants herein had entered into One Time Settlement (OTS) and whereas the proposal of the Company of the applicants of paying Rs.201.00 Lakhs had been accepted by the competent Authority of the bank subject to certain conditions, said conditions being mentioned in the acceptance letter dated 01.02.2018 at page 72 of the application. For the purpose of this petition, condition No.7 would be relevant. The said condition stipulated that the settlement shall not in any way effect or be construed as settlement of ongoing criminal cases/ proceedings pending in the Court against the borrowers either filed by Bank or State. Said condition being acceptable to the application, the OTS had been approved and loan account had been closed. 5. Learned Senior Counsel Shri Pahwa on behalf of the applicants submits that the criminal complaint had been filed by the complainant for recovery of outstanding loan and whereas plain reading of the complaint does not reveal any offence punishable under Sections 406, 420 or 409 of IPC. He further submits that in any case, once the bank has settled with the applicants by accepting an amount of Rs.201.00 Lakhs and the account having been closed thereafter the Bank ought not to have prosecuted the present impugned complaint and therefore, the complaint under such circumstances, deserves to be quashed and set aside by this Court. He further submits that the applicants regularly paid the interest on the cash credit facility from 2011 till May, 2016 and hence, the essential requirement for an offence under Section 420 of IPC i.e. there being an intention to cheat from the inception of the transaction is not found here. Learned Senior Counsel further submits that it is well settled law that offence punishable under Sections 406 and 420 of the IPC cannot go hand in hand and thus, for that reason also, the impugned complaint deserves to be quashed by this Court. Learned Senior Counsel further submits that it is well settled law that offence punishable under Sections 406 and 420 of the IPC cannot go hand in hand and thus, for that reason also, the impugned complaint deserves to be quashed by this Court. He further submits that on plain reading of the complaint, there are no ingredient for offence punishable under Section 409 of IPC and therefore also, the impugned complaint deserves to be quashed and set aside by this Court. 6. Learned Senior Counsel has submitted that to bring home the offences punishable under Section 405 of IPC, there has to be an entrustment of property which is converted into personal use, which is not the case here. He further submits that cash credit facility had been granted also against the mortgage of the immovable properties and whereas stock maintained by the applicants had been regularly checked and there had not been any complaint during the period prior to filing of the complaint. He emphasizes on the submissions that having entered into settlement with the applicants, it was not open for the bank to continue with the prosecution. Ultimately, it is submitted by learned Senior Counsel that the complaint was preferred mainly for the purpose of recovery of loan amount and for civil transactions and whereas in view of the fact that the bank has settled by way of OTS Scheme with the applicants, therefore, the complaint impugned deserves to be quashed by this Court. 7. Learned Senior Counsel has relied upon the decision of Supreme Court in the case of Satishchandra Ratilal Shah Vs. State of Gujarat and Ors. reported in 2019(9) SCC 148 and the decision of this Court delivered in Criminal Misc. Application No.9249 of 2004 in the case of Shailesh I. Patwari and Anr. Vs. State of Gujarat and Anr. as well as the decision of this Court rendered in Special Criminal Application No.5238 of 2015 and allied matters dated 08.03.2019. 8. As against the same, learned Advocate Shri S.S. Panesar for the respondent No.2 – original complainant submitted that this is a clear case, where the applicants have defrauded the bank for which the complaint impugned had been filed and whereas no interference may be made by this Court. 8. As against the same, learned Advocate Shri S.S. Panesar for the respondent No.2 – original complainant submitted that this is a clear case, where the applicants have defrauded the bank for which the complaint impugned had been filed and whereas no interference may be made by this Court. Learned Advocate further submits that as regards the OTS, that the approval letter by the bank itself contained a very clear condition which stated that the settlement would not affect or would not be construed as settlement of ongoing criminal cases / proceedings and OTS had been accepted by the applicants inspite of having full knowledge of the said clause and therefore, under such circumstance, it would not be open for them to contend that the complaint loses its validity after OTS has been accepted by the bank. Learned Advocate further submits that the OTS was with regard to the civil liability of the applicants and as far as criminal liability is concerned, there was no settlement between the parties. He further submits that the bank had sacrificed a huge sum, while entering into the OTS and whereas such sacrifice had been necessitated on account of criminal act of the applicants and thus, the complaint according to the learned Advocate was absolutely maintainable. Learned Advocate further submits that as far as merits of the complaint, this was clear case of fraud inasmuch as the applicants as per the terms of the cash credit facilities were required to hypothecate their stock as well as book debts with the applicants and whereas upon inspection of stock in 2016, there was clear shortfall between hypothecated stock and actual stock available with the applicants. He further submits that since the book debts statement had been certified by the Chartered Accountant of the applicants, the said Chartered Accountant had been requested to give addresses of debtors since amount of outstanding would be required to be recovered from the debtors. He further submits that since the book debts statement had been certified by the Chartered Accountant of the applicants, the said Chartered Accountant had been requested to give addresses of debtors since amount of outstanding would be required to be recovered from the debtors. It was further submitted that as against list of 27 sundry lenders a list of 8 debtors with their names and addresses had been given by the Chartered Accountant and whereas the bank had written to all 8 debtors named by Chartered Accountant informing them that since the account of M/s. Aman Ispat had become NPA and since the book debts were assigned to the bank, therefore, the amount outstanding with the said persons may be credited directly to the account of M/s. Aman Ispat with the bank. Learned Advocate points out that in response to the same, some of the persons had written to the bank informing them that they have already paid the amount outstanding from their account to M/s. Aman Ispat and whereas later on, it was found that the applicant had committed systematic fraud by opening an account with HDFC Bank Ltd. and receivables from the sale of the stock hypothecated to the bank had been transacted through an account in HDFC Bank, which was in clear violation of the cash credit terms. He further submits that once the stocks of applicant had been hypothecated to the respondent bank then it was a clear case of entrustment and moreover by selling of such stock without using account of the bank, there was dishonest misappropriation of the properties. Under such circumstances, he submits that prima facie case is made out against the applicants and therefore, this Court may not interfere with the complaint. 9. In support of his submissions, learned Advocate Shri Panesar relied upon the judgment of Supreme Court in the case of State of Andhrapradesh Vs. Vangaveeti Nagaiah reported in 2009(2) SCC 466, State of M.P. Vs. Yogendra Singh Jadon reported in 2020(12) SCC 588 and judgment of Andhra Pradesh High Court in the case of Ishoo Narang & Ors. Vs. State of Telangana & Anr. delivered Criminal Petition No.3966, 3982 and 4272 of 2020. 10. Learned Advocates for the parties have not made any other submissions. 11. Heard learned Advocates for the parties and perused the record. Vs. State of Telangana & Anr. delivered Criminal Petition No.3966, 3982 and 4272 of 2020. 10. Learned Advocates for the parties have not made any other submissions. 11. Heard learned Advocates for the parties and perused the record. Primary contention raised on behalf of the applicants by learned Senior Counsel Shri Navin Pahwa is that the respondent No.2 – original complainant – bank having entered into One Time Settlement with the applicants and the applicants having paid the amount as per the One Time Settlement Scheme, it was not open for the respondent No.2 – original complainant – bank to prosecute the applicants by continuing with the criminal complaint. In considered opinion of this Court, while on first blush, the contention appears to be attractive, it becomes clear that such contention cannot be countenanced. It has to be appreciated that the One Time Settlement arrangement between the parties was during pendency of this application. As pointed out by the learned Advocate for the respondent No.2 – original complainant – bank, the One Time Settlement proposal by the applicants had been accepted by the respondent No.2 – original complainant – bank vide their communication dated 01.02.2018 with a clear condition stipulated therein that said One Time Settlement was without prejudice to the rights of the complainant – bank to continue the criminal cases against the borrower. The said condition, verbatim is quoted herein below for better appreciation. “This settlement shall not in any way affect or be construed as settlement of ongoing criminal cases/proceedings pending in the Court against the borrowers either filed by the bank or State.” 12. Having accepted the settlement inspite of abovementioned condition, in the opinion of this Court, it is not open for the applicants to now contend that the respondent No.2 – original complainant – bank after having accepted the One Time Settlement is precluded from prosecuting the criminal complaint. It was open for the applicants either not to have accepted the One Time Settlement in view of the said condition or further negotiated with the respondent No.2 – original complainant – bank for deletion of the said condition. Having entered into One Time Settlement accepting the above quoted condition, it is not permissible for the applicants to now turn around and contend that after the One Time Settlement, the prosecution should not be permitted to continue. Having entered into One Time Settlement accepting the above quoted condition, it is not permissible for the applicants to now turn around and contend that after the One Time Settlement, the prosecution should not be permitted to continue. Furthermore, as rightly contended by the learned Advocate for the bank, One Time Settlement was with regard to the civil liability of the applicants towards the bank and as far as liability for alleged criminal acts, there was no settlement and hence, the contention of the learned Senior Counsel for the applicants that the bank being precluded from prosecuting the complaint after One Time Settlement Scheme is rejected. 13. The learned Senior Counsel for the applicants has raised four contentions in so far as offences punishable under the IPC as alleged in the complaint. The first contention being that in so far offence punishable under Section 420 of IPC, there is no intention to cheat the respondent No.2 – original complainant – bank from the inception of the transactions. As regards the offence punishable under Section 406 of the IPC, there has to be an entrustment of the property which is converted into personal use, which is not the case here. Offence punishable under Sections 406 and 420 of IPC cannot proceed together and there being no ingredients of offence punishable under Section 409 of IPC, since the applicants did not fall in the categories of banker, merchant, factor, broker, attorney or agent. Now as far as offence punishable under Section 409 of IPC is concerned, present applicants having availed of loan from the respondent No.2 – original complainant – bank, they would be either the customers of the bank or a loanee with the bank. A person availing loan from a bank cannot be par se categorised as a merchant, factor, broker, attorney or agent and hence, in the opinion of this Court merely because the applicants have availed a loan from the bank, the offence punishable under Section 409 of IPC could not have been invoked against them. A person availing loan from a bank cannot be par se categorised as a merchant, factor, broker, attorney or agent and hence, in the opinion of this Court merely because the applicants have availed a loan from the bank, the offence punishable under Section 409 of IPC could not have been invoked against them. As far as offence punishable under Sections 420 of IPC is concerned, it by now a well settled principle of law that to invoke the same, necessary ingredients are: (i) There should be deception of any person by making false or misleading representation or by other action or omission; (ii) Fraudulently or dishonestly inducing any person to deliver any property or; (iii) Consent that any person shall retain any property, or and (iv) Intentionally inducing that person to do or omit to do anything which he would not do or omit 14. It is well settled by now that the intention to defraud must be present from the very beginning or inception without which this section cannot be invoked. In the decision relied upon by the learned Senior Counsel for the applicants in the case of Satischandra Ratanlal Shah Vs. State of Gujarat and Another (Supra) at para 13, the Supreme Court has stated thus: “Now coming to the charge under Section 415 punishable under Section 420 of IPC. In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. (See Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168 ). In the case before us, admittedly the appellant was trapped in economic crisis and therefore, he had approached the respondent no. 2 to ameliorate the situation of crisis. Further, in order to recover the aforesaid amount, the respondent no. 2 had instituted a summary civil suit seeking recovery of the loan amount which is still pending adjudication. The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.” 15. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.” 15. Observations of the Supreme Court that ‘fraudulent or dishonest intention has to be shown right at the beginning of the transaction as its mens rea, which is crux of the offences, are squarely applicable to the facts of the present case . The applicants having repaid the loan from 2011 to 2016, rebuts the presumption of mens rea or that the applicants from the very beginning were intending to defraud the bank. Therefore, there is no material present for invoking offence punishable under Section 420 against the applicants. 16. As against the same, above referred judgment of Supreme Court has also been relied upon in so far as submissions of learned Senior Counsel for the applicants that there was no entrustment of property for invoking the offence under Section 406 of IPC, but in the opinion of this Court, the case before the Supreme Court and case on hand are different inasmuch as in the aforesaid case of Satischandra Ratanlal Shah (Supra), it noted by the Supreme Court at para 12 thus: “In this context, we may note that there is nothing either in the complaint or in any material before us, pointing to the fact that any property was entrusted to the appellant at all which he dishonestly converted for his own use so as to satisfy the ingredients of Section 405 punishable under Section 406 of IPC.” 17. In contra-distinction in the instant case, it is the specific allegation of the respondent No.2 – original complainant – bank in its complaint that after the account has been declared as NPA in the year 2016, the Officers of the bank as well as Stock Auditor had inspected the stocks at the place of the business of applicants and finding a discrepancy in the nature of shortfall between the hypothecated stock and actual stock available the bank had called upon the Chartered Accountant of the applicants to submit the list of lenders of the applicants as mentioned in list of debtors provided by the bank and whereas the bank had written to 8 debtors whose list has been provided by the Chartered Accountant informing them that since book debts of the applciants is assigned to the bank, the amount outstanding may be deposited by the said persons to the account of the applicants with the respondent No.2 – original complainant – bank. That some of the debtors had written to the bank that there is no outstanding due to the applicants from their account and upon inquiry, it was revealed that the applicants had opened an account with the HDFC Bank Ltd. against the terms of the agreement with the respondent No.2 – original complainant – bank and receivables from the sale of the goods had been credited in the said account. 18. Thus, the allegation of entrustment of property to the applicants which had been dishonestly converted to his own use appears to be prima facie fulfilled as above inasmuch as the stock had been mortgaged/hypothecated with the respondent No.2 – original complainant – bank and the applicants had sold off the said stock and had not deposited the sale proceeds in their account with the respondent No.2 – original complainant – bank and had used another account, which they had opened with HDFC Bank Ltd., against the terms of the loan agreement thereby dishonestly converted the entrustment to their personal use. 19. At this stage, it would be pertinent to mention that as against this allegation of opening of the account in HDFC Bank Ltd., it was submitted by learned Senior Counsel that said account had been closed immediately, but the statement of the account with HDFC Bank Ltd. by respondent bank on record shows that the account was operational from 01.05.2015 to 30.11.2016. Under such circumstances, in the opinion of this Court, there is prima facie material for the proceeding against the applicants as regards the offence punishable under Section 406 of IPC. 20. In so far as the Judgments relied upon by the parties, the decision of this Court in the case of Shailesh I. Patwari and Anr. Vs. State of Gujarat and Anr. (Supra) would not also helpful to the case of the applicants since in view of the fact that there is something more in the complaint to show that it was not a case of mere civil transactions between the parties and further the decision of the Supreme Court in the case of Satischandra Ratilal Shah (Supra) would also not be helpful to the applicants since it also does not prima facie appear to this Court that the complaint is merely for non-repayment of loan availed by the applicants. 21. As discussed hereinabove, the complaint prima facie shows that there are allegations of criminal breach of trust, which is not merely on account of non-repayment of loan amount. Under such circumstances, it cannot be held that the impugned criminal complaint was preferred solely for nonpayment of loan. 22. On the other hand, the decision in case of Yogendra Singh Jadon (Supra) would not further the cause of the respondent with regard to offence punishable under Section 420 of the IPC since unlike in the case before the Supreme Court, there is repayment from 2011 when the loan had been availed, right upto 2016 i.e. prior to the loan account being declared as NPA. Further in case of State of Andhrapradesh Vs. Vangaveeti Nagaiah (Supra), the Supreme Court has held that the High Court in exercise of powers u/s. 482 of the Code of Criminal Procedure should not examine a complaint in light of all probabilities and determine whether a conviction would be sustainable on the materials and on basis of such conclusions quash the complaint. Further, the High Court as per the said judgment of the Supreme Court should not enter into meticulous analysis and further the High Court also should not go into the adequacy of the material. As such in the analysis herein before, this Court has neither analyzed the material from the yardstick of whether a conviction would be maintainable nor has this Court gone into the sufficiency of the material. As such in the analysis herein before, this Court has neither analyzed the material from the yardstick of whether a conviction would be maintainable nor has this Court gone into the sufficiency of the material. On a plain reading of the complaint coupled with the undisputed facts placed before it, this Court has arrived at the conclusion in the foregoing paragraphs as regards there being no material disclosing commission of offence punishable under Sections 409 and 420 of IPC. Such an exercise being held to be a permissible exercise in para 4 of the said judgment of State of Andhrapradesh Vs. Vangaveeti Nagaiah (Supra) and the same is quoted herein below for better appreciation. “4. Exercise of power under Section 482 of the Code in a case of this nature is the exception and not the rule. The Section does not confer any new powers on the High Court. It only saves the inherent power which the Court possessed before the enactment of the Code. It envisages three circumstances under which the inherent jurisdiction may be exercised, namely, (i) to give effect to an order under the Code, (ii) to prevent abuse of the process of court, and (iii) to otherwise secure the ends of justice. It is neither possible nor desirable to lay down any inflexible rule which would govern the exercise of inherent jurisdiction. No legislative enactment dealing with procedure can provide for all cases that may possibly arise. Courts, therefore, have inherent powers apart from express provisions of law which are necessary for proper discharge of functions and duties imposed upon them by law. That is the doctrine which finds expression in the Section which merely recognizes and preserves inherent powers of the High Courts. All courts, whether civil or criminal possess, in the absence of any express provision, as inherent in their constitution, all such powers as are necessary to do the right and to undo a wrong in course of administration of justice on the principle quando lex a liquid aliquot concedit, conceditur et id sine quo res ipsa esse non potest (when the law gives a person anything it gives him that without which it cannot exist). While exercising powers under the Section, the Court does not function as a court of appeal or revision. While exercising powers under the Section, the Court does not function as a court of appeal or revision. Inherent jurisdiction under the Section though wide has to be exercised sparingly, carefully and with caution and only when such exercise is justified by the tests specifically laid down in the Section itself. It is to be exercised ex debito justitiae to do real and substantial justice for the administration of which alone courts exist. Authority of the court exists for advancement of justice and if any attempt is made to abuse that authority so as to produce injustice, the court has power to prevent such abuse. It would be an abuse of process of the court to allow any action which would result in injustice and prevent promotion of justice. In exercise of the powers court would be justified to quash any proceeding if it finds that initiation or continuance of it amounts to abuse of the process of court or quashing of these proceedings would otherwise serve the ends of justice. When no offence is disclosed by the complaint, the court may examine the question of fact. When a complaint is sought to be quashed, it is permissible to look into the materials to assess what the complainant has alleged and whether any offence is made out even if the allegations are accepted in toto.” 23. Thus, in view of the above discussion and findings by this Court hereinabove this application stands allowed in part, and whereas criminal complaint stands quashed in so far as offence punishable under Sections 409 and 420 and whereas the complaint to proceed in accordance with law for the offence punishable under Sections 406 and 114 of IPC. Rule is made absolute in the above terms.