K.SITARAM Vs CFL CAPITAL FINANCIAL SER.LTD.
Bench: R.K. AGRAWAL,ADARSH KUMAR GOEL
Case number: Crl.A. No.-002285-002285 / 2011
Diary number: 6642 / 2011
Advocates: A. V. RANGAM Vs
ASHA GOPALAN NAIR
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REPORTABLE IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION CRIMINAL APPEAL NO. 2285 OF 2011
K. Sitaram & Anr. .... Appellant(s)
Versus
CFL Capital Financial Service Ltd. & Anr. .... Respondent(s)
J U D G M E N T
R.K. Agrawal, J.
1) This appeal has been filed against the judgment and
order dated 07.01.2011 passed by the High Court of
Judicature at Bombay in Criminal Writ Petition No. 1279 of
2010 whereby learned single Judge of the High Court
dismissed the writ petition filed by the appellants herein.
2) Brief facts:
(a) The complainant-respondent Company borrowed a sum
of Rs. 900 lakhs comprising Rs. 180 lakhs through cash
credits from the consortium of Banks (of which the State Bank
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of Travancore was the lead bank) and a sum of Rs. 720 lakhs
being working capital demand Loan. Due to non-payment of
the loan amount, the account became Non-Performing Asset.
In order to recover the amount against the borrower, the State
Bank of Travancore filed OA No. 96 of 2003 before the Debts
Recovery Tribunal (DRT), Mumbai. On 22.07.2005, the DRT
passed a partial decree awarding a sum of Rs. 812.26 lakhs
with 12 per cent interest.
(b) On 29.03.2006, the State Bank of Travancore assigned
the debts due from the complainant-Company to the Kotak
Mahindra Bank together with all the securities through an
Assignment Deed. On 11.01.2007, the borrower-the
respondent Company assigned to Kotak Mahindra Bank the
debt due towards it from one Ravishankar Industries Pvt. Ltd.
of more than Rs. 32 crores with an agreement that any excess
recovery over and above Rs. 90 lakhs from Ravishankar
Industries Pvt. Ltd. would be shared equally between the
Kotak Mahindra Bank and the complainant-Company. It is
pertinent to mention here that the fact of the alleged
Assignment Deed came to the notice of the
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complainant-Company only on 17.01.2007 when the Kotak
Mahindra Bank handed over a copy of the application for
substituting themselves in place of State Bank of Travancore
to the respondent-Company.
(c) The Kotak Mahindra Bank initiated process for
substituting its name in place of the assignor-State Bank of
Travancore in the recovery application and also withdraws two
criminal complaints filed by the respondent-Company against
Ravishankar Industries Pvt. Ltd. without any information to
the respondent-Company. On 28.04.2007, the Kotak
Mahindra Bank moved an application before the Recovery
Officer-I for appropriating Rs. 67.5 lakhs due towards the
complainant-Company, being 50 per cent of the amount of Rs.
135 lakhs received in excess of Rs. 90 lakhs from the
Ravishankar Industries Pvt. Ltd., against the claim towards
the State Bank of Travancore.
(d) On 16.05.2007, the complainant-respondent Company
filed a complaint against the Kotak Mahindra Bank and its
officers being No. 18/SW/07 before the Metropolitan
Magistrate, Bandra, Mumbai under Sections 409, 418, read
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with 120-B of the Indian Penal Code, 1860 (in short ‘the IPC’).
On 25.06.2007, the Additional Chief Metropolitan Magistrate,
Bandra, Mumbai issued process against all the accused in the
complaint dated 16.05.2007. The accused therein preferred
Criminal Revision Applications being Nos. 1024-1026 of 2007
before the Court of Sessions for Greater Bombay. Learned
Additional Sessions Judge, vide order dated 03/05.04.2008,
allowed the revision applications while setting aside the order
of issue of process dated 25.06.2007.
(e) A fresh complaint being No. 0800009/SW/08 was filed
by the complainant-the respondent Company before the
Additional Chief Metropolitan Magistrate, 8th Court,
Esplanade, Mumbai under Sections 409, 418, 423 and 425
read with Section 120-B of the IPC against the State Bank of
Travancore, Kotak Mahindra Bank Limited and its officers.
The Metropolitan Magistrate, I/C ACMM, 8th Court, Esplanade,
Mumbai, vide order dated 25.01.2008, issued process against
the officers of the State Bank of Travancore and Kotak
Mahindra Bank Limited. On 11.05.2008, learned Magistrate
excluded the officers of the Kotak Mahindra Bank Limited in
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view of an application filed by the respondent-Company to
withdraw the complaint against them.
(f) Being aggrieved, the appellants herein preferred a
Criminal Writ Petition being No. 1279 of 2010 before the High
Court. On 07.01.2011, learned single Judge of the High Court,
dismissed the writ petition filed by the appellants herein for
setting aside the order of issue of process by learned
Magistrate dated 25.01.2008 against the appellants.
(g) Aggrieved by the order dated 07.01.2011, the appellants
have preferred this appeal by way of special leave.
3) Heard the arguments advanced by Mr. T.R.
Andhyarujina, learned senior counsel for the appellants and
Mr. Aniruddha P. Mayee, learned counsel for the State and
perused the records.
Point for consideration:
4) The only point for consideration before this Court is
whether Criminal Case No. 0800009/SW/08, pending in the
Court of Additional Chief Metropolitan Magistrate, 8th Court,
Esplanade, Mumbai, is liable to be quashed or not?
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Rival contentions:
5) Learned senior counsel for the appellants vehemently
contended that the appellants were not the employees of the
State Bank of Travancore when the alleged Deed of
Assignment was entered into between the State Bank of
Travancore and the Kotak Mahindra Bank. He further
contended that the Deed of Assignment dated 29.03.2006 is a
valid and equitable assignment. The decision in respect of
execution of the assignment is taken by the Executive
Committee of the State Bank of Travancore and the same is
not the individual decision of the appellants herein. Learned
senior counsel further contended that since the State Bank of
Travancore had no knowledge about the transactions between
the respondent-Company and the Kotak Mahindra Bank, the
State Bank of Travancore cannot be said to have any intention
to defraud anyone. There is no wrongful gain to the appellants
or the State Bank of Travancore and the accusation that they
acted in collusion and connivance with the officers of the
Kotak Mahindra Bank to commit the criminal breach of trust,
cheating and dishonest/fraudulent execution of deeds of
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transfer is baseless. He further submitted that as the
complainant-respondent Company had withdrawn the
complaint against the co-accused, i.e., the officers of the Kotak
Mahindra Bank Ltd., the complaint made against the
appellants herein cannot proceed and is liable to be quashed
as the allegations against them are also same. The
complainant-respondent Company cannot be allowed to blow
hot and cold in the same breath. Learned senior counsel for
the appellants finally contended that the appellants are in no
way related to the said transaction and the complaint also has
not specifically set out any offence against them.
6) On the other hand, learned counsel for the State
submitted that the appellant No. 1 herein was the Managing
Director of the State Bank of Travancore at the relevant time
and was responsible for the business and day to day affairs of
the Bank. Similarly, appellant No. 2 herein was the Deputy
General Manager and Principal Officer, who had signed the
alleged Assignment Deed dated 29.03.2006 on behalf of the
State Bank of Travancore. He further submitted that in such a
scenario, the appellants herein, being the principal
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perpetrators, actively connived and colluded with the Kotak
Mahindra Bank and its officers with a common intention to
deceive the respondent-Company in order to make wrongful
gains. Learned counsel further submitted that the active
collusion and conspiracy between both the Banks hatched
together deliberately with a view to deceive the
respondent-Company is also evident from the fact that in the
alleged assignment deed dated 29.03.2006, there was a clear
undertaking under Clause 2.3 that simultaneously with the
execution of the said deed, the State Bank of Travancore must
send a notice addressed to the respondent-Company herein
informing it of the assignment of the alleged debts and the
financial instruments to the Kotak Mahindra Bank.
7) Learned counsel for the State further submitted that the
State Bank of Travancore was duty bound to protect the
interest of the respondent-Company as the Bank was
entrusted with certain properties of the respondent-Company.
By entering into such alleged assignment with deliberate
suppression and concealment of material facts with dishonest
intention, the appellants herein, who were responsible for the
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day to day affairs of the Bank, have committed the offence of
criminal breach of trust and cheating. Learned counsel for the
State finally submitted that the order dated 25.01.2008
passed by the Metropolitan Magistrate for issue of process as
well as the order dated 07.01.2011, passed by the learned
single Judge of the High Court, dismissing the writ petition
filed by the appellants herein for setting aside the order of
issue of process dated 25.01.2008 against the appellants are
justified and do not call for any interference.
Discussion:
8) The present appeal has been filed for quashing of
Criminal Case No. 0800009/SW/08 pending in the Court of
Additional Chief Metropolitan Magistrate, 8th Court,
Esplanade, Mumbai and for setting aside the order dated 25th
January 2008, by which process was issued against all the
persons accused in the complaint. Appellant No. 1 herein was
working as Managing Director with the State Bank of
Travancore during the period 11th May 2006 to 30th June
2007. Appellant No. 2 herein worked with the Bank as the
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Deputy General Manager during the period from January 2005
to November 2006.
9) The respondent-Company filed a complaint alleging
offence punishable under Sections 409, 418, 423 and 425
read with Section 120-B of the IPC against the appellants
herein. The Bank had in December 1995 sanctioned loan of
Rs. 180 lakhs by way of cash credit facility and Rs. 720 lakhs
by way of working capital demand loan, totaling to Rs. 900/-
lakhs and the complainant-Company executed various
documents in favour of the Bank. As the
respondent-Company was unable to pay its dues to the Bank,
the Bank had filed recovery proceedings before the Tribunal
wherein a partial decree for a sum of Rs.812.26 lakhs had
been passed.
10) In the said proceedings, Kotak Mahindra Bank Limited
filed an application for substituting its name in place of State
Bank of Travancore claiming all the dues and charge on the
immovable properties mortgaged in favour of State Bank of
Travancore vide an Assignment Deed dated 29.03.2006. The
respondent-Company claimed that no notice of the alleged
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assignment dated 29.03.2006 had been given to it. On
11.01.2007, the respondent–Company entered into a Deed of
Assignment with the Kotak Mahindra Bank Limited, wherein
all the dues of Ravishankar Industries Pvt. Ltd. of more than
Rs. 32 crores were assigned to the Kotak Mahindra Bank.
Under the agreement, it was agreed that any amount received
over and above Rs. 90 lakhs from the Company would be
shared equally between the respondent–Company and Kotak
Mahindra Bank. The Kotak Mahindra Bank withdrew the
proceedings filed by the respondent–Company under Section
138 of the Negotiable Instruments Act against the Ravishankar
Industries Pvt. Ltd and also settled an amount of Rs. 225
lakhs without giving any information to it as to the terms of
settlement and the mode of payment. It is the allegation of the
complainant that if the complainant was informed about the
alleged Assignment Deed dated 29.03.2006, it would not have
entered into the assignment agreement on 11.01.2007 with
the Kotak Mahindra Bank. It is alleged that the suppression of
facts and surreptitious execution of the deed of assignment
dated 29.03.2006 was deliberately done with a dishonest
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intention to induce the complainant-Company and to make
wrongful losses and to deceive it.
11) Learned senior counsel for the appellants contended that
the allegations against the appellants in their personal
capacity are vague. He further contended that Appellant No. 1
herein joined the State Bank of Travancore on 11.05.2006 i.e.
subsequent to the Assignment Deed dated 29.03.2006. He
was, however, admittedly working with the Bank on
11.01.2007, when the complainant Company entered into the
Deed of Assignment with the Kotak Mahindra Bank. As
regards Appellant No. 2 herein, though he was signatory to the
Deed of Assignment dated 29.03.2006, he submitted that he
was not in service of State Bank of Travancore on the date on
which Deed of Assignment dated 11.01.2007, was executed
between the complainant-Company and the Kotak Mahindra
Bank and hence he claims to have no connection whatsoever
with the offence alleged. He further contended that the IPC
does not contain any provision for attaching vicarious liability
on the part of the Chairman and General Managers of the
Company when the accused is the Company. When the
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Company is the offender, vicarious liability of the directors
cannot be imputed automatically, in the absence of any
statutory provisions to this effect.
12) In support of his claim, learned senior counsel for the
appellant cited a decision of this Court in Maksud Saiyed vs.
State of Gujarat and Others (2008) 5 SCC 668 wherein it
was held as under:-
“13. Where a jurisdiction is exercised on a complaint petition filed in terms of Section 156(3) or Section 200 of the Code of Criminal Procedure, the Magistrate is required to apply his mind. The Penal Code does not contain any provision for attaching vicarious liability on the part of the Managing Director or the Directors of the Company when the accused is the Company. The learned Magistrate failed to pose unto himself the correct question viz. as to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.”
13) In support of his claim that the transactions between the
complainant and the State Bank of Travancore were purely
civil in nature and criminal court has nothing to do with it,
learned senior counsel for the appellants further relied upon a
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decision of this Court in Sardar Trilok Singh and Others vs.
Satya Deo Tripathi (1979) 4 SCC 396 wherein it was held as
under:-
“5…..The question as to what were the terms of the settlement and whether they were duly incorporated in the printed agreement or not were all questions which could be properly and adequately decided in a civil court. Obtaining signature of a person on blank sheet of papers by itself is not an offence of forgery or the like. It becomes an offence when the paper is fabricated into a document of the kind which attracts the relevant provisions of the Penal Code making it an offence or when such a document is used as a genuine document. Even assuming that the appellants either by themselves or in the Company of some others went and seized the truck on July 30, 1973 from the house of the respondent they could and did claim to have done so in exercise of their bona fide right of seizing the truck on the respondent’s failure to pay the third monthly installment in time. It was, therefore, a bona fide civil dispute which led to the seizure of the truck. On the face of the complaint petition itself the highly exaggerated version given by the respondent, the appellants went to his house with a mob armed with deadly weapons and committed the offence of dacoity in taking away the truck was so very unnatural and untrustworthy that it could take the matter out of the realm of civil dispute. Nobody on the side of the respondent was hurt. Even a scratch was not given to anybody.
6. In our opinion on the facts and in the circumstances of this case criminal prosecution deserves to be quashed. On behalf of the respondent it was argued that the appellants’ filing a petition in the High Court for quashing the proceeding before issuance of the summons was premature and the High Court could not have quashed it. In our opinion the point is so wholly without substance that it has been stated merely to be rejected. Since the parties during the course of the hearing in this appeal showed their inclination to settle up and end all their disputes and quarrels in relation to the matter in question after we indicated our view that we are going to allow the appeal and quash the proceedings, we have not thought it necessary to elaborately give other reasons in support of our order”.
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14) Learned senior counsel for the appellants further relied
upon Sunil Bharti Mittal vs. Central Bureau of
Investigation 2015 (1) SCALE 140 wherein it was held that a
corporate entity is an artificial person which acts through its
officers, directors, managing director, chairman etc. If such a
Company commits an offence involving mens rea, it would
normally be the intent and action of that individual who would
act on behalf of the Company. It would be more so, when the
criminal act is that of conspiracy. However, at the same time,
it is a cardinal principle of criminal jurisprudence that there is
no vicarious liability unless the statute specifically provides
so.
15) As the appellants herein have challenged the legality of
the order of issue of process, it would be worthwhile to
recapitulate the law regarding issue of process. The relevant
point that arises for consideration at this stage is whether the
material available is sufficient enough to constitute a prima
facie case against the accused.
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16) When a person files a complaint and supports it on oath,
rendering himself liable to prosecution and imprisonment if it
is false, he is entitled to be believed unless there is some
apparent reason for disbelieving him; and he is entitled to
have the persons, against whom he complains, brought before
the court and tried. The only condition requisite for the issue
of process is that the complainant’s deposition must show
some sufficient ground for proceeding. Unless the Magistrate
is satisfied that there is sufficient ground for proceeding with
the complaint or sufficient material to justify the issue of
process, he should not pass the order of issue of process.
Where the complainant, who instituted the prosecution, has
no personal knowledge of the allegations made in the
complaint, the magistrate should satisfy himself upon proper
materials that a case is made out for the issue of process.
Though under the law, a wide discretion is given to magistrate
with respect to grant or refusal of process, however, this
discretion should be exercised with proper care and caution.
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17) The respondent-Company came to know about the
Assignment Deed dated 29.03.2006 only on 17.01.2007 when
the Kotak Mahindra Bank moved an application for
substituting themselves in place of State Bank of Travancore
on the basis of that alleged document i.e. Assignment Deed
dated 29.03.2006. It is also pertinent to mention here that
neither the State Bank of Travancore nor the Kotak Mahindra
Bank informed the respondent-Company regarding the alleged
Assignment Deed either before or after the alleged assignment.
It is also on record that vide agreement dated 01.10.1999, the
Kotak Mahindra Bank, which was earlier a financial services
Company, entered into an agreement with the
respondent-Company to act as an advisor and to provide
necessary assistance for the successful restructuring of the
respondent-Company and to provide follow up and support
services to the complainant-Company in recovery from its
various defaulters.
18) Under the above terms and conditions, when the Kotak
Mahindra Bank was already in an agreement with the
respondent-Company in order to safeguard its interest, the
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fact of the Assignment Deed between the State Bank of
Travancore and the Kotal Mahindra Bank with regard to
alleged rights of the State Bank of Travancore pertaining to the
immovable properties allegedly mortgaged in its favour, must
be communicated by the State Bank of Travancore to the
respondent-Company. More so, the fact of such assignment
deed must also be brought to the notice by the Kotak
Mahindra Bank to the respondent-Company when it was
responsible to provide necessary assistance to the
respondent-Company.
19) In view of the above, it is pertinent to mention here
Clause 2.3 of the Assignment Deed dated 29.03.2006, which
reads as under:
“Simultaneously with the execution of this Deed, the Assignor shall send a notice addressed by the Assignor to the clients and other related persons at their last known addresses informing them of the assignments of Debts and the Financial Instruments to the Assignee and instructing them to pay all amounts constituting the Debts to the Assignee and a copy of the said notice shall be delivered to the Assignee.”
It is very much clear from the above that the Assignment
Deed dated 29.03.2006 specifically contains one clause which
requires that the clients and other related persons shall be
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informed about the alleged Assignment. But this fact was not
brought to the notice of the respondent-Company. Primarily,
it was the duty of the State Bank of Travancore to inform the
respondent-Company about the said assignment and
secondly, Kotak Mahindra Bank was to inform the same to the
respondent-Company. If the intention of the Assignor and the
assignee to the Assignment Deed dated 29.03.2006 was clear,
then why the facts of the same were not brought to the notice
of respondent-Company that too when Clause 2.3 of the
Assignment Deed very clearly states so.
20) The position becomes more clear from the fact that even
after the alleged assignment, in a proceeding before the
appellate tribunal, none of the representative of the State
Bank of Travancore mentioned about the factum of such
assignment. The respondent-Company came to know about
the alleged Assignment after a lapse of 9 months i.e. on
17.01.2007, when an application was moved by the Kotak
Mahindra Bank for substituting its name in place of State
Bank of Travancore. In the absence of such knowledge, on
11.01.2007, the respondent-Company entered into a deed of
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Assignment with the Kotak Mahindra Bank wherein all the
dues of a defaulter, viz., Ravishankar Industries Pvt. Ltd., of
more than Rs. 32 crores were assigned to the Kotak Mahindra
Bank. The Kotak Mahindra Bank was under an obligation to
inform the respondent-Company about the earlier Assignment
Deed which was not done. More so, the Kotak Mahindra Bank
received a sum of Rs. 225 lakhs in March 2007 from
Ravishankar Industries Pvt. Ltd. but without giving any
information as to the terms of settlement and the mode of
payment to the complainant-Company, approached the
Recovery Officer-I for appropriating the same.
21) With regard to the contention of learned senior counsel
for the appellants herein that there can be no vicarious
liability attributed to the Director, Deputy Director of a
Company unless the Statute specifically creates so, no doubt,
a corporate entity is an artificial person which acts through its
officers, Directors, Managing Director, Chairman, etc. If such
a company commits an offence involving mens rea, it would
normally be the intent and action of that individual who would
act on behalf of the company that too when the criminal act is
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that of conspiracy. Thus, an individual who has perpetrated
the commission of an offence on behalf of the company can be
made an accused, along with the company, if there is
sufficient evidence of his active role coupled with criminal
intent. Second situation in which an individual can be
implicated is in those cases where the statutory regime itself
attracts the doctrine of vicarious liability, by specifically
invoking such a provision.
22) In view of the above, we are of the considered opinion
that there was suppression of facts by both the Banks and the
State Bank of Travancore was duty bound to inform the
respondent-Company about the Assignment dated
29.03.2006. As regards the appellants herein, appellant No.1
herein has claimed to have joined the State Bank of
Travancore on 11.05.2006 i.e. subsequent to the assignment
deed dated 29.03.2006 whereas appellant No.2 was the
signatory to the said deed.
23) There is no denying the fact that both the appellants
were responsible for day to day functioning of the State Bank
of Travancore. Furthermore, admittedly, appellant No.1 was
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in employment of the State Bank of Travancore at the time of
the execution of the deed of assignment and the appellant
No.2 was the signatory to it. On a bare perusal of the
complaint, it creates an iota of doubt as to why the
respondent-Company was kept in dark by the State Bank of
Travancore at the time of alleged Assignment Deed dated
29.03.2006
24) However, from the admitted position, it is evident that
the complainant-respondent Company in its wisdom had
withdrawn the complaint against the two persons, who were
the officers of the Kotak Mahindra Bank Ltd. from a common
complaint made against four persons. However, we do not find
any reason as to why the remaining two persons, being the
present appellants, who were the officers of the State Bank of
Travancore at the relevant time, are being prosecuted. Hence,
the complaint against the present appellants does not survive
and in the interest of justice the same is liable to quashed and
is accordingly quashed.
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25) In view of the above discussion, the appeal succeeds and
is allowed. However, there shall be no order as to costs.
………….………………………J. (R.K. AGRAWAL)
.…....……..………………………………J. (ADARSH KUMAR GOEL)
NEW DELHI; MARCH 21, 2017.
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