REPORTABLE        

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.  1868   OF 2011 (Arising out of SLP (Crl.) No. 590 of 2008

M/s Thermax Ltd. & Ors.     .... Appellant(s)

Versus

K.M. Johny & Ors.                  .... Respondent(s)

J U D G M E N T  

P. Sathasivam, J.

1)  Leave granted.

2) This  appeal  is  directed against  the final  judgment and  

order  dated  11.01.2008  passed  by  the  High  Court  of  

Judicature at Bombay in Criminal Writ Petition No. 1622 of  

2007 wherein the Division Bench of the High Court dismissed  

the  writ  petition  filed  by  the  appellants  herein  as  

misconceived.

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3) Brief Facts:

(a) M/s  Thermax Ltd.–the  appellant-Company,  is  a  Public  

Limited Company having its  registered office  at  Chinchwad,  

Pune and is engaged in the field of energy and environment  

management.   Mr.  K.M.  Johny-the  original  complainant,  

Respondent  No.  1  herein,  is  the  proprietor  of  M/s  Rini  

Engineers and M/s Sherly Engineers, which are small-scale  

industries undertaking fabrication job work for the appellant  

Company for the past several years.   

(b) On  26.05.1995,  the  appellant-Company  placed  three  

Purchase Orders on Respondent No.1 being Order No. 260062  

for  designing and manufacturing two numbers of  stationary  

L.P.G.  Storage  Tanks  and  Order  Nos.  260063  and  260064  

were for the supply of consumables and other accessories to  

the  said  Tanks.   On  01.06.1995,  M/s  Unique  Engineering  

Services, the Consultants of the appellant Company addressed  

a letter specifying that they had assessed the companies of the  

Respondent No. 1 and in their opinion even though they have  

not made any static bullets and have made quite a few mobile  

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L.P.G.  Tanks,  however,  they were capable  of  manufacturing  

the same, but needed design help.

(c) On  20.06.1995,  Respondent  No.  1  informed  the  

appellant-Company  their  inability  to  procure  the  material  

(steel)  and requested to supply the same and to deduct the  

material  cost  from  the  final  bill.   On  04.08.1995,  the  

Respondent No. 1 was provided with the necessary steel of the  

technical  specification.   On 06.08.1995,  an Engineer of  the  

appellant-Company visited the company of the Respondent No.  

1 and submitted a report stating that Respondent No. 1 had  

carried out certain work using the material  purchased from  

the appellant-Company.  It was also pointed out in the report  

that  Respondent  No.  1  agreed  that  they  would  send  the  

material to M/s Bureau Veritas for checking.  The report also  

stated that Respondent No. 1 had not ordered for consumables  

and no rectification and drawings had been carried out.   

(d) By letter dated 10.08.1995, the Consultants informed the  

appellant-Company that  there was no progress in  the  work  

status  for  the  last  45  days  and  it  was  observed  that  

Respondent  No.  1  was  not  interested  in  executing  the  

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assignment.    In pursuance of the same, a meeting was held  

between  the  officials  of  both  the  Companies  and  the  

Respondent No. 1 agreed to complete the job by all means by  

22.09.1995.  Since Respondent No. 1 failed to carry out the  

work as per the Schedule, the appellant-Company, vide letter  

dated 13.09.1995 cancelled the order placed and it was made  

effective from 26.05.1995 i.e., from the date when the order  

was placed.  

(e) On 06.05.2000, Respondent No. 1 filed a complaint with  

the  Crime Branch,  Pune  alleging  that  they  had carried  out  

several fabrication job works for the appellant-Company and  

huge  amount  of  Rs.  91,95,054/-  was  outstanding  till  date  

despite several requests.  In the said complaint, it was further  

alleged  that  the  appellant-Company  also  placed  Purchase  

Order being No. 240307 dated 22.03.1993 for Rs. 8,00,000/-  

for fabrication and erection of Tower Support Structural etc.,  

for  the  Mehasana  District  Taluka  Sanstha  (Gujarat)  Project  

and also represented that they will hire the machinery of the  

Respondent No. 1 for the said job at the rate of Rs. 2,400/- per  

day and believing the same the  Respondent No.  1 allegedly  

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purchased  brand  new  machinery  worth  Rs.  5,80,000/-  

specially for the said project and dispatched the same to the  

Mehasana  site.   Respondent  No.  1  completed  the  said  job  

according to schedule and to the satisfaction of the appellant-

Company and also carried out additional work at the site as  

per their request.  It was alleged that balance outstanding for  

the said work of Rs.2,47,570/- was still  receivable from the  

appellant-Company.   An amount  of  Rs.58,32,000/-  towards  

hiring  charges  for  the  machinery  is  yet  to  be  paid  by  the  

appellant-Company.  Therefore, a total sum of Rs.68,79,750/-  

became due from the appellant-Company to respondent No.1  

and the same was not paid till date.  Since the Crime Branch  

did not take any cognizance, the said complaint was filed in  

the Court of Judicial Magistrate, First Class, Pimpri being RCC  

No. 12 of 2002 and by order dated 30.05.2002, the Judicial  

Magistrate issued a direction under Section 156(3) of the Code  

of Criminal Procedure, 1973 (in short ‘the Code’) and referred  

the same to Crime Branch, Pune, Respondent No. 2 herein, for  

investigation.   Pursuant  to  the  same,  Respondent  No.  2  

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registered  an  offence  being  C.R.  No.  91/2002 and  initiated  

proceedings thereunder against the appellant-Company.

(f) Aggrieved by the said order, the appellant-Company filed  

two separate Criminal Writ Petitions being Nos. 209 and 443  

of  2003  before  the  Bombay  High  Court  for  quashing  and  

setting  aside  the  order  dated  30.05.2002  passed  by  the  

Judicial  Magistrate,  First  Class,  Pimpri.    Vide  order  dated  

10.06.2003,  the  High  Court  set  aside  the  order  dated  

30.05.2002  and  remitted  the  matter  back  to  the  Judicial  

Magistrate  for  reconsideration   of  the  entire  prayer  and  to  

decide the  case afresh,  after  giving adequate  opportunity  of  

hearing to both the sides.  Pursuant to the same, the appellant  

Company  preferred  an  application  dated  16.07.2003  under  

Section 91 of the Code before the Judicial Magistrate praying  

that  the  Assistant  Commissioner  of  Police,  Crime  Branch,  

Pune  City  be  directed  to  produce  all  the  records  and  

proceedings of the complaint dated 06.05.2000.  After hearing  

the  respective  parties,  the  Judicial  Magistrate,  vide  order  

dated 11.08.2003 rejected the said application.   

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(g) Aggrieved by the same, the appellant-Company preferred  

Criminal Application No. 3666 of 2003 before the High Court.  

The High Court, vide order dated 18.10.2006, issued rule and  

interim  relief  by  directing  the  Assistant  Commissioner  of  

Police, Crime Branch-II, Pune city to produce the documents  

within six weeks in the Court of Judicial Magistrate, Pimpri.  

Pursuant to the said direction, Shri S.B Oahal,  Inspector of  

Police,  submitted a reply  dated 12.03.2007 stating  that  the  

records and proceedings in respect of Crime Register No. 11 of  

2000 were destroyed.    Pursuant to the same, the Judicial  

Magistrate,  vide order dated 20.08.2007,  called for  a report  

under Section 156(3) of the Code from the Respondent No. 2.    

(h) Being  aggrieved,  the  appellant-Company  preferred  

Criminal Writ Petition being No. 1622 of 2007 before the High  

Court.   The  High  Court,  vide  order  dated  11.01.2008,  

dismissed the writ petition as misconceived on the ground that  

the Magistrate  has adhered to the directions and has given  

reasons for coming to his conclusion.  Aggrieved by the said  

decision,  the  appellant-Company  has  preferred  this  appeal  

before this Court by way of special leave petition.

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4) Heard  Dr.  A.M.  Singhvi  and  Mr.  C.S.  Vaidyanathan,  

learned  senior  counsel  for  the  appellant-Company  and  Mr.  

K.T.S. Tulsi, learned senior counsel for the respondent No.1.   

Contentions:

5) Dr.  A.M.  Singhvi,  learned  senior  counsel  for  the  

appellant/accused,  after  taking  us  through  all  the  earlier  

complaints  including  the  last  complaint  and  earlier  orders  

closing those complaints, the order of the Judicial Magistrate,  

First Class, Pimpri dated 20.08.2007 in Criminal Case No. 12  

of  2002  and  the  impugned  order  of  the  High  Court  dated  

11.01.2008,  at  the  outset,  submitted that  the  courts  below  

ought  to  have  considered  that  the  dispute  arose  out  of  a  

contract and a constituted remedy is only before a civil court.  

He further contended that similar claim on earlier occasions  

were  indeed  investigated  and  finally  categorized  as  civil  in  

nature,  while  such  is  the  position,  the  direction  of  the  

Magistrate  calling  for  a  report  under  Section  156(3)  of  the  

Code from the Crime Branch, Pune is  not  sustainable.   He  

further  submitted  that  the  High  Court  ought  to  have  

intervened  and  quashed  the  same.   According  to  him,  the  

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complaint  and the  allegations made therein do not  disclose  

any offence and, therefore, the direction under Section 156(3)  

of  the  Code is  untenable.   He further  pointed out  that  the  

essential  ingredients for  an offence under Sections 405 and  

420 of the Indian Penal Code, 1860 (in short ‘IPC’) have not  

been made out, no such dishonest intention can be seen or  

even  inferred  inasmuch  as  the  entire  dispute  pertains  to  

contractual  obligations  between  the  parties.   In  any  event,  

according to him, in view of long delay, namely, filing of the  

complaint  in  the  year  2002  with  reference  to  the  alleged  

disputes which pertain to the period from 1993-1995, that is,  

after nine years, cannot be maintained as it amounts to abuse  

of  process  of  law.   He  finally  submitted  that  roping  in  of  

appellant  Nos.  2-8  in  the  alleged  offence  on  the  hidden  

principle  of  vicarious  liability  is  untenable.   Mr.  C.S.  

Vaidyanathan,  learned senior  counsel  for  the  appellant  also  

reiterated the same contentions.    

6) On  the  other  hand,  Mr.  K.T.S.  Tulsi,  learned  senior  

counsel for the Respondent No. 1/complainant submitted that  

interference by the court at the stage of passing orders under  

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Section  156  (3)  of  the  Code  is  not  warranted.   He  further  

pointed out that the accused has no right to address at this  

stage and the High Court is right in refusing to entertain the  

petition filed under Section 482 of the Code.   

Discussion:

7) In order to understand the rival contentions, it is useful  

to  refer  the  complaint  of  the  Respondent  No.  1  dated  

30.05.2002 which was made before the Judicial  Magistrate,  

First Class, Pimpri in Regular Criminal Case No. 12 of 2002.  

Respondent  No.  1  herein  is  the  complainant  and  all  the  

appellants  herein  have  been  shown  as  accused.   The  said  

criminal complaint was made for the offences under Sections  

420,  406  read  with  34  IPC.   The  complaint  proceeds  that  

complainant is the Proprietor of M/s Rini Engineers and M/s  

Sherly  Engineers  which  are  small-scale  industries  doing  

fabrication job work for  various industries,  namely,  TELCO,  

Ion  Exchange  Ltd.,  etc.   The  following  averments  in  the  

complaint are relevant for our consideration:

“a)  The  complainant  has been doing  the  said  business  in  Maharashtra since last more than 27 years. The accused No.  1 is a company and accused No. 2 is the Chairperson of the  Accused No. 1.  Accused No. 3 was the Managing Director  

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and the Accused Nos. 4 to 15 was doing service as Manager  of Accused No. 1 at the relevant time. The Accused No. 1 has  its office  at  the above address.  The Accused Nos.  2 to 15  were looking after the management and business of Accused  No. 1.  

b) The complainant was doing fabrication job work for the  Accused  for  several  years.  The  accused  placed  purchase  order  No.  260062 dated 24.04.1995 of  Rs.  3,20,000/-  for  designing and manufacturing two numbers stationary LPG  Storage  Tanks.  The  complainant  has  been  granted  the  necessary  licenses  by  the  Explosives  Department  for  manufacturing  LPG  Storage  Tanks  and  LPG  Storage  Tankers. The said job is a specialized job and requires Best  quality  material  as  it  involves  high  risks.  At  the  relevant  time, the required material was not available in the market.  Therefore,  the  complainant  requested  the  Accused for  the  supply  of  material  for  the  said  order  and  to  debit  the  material cost from the final bill. The accused initially agreed  for  the same. However,  subsequently insisted for  payment  before delivery of material. Therefore, complainant paid Rs.  1,14,098/-  by  pay  order  dated  31.07.1995  drawn  on  the  Sadguru Jangli  Maharaj  Bank,  Chinchwad.  The  Company  issued material  after receipt of pay order, vide excise gate  Pass  No.  1328  and  175713  dated  04.08.1995.  The  complainant received the material and was surprised to see  that  the  accused  had  supplied  scrap  material  for  the  manufacturing of LPG Storage Tanks and same was useless  for  the  job.  The  complainant  immediately  contacted  the  accused  and  informed  about  the  same.  The  complainant  requested the accused to take the scrap material back and  issue genuine material. However, accused refused to do so,  the  complaint  has  spent  the  amount  of  Rs.  60,000/-  for  drawing and approval etc. and Rs. 1,14,098/- by pay order  for  the  material  to  the  accused.  Thus,  the  accused  have  cheated the complainant and there by caused wrongful loss  to the complainant.  

c)  The  accused  placed  Purchase  Order  No.  240307  dated  22.03.1993  for  Rs.  8,00,000/-  for  the  fabrication  and  erection of Tower Support Structural etc. for the Mehasana  (Gujarat) Project. The accused also represented that they will  hire the machinery of the complainant for the said job at the  rate  of  Rs.  2,400/-  per  day.  Believing  the  same,  the  complainant  purchased  brand  new  machinery  of  Rs.  5,80,000/- specially for the said project and dispatched the  

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same to Mehasana site. The complainant has completed the  said job according to schedule and to the satisfaction of the  accused. The complainant also carried out additional work  at the site as per the request of the accused. The balance  outstanding for the said work is Rs. 2,47,570/- and is still  receivable from the accused. The amount towards the hiring  charges for  the machinery is Rs.  58,32,000/-  is yet  to be  paid  by  the  accused.  The  accused  have  not  returned  the  machinery of the complainant till  the date and have been  using the same for their other jobs also. Thus the accused  owe the complainant Rs. 68,79,750/- and the same is not  paid till the date.

d)  The complainant states that he has carried out several  fabrication  job  for  the  accused  and  huge  amount  of  Rs.  91,95,054 is outstanding from the accused till the date.  In  spite  of  several  requests  of  the  complainant,  since  the  accused are very influential, no body has taken cognizance  of the complaints of the complainant. The complainant has  also  filed  complaint  dated  15.09.1998  with  Pimpri  Police  Station against the accused but all in vain.  

e)  Thereafter  the  complainant  filed  complaint  dated  06.05.2000 with Crime Branch, Pune against the accused,  however, till the date police have not taken any cognizance of  the  same  in  spite  of  the  positive  opinion  of  the  police  prosecutor attached to the Officer Commissioner of  Police,  Pune. The accused are very influential and the complainant  has  no  other  option  but  to  file  the  present  complaint  in  Hon’ble Court.  

f)  The  complainant  is  filing  herewith  all  the  relevant  documents in support  of  this complaint  and submits that  the  present  case  warrants  detailed  investigation  under  Section 156(3) of Cr.P.C. There is a separate cell of economic  offences at Crime Branch, Pune and it is necessary to send  the  present  complaint  to  Crime  Branch,  Pune  for  investigation  under  Section  156(3)  of  Cr.P.C  The  complainant therefore prays that:-  

i)The  complaint  be  sent  to  Crime  Branch,  Pune  for  investigation u/s 156(3) of Cr.P.C. and;

ii) After receipt of the report of investigation, the accused be  dealt  with severally according to law and punished as per  provision of law.”

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8) For our purpose,  we are concerned with Sections 405,  

406, 420 and 34 IPC which read thus:

“405.  Criminal  breach  of  trust.- Whoever,  being  in  any  manner entrusted with property, or with any dominion over  property, dishonestly misappropriates or converts to his own  use that property,  or  dishonestly  uses or disposes of  that  property in violation of any direction of law prescribing the  mode in which such trust is to be discharged, or of any legal  contract, express or implied, which he has made touching  the  discharge  of  such trust,  or  willfully  suffers  any  other  person so to do, commits “criminal breach of trust”.

406. Punishment for criminal breach of trust.- Whoever  commits  criminal  breach  of  trust  shall  be  punished  with  imprisonment  of  either  description  for  a  term which  may  extend to three years, or with fine, or with both.

420.  Cheating  and  dishonestly  inducing  delivery  of  property.- Whoever cheats and thereby dishonestly induces  the person deceived to deliver any property to any person, or  to make, alter or destroy the whole or any part of a valuable  security, or anything which is signed or sealed, and which is  capable of being converted into a valuable security, shall be  punished with imprisonment of either description for a term  which may extend to seven years, and shall also be liable to  fine.”

34.  Acts  done  by  several  persons  in  furtherance  of  common intention.- When a criminal act is done by several  persons in furtherance of the common intention of all, each  of such persons is liable for that act in the same manner as  if it were done by him alone.

9) Now,  we  have  to  find  out  whether  the  ingredients  of  

Sections 405, 420 read with Section 34 have been made out  

from the complaint and whether the Magistrate is justified in  

calling for a report under Section 156(3) of the Code from the  

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Crime Branch, Pune.  Simultaneously, we have to see whether  

the  High  Court  is  justified  in  confirming  the  action  of  the  

Magistrate  and  failed  to  exercise  its  power  and  jurisdiction  

under Section 482 of the Code.   

10) Before  considering  the  validity  or  acceptability  of  the  

complaint and the consequential action taken by the Judicial  

Magistrate under Section 156(3) of the Code, let us advert to  

various  decisions  on  this  aspect.   In  Suresh  vs.  

Mahadevappa Shivappa Danannava & Anr., (2005) 3 SCC  

670, this Court,  on the ground of delay/laches in filing the  

complaint  and  the  dispute  relates  to  civil  nature  finding  

absence  of  ingredients  of  alleged  offence  of  cheating  under  

Section 420 IPC, set aside the order of the Magistrate and that  

of the High Court.  In that case, the alleged agreement to sell  

was executed on 25.12.1988.  A legal notice was issued to the  

appellant therein on 11.07.1996 calling upon him to execute  

the sale deed in respect of the premises in question. Thus, the  

complaint was submitted after a gap of 7½ years of splendid  

silence  from  the  date  of  the  alleged  agreement  to  sell  i.e.  

25.12.1988.  The  appellant  therein  responded  to  the  legal  

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notice  dated  11.07.1996  by  his  reply  dated  18.07.1996  

through his lawyer specifically denying the alleged agreement  

and the payment of Rs 1,25,000/- as advance. Nothing was  

heard thereafter and the complainant after keeping quiet for  

nearly 3 years filed private complaint under Section 200 of the  

Code  before  the  IVth  Additional  CMM,  Bangalore  on  

17.05.1999.  The Magistrate,  on the same date,  directed his  

office to register the case as PCR and referred the same to the  

local  police  for  investigation  and to  submit  a  report  as  per  

Section  156(3)  of  the  Code.  A  charge-sheet  was  filed  on  

04.08.2000 by the police against the appellant-Accused No. 1  

only for offence under Section 420 IPC. The Magistrate took  

cognizance of the alleged offence under Section 190(1)(b) of the  

Code and issued summons to the accused-appellant therein.  

Aggrieved  by  the  aforesaid  process  order  dated  04.08.2000  

passed by the Magistrate, the appellant-accused preferred the  

criminal revision which was dismissed by the High Court.  The  

order of the High Court was under challenge in that appeal.  It  

was contended that as per the averments in the complaint,  

even as per the police report, no offence is made out against  

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Accused Nos. 2-4 therein. Despite this, the Magistrate issued  

process against Accused Nos. 2-4 as well which clearly shows  

the non-application of mind by the Magistrate.  It was further  

pointed out that a perusal of the complaint would only reveal  

that the allegations as contained in the complaint are of civil  

nature and do not  prima facie disclose commission of alleged  

criminal  offence  under  Section  420 IPC.   After  finding  that  

inasmuch as the police has given a clean chit to Accused Nos.  

2-4,  this  Court  concluded that  the  Magistrate  ought  not  to  

have taken cognizance of the alleged offence against Accused  

No.1 and that the complaint has been made to harass him to  

come to terms by resorting to criminal process.  Regarding the  

delay, this Court pointed out that the complaint was filed on  

17.05.1999,  after  a  lapse  of  10½ years  and,  therefore,  the  

private complaint filed by respondent No.1 therein is not at all  

maintainable at this distance of time.  It was further observed  

that it is also not clearly proved that to hold a person guilty of  

cheating, it is necessary to show that he had a fraudulent or  

dishonest  intention  at  the  time of  making the  promise  and  

finding that the order of the Magistrate and of the High Court  

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requiring Accused No.1/appellant therein to face trial would  

not be in the interest of justice, set aside the order of the High  

Court  and  of  the  Magistrate.   It  is  clear  that  in  view  of  

inordinate delay and laches on the part of  the complainant  

and  of  the  fact  that  the  complaint  does  not  disclose  any  

ingredients of Section 420 IPC and also of the fact that at the  

most it is the dispute of civil nature, this Court quashed the  

orders of the Magistrate and the High Court.

11) In  Madhavrao  Jiwajirao  Scindia  &  Ors.  vs.   

Sambhajirao Chandrojirao Angre & Ors. (1988) 1 SCC 692,  

this  Court,  after  pointing  out  the  grounds  on  which  the  

criminal  proceedings  be  quashed  under  Section  482  of  the  

Code at preliminary stage by the High Court highlighted that a  

case of  breach of trust is both a civil wrong and a criminal  

offence.  While elaborating the same, this Court further held  

that  there  would  be  certain  situations  where  it  would  

predominantly be a civil wrong and may or may not amount to  

criminal  offence.   Based on the  materials  in  that  case,  the  

Court concluded that the case is one of that type where, if at  

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all, the facts may constitute a civil wrong and the ingredients  

of the criminal offences are wanting.   

12) In Alpic Finance Ltd. vs. P. Sadasivan & Anr.  (2001)  

3  SCC  513,  this  Court  highlighted  the  grounds  on  which  

criminal proceedings are to be quashed under Section 482 of  

the Code and noted the ingredients of Section 420 IPC.  In that  

case, the appellant was a registered company having its head  

office at Mumbai.  It was a non-banking financial institution  

functioning under the regulations of Reserve Bank of India.  It  

was  carrying  on  business,  inter  alia,  of  leasing  and  hire  

purchase.  The first respondent therein was the Chairman and  

founder-trustee of a trust by name “Visveswaraya Education  

Trust”.   The  second  respondent  was  wife  of  the  first  

respondent, and was also a Trustee.  The Trust runs a dental  

college  by  name  Rajiv  Gandhi  Dental  College.   The  

respondents  therein  entered  into  an  agreement  with  the  

appellant-Company therein whereby the  appellant  agreed to  

finance  the  purchase  of  100  hydraulically-operated  dental  

chairs.   The  total  cost  of  the  chairs  was  around  

Rs.92,50,000/-.  The appellant-Company agreed to finance the  

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respondents for the purchase of these chairs through a lease  

agreement and as per the agreement,  the respondents were  

liable to pay rentals quarterly. The respondents agreed to pay  

quarterly  a  sum  of  Rs  7,50,000/-  for  the  first  year;  Rs  

12,50,000/- for the second year; Rs 8,00,000/- for the third  

year  and  Rs  6,25,000/-  for  the  fourth  year.  As  per  the  

agreement,  the  appellant-Company,  the  lessors  would  have  

sole and exclusive right, title and interest in the dental chairs  

supplied  till  the  entire  hire-purchase  amount  was  paid.  In  

accordance with the agreement, the appellant made payments  

to M/s United Medico Dental Equipments and they delivered  

the dental chairs to the respondents. The appellant-Company  

alleged that the respondents were not regular in making the  

payments  and  committed  default  in  payment  of  the  

instalments  and  that  the  bank  had  dishonoured  certain  

cheques issued by the respondents. The appellant-Company  

also alleged that on physical verification, certain chairs were  

found missing from the premises of the respondents and thus  

they have committed cheating and caused misappropriation of  

the  property  belonging  to  the  appellant.  The  appellant-  

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Company filed a private complaint under Section 200 of the  

Code  before  the  Chief  Metropolitan  Magistrate,  Bangalore  

alleging that the respondents had committed offences under  

Sections 420, 406 and 423 read with Section 120-B IPC. In  

that proceeding, the appellant-Company moved an application  

under  Section 93 of  the Code to issue a search warrant to  

seize the property in dispute and also to hand over these items  

to  the  complainant.  The  Magistrate  took  cognizance  of  the  

alleged  complaint  and  issued  summons  to  the  respondents  

and passed an order on the application filed under Section 93  

of  the  Code  to  have  a  search  at  the  premises  of  the  

respondents and to take possession of the properties involved  

in  the  case.  These  proceedings  were  challenged  by  the  

respondents under Section 482 of the Code before the learned  

Single Judge of the Karnataka High Court at Bangalore. The  

learned  Single  Judge  was  pleased  to  quash  the  entire  

proceedings and directed the appellant-Company to return all  

the properties seized by the police  pursuant to the warrant  

issued by the Magistrate.  Thus,  the order of  the Magistrate  

taking cognizance and issuing process to the respondents as  

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well as the order of search and the direction for restoration of  

the  property  to  the  appellant  Company  were  set  aside.  

Aggrieved  by  the  same,  the  appellant-Company  preferred  

appeal before this Court.  It was contended on behalf of the  

appellant that the learned Single Judge has seriously erred in  

quashing the proceedings under Section 482 of the Code.  It  

was further contended that the allegations in the complaint  

clearly made out offences punishable under Sections 420, 406,  

423,  424  read  with  Section  120-B  IPC.   On  behalf  of  the  

respondents,  it  was contended that  the  complaint  was filed  

only to harass the respondents and it was motivated by mala  

fide  intention.   It  was  further  argued  that  the  entire  

transaction was of civil nature and that the respondents have  

made  a  substantial  payment  as  per  the  hire-purchase  

agreement and the default,  if  any, was not wilful and there  

was  no  element  of  misappropriation  or  cheating.   The  

respondents also denied having removed any of the items of  

the disputed property clandestinely to defeat the interest of the  

appellant.  After considering the power under Section 482 of  

the  Code  and  adverting  to  series  of  decisions  including  

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Nagawwa vs. Veeranna Shivalingappa Konjalgi , (1976) 3  

SCC 736 and State of Haryana vs. Bhajan Lal, 1992 Supp  

(1) SCC 335, this Court concluded thus:

“7. In a few cases, the question arose whether a criminal  prosecution could be permitted when the dispute between  the  parties  is  of  predominantly  civil  nature  and  the  appropriate  remedy  would  be  a  civil  suit.  In  one  case  reported  in  Madhavrao  Jiwajirao  Scindia v.  Sambhajirao   Chandrojirao Angre this Court held that if the allegations in  the  complaint  are  both  of  a  civil  wrong  and  a  criminal  offence,  there  would  be  certain  situations  where  it  would  predominantly be a civil wrong and may or may not amount  to a criminal offence.  That was a case relating to a trust.  There were three trustees including the settlor. A large house  constituted part of the trust property. The respondent and  the complainant were acting as Secretary and Manager of  the  Trust  and the  house  owned by  the  Trust  was in  the  possession of a tenant. The tenant vacated the building and  the allegation in the complaint was that two officers of the  Trust, in conspiracy with one of the trustees and his wife,  created documents showing tenancy in respect of that house  in favour of the wife of the trustee. Another trustee filed a  criminal complaint alleging that there was commission of the  offence under Sections 406, 467 read with Sections 34 and  120-B  of  the  Indian  Penal  Code.  The  accused  persons  challenged  the  proceedings  before  the  High  Court  under  Section 482 of the Code of Criminal Procedure and the High  Court  quashed  the  proceedings  in  respect  of  two  of  the  accused persons. It was under those circumstances that this  Court observed: (SCC Headnote)

“Though a case of breach of trust may be both a  civil  wrong  and  a  criminal  offence  but  there  would  be  certain  situations  where  it  would  predominantly be a civil wrong and may or may  not  amount to a criminal  offence.  The present  case is one of that type where, if at all, the facts  may constitute a civil wrong and the ingredients  of  the  criminal  offences  are  wanting.  Having  regard to the relevant documents including the  trust deed as also the correspondence following  the  creation  of  the  tenancy,  the  submissions  advanced on behalf  of  the parties,  the natural  

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relationship between the settlor and the trustee  as  mother  and  son  and  the  fall  out  in  their  relationship and the fact that the wife of the co- trustee was no more interested in the tenancy, it  must be held that the criminal case should not  be continued.”

 10…….. The injury alleged may form the basis of civil claim  and  may  also  constitute  the  ingredients  of  some  crime  punishable  under  criminal  law.  When  there  is  dispute  between the  parties  arising  out  of  a  transaction  involving  passing of valuable properties between them, the aggrieved  person may have a right to sue for damages or compensation  and at  the  same time,  law permits  the  victim to  proceed  against  the wrongdoer for  having committed an offence of  criminal breach of trust or cheating. Here the main offence  alleged by the appellant is that the respondents committed  the  offence  under  Section  420  IPC  and  the  case  of  the  appellant  is  that  the  respondents  have  cheated  him  and  thereby  dishonestly  induced  him  to  deliver  property.  To  deceive is to induce a man to believe that a thing is true  which is  false  and which the  person practising the deceit  knows or believes to be false. It  must also be shown that  there  existed  a  fraudulent  and dishonest  intention  at  the  time of commission of the offence. There is no allegation that  the  respondents  made  any  wilful  misrepresentation.  Even  according to the appellant, the parties entered into a valid  lease agreement and the grievance of the appellant is that  the  respondents  failed  to  discharge  their  contractual  obligations.  In  the  complaint,  there  is  no  allegation  that  there was fraud or dishonest inducement on the part of the  respondents  and thereby the  respondents  parted with the  property. It is trite law and common sense that an honest  man entering into a contract is deemed to represent that he  has the present intention of  carrying it  out  but if,  having  accepted  the  pecuniary  advantage  involved  in  the  transaction, he fails to pay his debt, he does not necessarily  evade the debt by deception.”

After finding so, this Court concluded that the learned Judge  

of  the  High  Court  was  perfectly  justified  in  quashing  the  

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proceedings  and  disinclined  to  interfere  in  such  matters  

dismissed the appeal.   

13) In Anil  Mahajan vs.  Bhor  Industries  Ltd.  & Anr.  ,  

(2005) 10 SCC 228,  again, a three-Judge Bench of this Court  

considered  the  issuance  of  process  by  a  Magistrate  for  an  

offence under Sections 415, 418 and 420 IPC.  This Court also  

analysed  the  difference  between  breach  of  contract  and  

cheating.   The  appellant  therein  was  the  accused  in  a  

complaint  filed against  him by the  respondent-Company for  

offence under Sections 415, 418 and 420 IPC.  Based on the  

averments in  the  complaint,  the  Magistrate,  by  order  dated  

25.06.2001,  issued  the  process  against  the  accused.   The  

order of the Magistrate notices that the complainant has filed  

the documents on record in which the accused promised to  

pay the amount but has not paid with the intent to deceive the  

complainant and, therefore, the complainant has made out a  

case to issue process against the accused under Sections 415,  

418  and  420  IPC.   The  said  order  of  the  Magistrate  was  

challenged  before  the  Court  of  Sessions.   The  learned  

Additional Sessions Judge, Pune by order dated 19.10.2001,  

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set  aside  the  order  of  the  Magistrate  issuing  process.   The  

order of the learned Additional Sessions Judge was set aside  

by the High Court.  This Court, in paragraphs 8 & 9 of the  

judgment, observed as under:   

“8. The substance of the complaint is to be seen. Mere use of  the  expression  “cheating”  in  the  complaint  is  of  no  consequence.  Except  mention  of  the  words  “deceive”  and  “cheat”  in  the  complaint  filed  before  the  Magistrate  and  “cheating” in the complaint filed before the police, there is no  averment about the deceit, cheating or fraudulent intention  of the accused at the time of entering into MOU wherefrom it  can be inferred that the accused had the intention to deceive  the complainant to pay………………….”

 “9. In Alpic Finance Ltd. v. P. Sadasivan, (2001) 3 SCC 513,  this  Court  was considering  a case where the  complainant  had  alleged  that  the  accused  was  not  regular  in  making  payment and committed default in payment of instalments  and the  bank had dishonoured certain cheques issued by  him.  Further  allegation  of  the  complainant  was  that  on  physical verification certain chairs were found missing from  the premises of the accused and thus it was alleged that the  accused committed cheating and caused misappropriation of  the  property  belonging  to  the  complainant.  Noticing  the  decision in the case of Nagawwa v. Veeranna Shivalingappa  Konjalgi,  (1976)  3  SCC 736, wherein  it  was held  that  the  Magistrate while issuing process should satisfy himself as to  whether the allegations in the complaint,  if  proved,  would  ultimately  end  in  the  conviction  of  the  accused,  and  the  circumstances  under  which  the  process  issued  by  the  Magistrate could be quashed, the contours of the powers of  the High Court under Section 482 CrPC were laid down and  it was held: (SCC p. 520, paras 10-11)

“10. The  facts  in  the  present  case  have  to  be  appreciated in the light of the various decisions of  this Court. When somebody suffers injury to his  person,  property  or  reputation,  he  may  have  remedies both under civil  and criminal law. The  injury  alleged may form the  basis  of  civil  claim  

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and may also constitute the ingredients of some  crime punishable under criminal law. When there  is  dispute  between  the  parties  arising  out  of  a  transaction  involving  passing  of  valuable  properties  between  them,  the  aggrieved  person  may  have  a  right  to  sue  for  damages  or  compensation and at the same time, law permits  the victim to proceed against  the  wrongdoer  for  having committed an offence of criminal breach of  trust or cheating. Here the main offence alleged by  the  appellant  is  that  the  respondents  committed   the offence under Section 420 IPC and the case of   the appellant is that the respondents have cheated   him and thereby dishonestly induced him to deliver   property. To deceive is to induce a man to believe   that a thing is true which is false and which the   person practising  the deceit  knows or believes to   be false. It must also be shown that there existed a   fraudulent and dishonest  intention at  the time of   commission  of  the  offence.  There is  no allegation   that  the  respondents  made  any  wilful   misrepresentation.  Even  according  to  the  appellant,  the  parties  entered into  a  valid  lease  agreement and the grievance of the appellant is  that  the  respondents  failed  to  discharge  their  contractual obligations.  In the complaint,  there is   no  allegation  that  there  was  fraud  or  dishonest   inducement  on  the  part  of  the  respondents  and   thereby the respondents parted with the property.  It is trite law and common sense that an honest  man  entering  into  a  contract  is  deemed  to  represent  that  he  has  the  present  intention  of  carrying  it  out  but  if,  having  accepted  the  pecuniary advantage involved in the transaction,  he fails to pay his debt, he does not necessarily  evade the debt by deception.

11. Moreover, the appellant has no case that the   respondents obtained the article by any fraudulent   inducement or by wilful misrepresentation. We are  told  that  the  respondents,  though  committed  default  in  paying  some  instalments,  have  paid  substantial amount towards the consideration.”

      (Emphasis supplied)

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By  applying  the  above  principles,  this  Court  examined  the  

complaint and concluded that it  is clear from its substance  

that  present  is  a  simple  case  of  civil  disputes  between the  

parties.  This Court further held that the requisite averments  

so as to make out a case of cheating are absolutely absent.  It  

further held that the principles laid down in  Alpic Finance  

Ltd.’s  case (supra)  were  rightly  applied  by  the  learned  

Additional Sessions Judge and it cannot be said that the ratio  

of  the  said  decision  was  wrongly  applied  and  on  due  

consideration,  the  learned  Additional  Sessions  Judge  had  

rightly set aside the order of the Magistrate issuing process to  

the  appellant.   After  holding  so,  this  Court  set  aside  the  

impugned judgment of the High Court and restored that of the  

Additional Sessions Judge.

14) In  S.K.  Alagh  vs.  State  of  Uttar  Pradesh  &  Ors.,  

(2008) 5 SCC 662, this  Court  considered the ingredients of  

Sections  405  and  406  IPC  -  Criminal  breach  of  trust  and  

vicarious liability.  In the said decision, after finding that the  

complaint  petition  did  not  disclose  necessary  ingredients  of  

criminal breach of trust as mentioned in Section 405 IPC and  

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also pointing out the ingredients of offence under Section 406  

IPC, interfered with the order passed by the High Court.

15) In  Maharashtra  State  Electricity  Distribution  

Company Limited & Anr. vs. Datar Switchgear Limited &  

Ors.,  (2010)  10  SCC  479,  after  perusal  of  the  complaint,  

allegations therein, role of the directors mentioned therein and  

applicability  of  Section 34 IPC,  this  Court  in  paragraph 35  

concluded as under:

“35. It is manifest that common intention refers to a prior  concert or meeting of minds, and though it is not necessary  that the existence of a distinct previous plan must be proved,  as such common intention may develop on the spur of the  moment,  yet  the  meeting  of  minds  must  be  prior  to  the  commission  of  offence  suggesting  the  existence  of  a  prearranged plan. Therefore, in order to attract Section 34  IPC, the complaint must, prima facie, reflect a common prior  concert or planning amongst all the accused.”

After saying so, verifying the complaint, this Court concluded  

that  the  complaint  does  not  indicate  the  existence  of  any  

prearranged plan whereby Appellant No. 2 had, in collusion  

with the other accused decided to fabricate the document in  

question  and  adduce  it  in  evidence  before  the  Arbitral  

Tribunal.  This Court further concluded that there is not even  

a  whisper  in  the  complaint  indicating  any  participation  of  

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Appellant No.2 in the acts constituting the offence, and that  

being the case, concluded that Section 34 IPC is not attracted.  

After  saying  so,  allowed the  appeal  in  relation to  Appellant  

No.2  and  quashed  the  order  of  the  Magistrate  taking  

cognizance  against  appellant  No.2  in  Complaint  No.  476 of  

2004.        

16) The  principles  enunciated  from  the  above-quoted  

decisions  clearly  show  that  for  proceedings  under  Section  

156(3)  of  the  Code,  the  complaint  must  disclose  relevant  

material  ingredients  of  Sections  405,  406,  420  read  with  

Section 34 IPC.  If there is a flavour of civil nature, the same  

cannot be agitated in the form of criminal proceeding.  If there  

is huge delay and in order to avoid the period of limitation, it  

cannot be resorted to a criminal proceeding.

17) Dr.  A.M.  Singhvi,  learned  senior  counsel  for  the  

appellant/accused contended that not only material facts were  

suppressed  from  the  Magistrate  but  the  previous  three  

complaints  to  various  police  authorities  and  their  closure  

reports were kept away from the Magistrate so as to mislead  

the  Court.   It  is  seen from the  materials  placed that  three  

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complaints  containing  similar  allegations  have  been  

investigated previously and all were closed as the alleged claim  

was found to be of civil nature.  In those circumstances, it did  

not lie for Respondent No.1-the complainant to approach the  

Magistrate with the same subject Complaint.  Inasmuch as the  

dispute arose out of a contract and a constituted remedy is  

only  before  a  Civil  Court,  the  Magistrate  ought  to  have  

appreciated that Respondent No.1 was attempting to use the  

machinery  of  the  criminal  courts  for  private  gains  and  for  

exerting  unjust,  undue  and  unwarranted  pressure  on  the  

appellants in order to fulfill  his illegal demands and extract  

undeserving monetary gains from them.   

18) The Courts below failed to appreciate  that  Ex.  61 is  a  

reply filed by the Crime Branch-II and Ex. 63 is the statement  

of  Shri  V.B.  Kadam,  which  categorically  stated  that  the  

complaint preferred by Respondent No.1 registered at Crime  

Register No. 11/2000 was filed as being civil in nature.  Even  

if  we  accept  that  the  records  were  destroyed  and  

notwithstanding such destruction, it  was a matter of  record  

that the complaint preferred by Respondent No.1 was indeed  

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investigated and categorized as civil  in nature.  This aspect  

has not  been considered either by the Magistrate or  by the  

High Court.

19) It  is  settled  law  that  the  essential  ingredients  for  an  

offence under Section 420, which we have already extracted, is  

that  there has to be dishonest  intention to deceive  another  

person.  We have already quoted the relevant allegations in the  

complaint and perusal of the same clearly shows that no such  

dishonest intention can be seen or even inferred inasmuch as  

the entire dispute pertains to contractual obligations between  

the parties.  Since the very ingredients of Section 420 are not  

attracted, the prosecution initiated is wholly untenable.  Even  

if we admit that allegations in the complaint do make out a  

dispute, still it ought to be considered that the same is merely  

a breach of contract and the same cannot give rise to criminal  

prosecution  for  cheating  unless  fraudulent  or  dishonest  

intention is shown right from the beginning of the transaction.  

Inasmuch as  there  are  number  of  documents  to  show that  

appellant-Company had acted in terms of the agreement and  

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in a  bona fide manner, it cannot be said that the act of the  

appellant-Company amounts to a breach of contract.

20) Though Respondent No.1 has roped all the appellants in  

a criminal case without their specific role or participation in  

the alleged offence with the sole purpose of settling his dispute  

with  appellant-Company  by  initiating  the  criminal  

prosecution, it is pointed out that appellant Nos. 2 to 8 are the  

Ex-Chairperson,  Ex-Directors  and  Senior  Managerial  

Personnel of appellant No.1-Company, who do not have any  

personal  role  in  the  allegations  and  claims  of  Respondent  

No.1.  There is also no specific allegation with regard to their  

role.

21) Apart from the fact that the complaint lacks necessary  

ingredients of  Sections 405, 406,  420 read with Section 34  

IPC, it is to be noted that the concept of ‘vicarious liability’ is  

unknown to  criminal  law.   As  observed earlier,  there  is  no  

specific allegation made against any person but the members  

of the Board and senior executives are joined as the persons  

looking after the management and business of the appellant-

Company.   

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22) It  is  useful  to  demonstrate  certain  examples,  namely,  

Section 141 of  the  Negotiable  Instruments  Act,  1881 which  

specifically provides that if the person committing an offence  

under  Section 138 is  a company,  every person who,  at  the  

time the offence was committed, was in charge of,  and was  

responsible to, the company for the conduct of the business of  

the company, as well as the company, shall be deemed to be  

guilty of the offence and shall be liable to be proceeded against  

and  punished  accordingly.   Likewise,  Section  32  of  the  

Industrial  Disputes Act,  1947 provides that  where a person  

committing an offence under this Act is a company, or other  

body corporate, or an association of persons, every director,  

manager, secretary, agent or other officer or person concerned  

with the management thereof shall, unless he proves that the  

offence was committed without his knowledge or consent, be  

deemed to be guilty of such offence.  We have already noted  

that  the  offence  alleged  in  the  criminal  complaint  filed  by  

respondent  No.1  is  under  Sections  405  and  420  IPC  

whereunder no specific liability is imposed on the officers of  

the company, if the alleged offence is by the Company.  In the  

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absence of  specific details about the same, no person other  

than appellant  No.1-Company can be  prosecuted under  the  

alleged complaint.

23) The  Courts  below  failed  to  appreciate  an  important  

aspect that the complaint came to be filed in the year 2002  

when the alleged disputes pertain to the period from 1993-

1995.  As rightly pointed out, the Courts below ought to have  

appreciated that respondent No.1 was trying to circumvent the  

jurisdiction  of  the  Civil  Courts  which  estopped  him  from  

proceeding on account of the law of limitation.   

24) We have already pointed out that respondent No.1 had  

previously filed three complaints which were concluded after  

exhaustive enquiry with the respective police authorities.  The  

first complaint was on 06.05.2000 being Javak No. 974/2000  

with the Crime Branch-II, Pune which registered the same in  

its  Criminal  Register  No.  11/2000.   Pursuant  thereto,  the  

appellants  were  summoned  and  exhaustive  enquiry  was  

conducted  by  the  Crime  Branch-II  and  after  recording  the  

statements and perusal of documents and after undertaking  

an  extensive  interrogation,  the  Crime  Branch-II  closed  the  

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case.  The said closure of the case was informed to respondent  

No.1 by the police authorities by their letter dated 28.07.2000.

25) The materials placed further show that notwithstanding  

the  complaint  dated  06.05.2000  which  was  closed  by  the  

Crime Branch-II,  another complaint  on the same facts,  was  

filed by respondent No.1 at the Bhosari Police Station being  

Javak No. 3142/2001.  It is pointed out that the appellant and  

its officers attended the Bhosari Police Station, thereafter the  

said  complaint  was  also  closed  after  the  facts  were  placed  

before the officers of the Bhosari Police Station.

26) Apart from these complaints, respondent No.1 once again  

filed  a  third  complaint  at  the  Commissioner’s  Office,  Crime  

Branch,  Pune  being  Javak  No.  100/2001.   The  officers  of  

appellant-Company appeared before  the  Crime Branch,  who  

after perusing the documents and the written statements of  

appellant No.1, informed the appellants that the matter was  

closed.

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27) It  is  the  grievance  of  the  appellants  that  without  

disclosing these material facts and suppressing the fact that  

the complainant had previously filed three different complaints  

to various police authorities and that the said complaints were  

closed on being classified as civil  disputes, the complainant  

had  filed  the  aforesaid  criminal  complaint  before  the  

Magistrate being RCC No. 12 of 2002.

28) Mr. K.T.S. Tulsi, learned senior counsel for respondent  

No.1 has pointed out that at this stage, namely, issuance of  

direction to the police for submission of report under Section  

156(3) of the Code, the accused has no role and need not be  

heard.   The  said  contention  is  undoubtedly  in  consonance  

with the procedure prescribed.  However, in view of specific  

direction of the Division Bench of the High Court by a common  

order dated 10.06.2003, disposing off the cases by remitting  

the matter back to the Magistrate for reconsideration of the  

entire prayer as made by the complainant and to pass fresh  

orders,  after giving adequate opportunity of  hearing to both  

the sides, and decide afresh the application seeking direction  

under Section 156(3) by giving cogent reasons for coming to  

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such  conclusion,  the  procedure  adopted  by  the  Magistrate  

cannot  be  faulted  with.   Though  the  appellant  

Company/accused has no right to be heard at this stage in  

view of the direction of the High Court, no exception be taken  

to the order of the Magistrate hearing the Complainant and  

the appellant Company/accused even at the stage of calling  

for a report under Section 156(3) of the Code.  

29) The entire analysis of  the complaints with reference to  

the  principles  enunciated  above  and  the  ingredients  of  

Sections 405, 406, 420 read with Section 34 IPC clearly show  

that  there  was  inordinate  delay  and  laches,  the  complaint  

itself  is  inherently  improbable  contains  the  flavour  of  civil  

nature  and  taking  note  of  the  closure  of  earlier  three  

complaints that too after thorough investigation by the police,  

we are of the view that the Magistrate committed a grave error  

in calling for a report under Section 156(3) of the Code from  

the Crime Branch, Pune.  In view of those infirmities and in  

the light of Section 482 of the Code, the High Court ought to  

have quashed those proceedings to safeguard the rights of the  

appellants.   For  these  reasons,  the  order  passed  by  the  

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Judicial Magistrate First Class, Pimpri in CC No. 12 of 2002  

on  20.08.2007  and  the  judgment  of  the  High  Court  dated  

11.01.2008 in Criminal Writ Petition No. 1622 of 2007 are set  

aside.   The  complaint  filed  by  Respondent  No.1  herein  is  

quashed.

30) For the reasons stated above, the appeal is allowed.   

         ...……………. …………………………J.  

       (P. SATHASIVAM)                                  

.……....…………………………………J.   (DR. B.S. CHAUHAN)  

NEW DELHI; SEPTEMBER 27, 2011.

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