SATISHCHANDRA RATANLAL SHAH versus STATE OF GUJARAT AND ANOTHER

[2019] 3 S.C.R. 273

SATISHCHANDRA RATANLAL SHAH

STATE OF GUJARAT AND ANOTHER

(Criminal Appeal No. 9 of 2019)

JANUARY 03, 2019

[N. V. RAMANA AND

MOHAN M. SHANTANAGOUDAR, JJ.]

Code of Criminal Procedure, 1973: s.482 – Quashing ofcharge-sheet under ss.406, 420 and 417 IPC – The case againstthe appellant-accused was that he had obtained loan from moneylending company in which respondent no.2 was Director –Appellant did not repay the amount back and rather threatenedrespondent no.2 with dire consequences and as resultrespondent no.2 lodged FIR – Appellant filed petition before HighCourt for quashing of FIR – Meanwhile, charge-sheet was filedagainst the appellant under ss.406, 420 and 417 IPC – Appellantfiled application seeking amendment of s.482 petition wherein hesought quashing of charge-sheet also – High Court dismissed thequashing petition and directed Trial Court to complete the trial andobserved that prima facie an offence of cheating under s.420 wasmade out – On appeal, held: mere breach of promise,agreement or contract does not, ipso facto, constitute the offence ofthe criminal breach of trust contained in s.405 IPC without therebeing clear case of entrustment – There is nothing either in thecomplaint or in any material pointing to the fact that any propertywas entrusted to the appellant which he dishonestly converted forhis own use so as to satisfy the ingredients of s.405 punishableunder s.406 IPC – As regards the charge under s.415, mereinability of the appellant to return the loan amount would not giverise to criminal prosecution for cheating unless fraudulent ordishonest intention is shown right at the beginning of thetransaction, as it is this mens rea which is the crux of the offence –There is nothing in the complaint or the material to show that therewas dishonest representation or inducement on part of theappellant – However, the High Court seemed to be carried away bythe moral element involved in the breach of promise and made

Acertain observations – These observations are expunged – Theproceedings initiated based on the FIR instituted at the instance ofrespondent no. 2 are quashed – Penal Code, 1860 – ss. 405, 406,415 and 420.

Allowing the appeal, the CourtB

HELD: 1. The criminal application preferred by the accusedbefore the High Court was against the order of the Trial Court atthe stage of framing of charges, wherein it is the duty of the courtto apply its judicial mind to the material placed before it and tocome to clear conclusion that prima facie case has been madeCout against the accused. An order for framing of charges is ofserious concern to the accused as it affects his liberty substantially.Courts must therefore be cautious that their decision at this stagecauses no irreparable harm to the accused. In respect toquashing of the charges, it is well settled that such exercise needsto be undertaken by the High Court in exceptional cases. TheDframing of charges being initial stages in the trial process, thecourt therein cannot base the decision of quashing the charge onthe basis of the quality or quantity of evidence rather the enquirymust be limited to prima facie examination. [Paras 10, 11][278-F-H; 279-A]

EState of Bihar v. Ramesh Singh1977 Cri lJ 1606– relied on.

2.1 The dispute arose out of loan transaction betweenthe parties. Record showed that respondent no.2 knew theappellant and the attendant circumstances before lending the loan.FFurther, admittedly, in order to recover the said amount,respondent no. 2 had instituted summary civil suit which is stillpending adjudication. The law clearly recognizes differencebetween simple payment/investment of money and entrustmentof money or property. mere breach of promise, agreement orGcontract does not, ipso facto, constitute the offence of the criminalbreach of trust contained in Section 405 IPC without there beinga clear case of entrustment. There is nothing either in thecomplaint or in any material pointing to the fact that any propertywas entrusted to the appellant at all which he dishonestly convertedfor his own use so as to satisfy the ingredients of Section 405Hpunishable under Section 406 of IPC. Therefore, the Magistrate

committed serious error in issuing process against theappellants for the said offence. Unfortunately, the High Courtalso failed to correct this manifest error. [Paras 12, 13][279-B-E]

2.2 In the context of contracts, the distinction between merebreach of contract and cheating would depend upon the fraudulentinducement and mens rea. In the instant case, admittedly theappellant was trapped in economic crisis and therefore, he hadapproached respondent no. 2 to ameliorate the situation of crisis.Further, in order to recover the said amount, respondent no. 2had instituted summary civil suit seeking recovery of the loanamount which is still pending adjudication. The mere inability ofthe appellant to return the loan amount cannot give rise to acriminal prosecution for cheating unless fraudulent or dishonestintention is shown right at the beginning of the transaction, as itis this mens rea which is the crux of the offence. Even if all thefacts in the complaint and material are taken on their face value,no such dishonest representation or inducement could be foundor inferred. [Para 14] [279-F-H; 280-A-B]

Hridaya Ranjan Prasad Verma v. State of Bihar(2000) 4 SCC 168 : [2000] 2 SCR 859;Gian Singh v.State of Punjab(2012) 10 SCC 303 : [2012] 8 SCR753 – relied on.

2.3 The legislature intended to criminalize only thosebreaches which are accompanied by fraudulent, dishonest ordeceptive inducements, which resulted in involuntary andin-efficient transfers, under Section 415 of IPC. However, theHigh Court appears to have been carried away by the moralelement involved in the breach of promise and made certainobservations. Being policy consideration, such suggestions needto be restricted. These observations of the High Court were notonly unnecessary for the adjudication of this matter, but the samecould have been understood as casting some kind of aspersionson the accused. This clearly reflected loaded dice situationagainst the appellant. The High Court should have maintainedjudicial restraint and desisted from making such generalobservations at this stage of the criminal proceeding, as theymay have had bearing on the adjudication of the trial.

ATherefore, the observations made in paragraphs 42 and 43 of theimpugned judgment stand expunged. The application filed by theappellant under Section 482 of Cr.P.C. is allowed and theproceedings initiated based on the FIR instituted at the instanceof respondent no. 2 are quashed. [Paras 15, 16, 17, 18][280-B-G]B

Case Law Reference

CRIMINAL APPELLATE JURISDICTION : Criminal AppealNo. 9 of 2019.

From the Judgment and Order dated 12.04.2018 of the High Courtof Gujarat at Ahmedabad in Criminal Misc. Application (for quashingDand set aside FIR/Order) No.4033 of 2012.

Praveen Kumar Rai, Hemal Kiritkumar Sheth, Advs. for theAppellant.

I. H. Syed, Varinder Kumar Sharma, Ms. Puja, Ms. Vishakha,Ms. Parul Luthra (for Ms. Hemantika Wahi), Advs. for the Respondents.E

The Judgment of the Court was delivered by

N. V. RAMANA, J. 1. Leave granted.

2. The present appeal is preferred against the impugnedjudgment, dated 12.04.2018, passed by the High Court of Gujarat, inFCriminal Miscellaneous Application No. 4033 of 2012, wherein the HighCourt has dismissed appellant’s application seeking quashing of theorder framing the charges dated 04.12.2013 by the Additional ChiefMetropolitan Magistrate in Criminal Case No. 388 of 2012.

3. It is pertinent to note the facts giving rise to the appeal in aGdetailed manner. The respondent no. 2- complainant is the director of amoney lending company by the name of Dharshan Fiscal Pvt. Ltd. Theappellant, who is retired bank employee, approached the complainant’scompany in the month of January 2008 for loan of Rs. 27,00,000/-.Accordingly, the respondent no. 2 transferred the funds as loan, whichHwas to be repaid by the appellant within year with interest. Thereafter,

the appellant has not repaid the amount back to the respondent no.2.Further, respondent no.2 alleged that when he approached the appellant,he was threatened by the appellant with dire consequences. Thereafter,the respondent no.2 filed complaint based on which the FIR bearingI/C.R. No. 22/2012, dated 25.01.2012, was filed before the KagdapithPolice Station, Ahmedabad, against the present appellant under Section406, 409, 417, 420, 294 (b) and 506 (2) of IPC. On 23.02.2012, theappellant was enlarged on bail by the High Court after being arrested on29.01.2012. The appellant preferred an application under Section 482 ofthe Cr.P.C for the quashing of the FIR bearing I/C.R No. 22/2012.

4. The charge sheet No. 28 of 2012 dated 01.03.2012, came to befiled against the appellant under Sections 406, 420 and 417 of IPC.Pursuant to the same, the Magistrate issued summons. The appellantalleged that on 04.12.2013, he was given copy of the said chargesheet,and that the charges were framed by the Metropolitan Magistrate onthe same day in blank sheet without giving him an opportunity of beingheard, as the appellant was unaccompanied by any counsel. Theappellant alleges that the same was in violation of Section 239 of theCriminal Procedure Code.

5. In light of the aforesaid developments, the appellant filed anapplication seeking amendment of the prayer in Criminal MiscellaneousApplication no. 4033 of 2012 wherein he sought for the inclusion ofprayer seeking to quash and set aside the chargesheet no. 28/ 2012 inFIR No. I/C.R No.22/2012 and the charges framed by the MetropolitanMagistrate vide order dated 04.12.2013 and all further proceedingcarried out in Criminal Case no. 388/2012 pending before the AdditionalMetropolitan Magistrate.

6. It is pertinent to note that, simultaneously respondent no.2 hadpreferred summary suit in Summary Civil Suit no. 928/2011 seekingthe recovery of Rs.33,46,225/- which was inclusive of the interest uponthe principal amount. The same was admitted on 25.04.2011 and is stillpending before the City Civil Judge, Ahmedabad.

7. Vide order dated12.04.2018, the High Court dismissed thequashing petition preferred by the appellant and directed the trial courtto complete the trial within three months. The High Court further wenton to observe that, prima facie an offence of cheating under Section420 is made out but charge under Section 406 pertaining to criminal

Abreach of trust is not applicable in the given factual scenario. However,the High Court did not remove the charges under Section 406 andobserved that no case has been made out to get the charge quashed.Aggrieved by the aforesaid dismissal, the appellant has preferred thepresent Special Leave Petition.

B8. The counsel on behalf of the appellant has urged that perusalof the complaint would reveal that the allegations as contained in thecomplaint are civil in nature and the requisite averments so as to makeout case of cheating are absent.Hence, prima facie does not disclosethe commission of the alleged offence. Moreover, it is pertinent to notethat after filing Summary Suit No.928 of 2011 on 21.04.2011, theCcomplainant has filed the written complaint dated 05.01.2012 and hasattempted to give the cloak of criminal offence to the present casewhich is purely civil in nature, just to harass the appellant. Lastly, thecriminal complaint filed by the respondent no.2 is initiated after lapseof more than three years from the date of offence i.e. 21.03.2008.D

9. On the contrary, the counsel on behalf of respondent no.2, whilesupporting the judgment of the High Court has stated that the appellanthad fraudulent intention from the beginning having induced therespondent no.2 to lend the aforesaid amount of Rs. 27 lacs. Further, theappellant never had the intention to repay the loan even though multipleErequests were made to him. The counsel pressed that whether theintention was to cheat from the inception or not is question of fact andthe same can only be decided by trial after appreciating the entireevidence.

10. Before we analyse this case, it is to be noted that the criminalFapplication preferred by the accused before the High Court was againstthe order of the Trial Court at the stage of framing of charges, whereinit is the duty of the court to apply its judicial mind to the material placedbefore it and to come to clear conclusion that prima facie case hasbeen made out against the accused. An order for framing of charges isof serious concern to the accused as it affects his liberty substantially.GCourts must therefore be cautious that their decision at this stage causesno irreparable harm to the accused.

11. Coming to the aspect of quashing of the charges, it is wellsettled that such exercise needs to be undertaken by the High Court inexceptional cases. It is also well settled that the framing of chargesH

being initial stages in the trial process, the court therein cannot base thedecision of quashing the charge on the basis of the quality or quantity ofevidence rather the enquiry must be limited to prima facieexamination. [refer to State of Bihar vs. Ramesh Singh, 1977 CriLJ1606].

12. Having observed the background principles applicable herein,we need to consider the individual charges against the appellant.Turning to Section 405 read with 406 of IPC, we observe that thedispute arises out of loan transaction between the parties. It falls fromthe record that the respondent no.2 knew the appellant and theattendant circumstances before lending the loan. Further it is anadmitted fact that in order to recover the aforesaid amount, therespondent no. 2 had instituted summary civil suit which is still pendingadjudication. The law clearly recognizes difference between simplepayment/investment of money and entrustment of money or property.A mere breach of promise, agreement or contract does not, ipsofacto,constitute the offence of the criminal breach of trust contained inSection 405 IPCwithout there being clear case of entrustment.13. In this context, we may note that there is nothing either in thecomplaint or in any material before us, pointing to the fact that anyproperty was entrusted to the appellant at all which he dishonestlyconverted forhis own use so as to satisfy the ingredients of Section 405punishable under Section 406 of IPC. Hence the learned Magistratecommitted serious error in issuing process against the appellants forthe said offence. Unfortunately, the High Court also failed to correctthis manifest error.

14. Now coming to the charge under Section 415 punishableunder Section 420 of IPC. In the context of contracts, the distinctionbetween mere breach of contract and cheating would depend upon thefraudulent inducement and mens rea. (See Hridaya Ranjan PrasadVerma 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 ofcrisis. Further, in order to recover the aforesaid amount, the respondentno. 2 had instituted summary civil suit seeking recovery of the loanamount which is still pending adjudication. The mere inability of theappellant to return the loan amount cannot give rise to criminal

Aprosecution for cheating unless fraudulent or dishonest intention is shownright at the beginning of the transaction, as it is this mens rea which isthe crux of the offence. Even if all the facts in the complaint andmaterial are taken on their face value, no such dishonest representationor inducement could be found or inferred.

B15. Moreover, this Court in number of cases has usuallycautioned against criminalizing civil disputes, such as breach ofcontractual obligations [refer to Gian Singh v. State of Punjab, (2012)10 SCC 303]. The legislature intended to criminalize only those breacheswhich are accompanied by fraudulent, dishonest or deceptiveinducements, which resulted in involuntary and in-efficient transfers,Cunder Section 415 of IPC.

16. However, the High Court appears to have been carried awayby the moral element involved in the breach of promise and madecertain observations. Being policy consideration, such suggestions needto be restricted. The aforementioned observations of the High CourtDwere not only unnecessary for the adjudication of this matter, but thesame could have been understood as casting some kind of aspersions onthe accused. This clearly reflected loaded dice situation against theappellant herein.

17. In our considered opinion, the High Court should haveEmaintained judicial restraint and desisted from making such generalobservations at this stage of the criminal proceeding, as they may havehad bearing on the adjudication of the trial. Therefore, theobservations made in paragraphs 42 and 43 of the impugned judgmentstand expunged.

18. In view of the above, we are unable to uphold the impugnedorder passed by the High Court in Criminal Miscellaneous ApplicationNo. 4033 of 2012 and the same is hereby set aside. The application filedby the appellant under Section 482 of Cr.P.C. is allowed and theproceedings initiated based on the FIR instituted at the instance ofGrespondent no. 2 are hereby quashed.

19. The appeal is allowed in the aforesaid terms.

Devika Gujral

Appeal allowed.