REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 1504 OF 2010
(Arising out of SLP (Crl) No.5768 of 2008)
M.A.A. Annamalai .. Appellant
Versus
State of Karnataka & Another .. Respondents
JUDGMENT
Dalveer Bhandari, J.
1. Leave granted.
2. This appeal is directed against the judgment and order dated 26.05.2008 passed by the High Court of Karnataka at Bangalore in Criminal Petition No.2625 of 2004.
3. Brief facts of the case are as under:-
The appellant, who was one of the Directors of R.P.S.
Benefit Fund Ltd. submitted his resignation letter on
8.12.1997 which became effective from the date of filing of
Form 32 (27.12.1997) with the Registrar of Companies. The
said Form has been filed with this petition.
4. Respondent no.2 filed a complaint with the Indira Nagar
Police Station, Bangalore, alleging:
- that RPS Benefit Fund had invited deposits from
the public vide circular dated 06.12.1998 and
that monies had been invested by the Petitioner
and his wife in the Pensioner's Benefit Fund,
pursuant to the approval of the scheme by the
Reserve Bank of India;
- that the Company had issued letters on
18.05.1999 and 14.06.1999 to the investors not
to present their interest warrants and that
payments of interests would be made by August
1999;
- that the company had since closed its business
and the amount due to the Respondent No.2 was
about Rs.2,91,778/-;
5. The Respondent No.2 lodged a First Information Report
on 15.10.1999 with the Indira Nagar Police Station alleging the
offence under section 420 Indian Penal Code read with
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sections 3, 4, 5 and 6 of the Money Circulation and Banning
Act, 1978." In the FIR, it was stated that the alleged offences,
if any, were committed during the period between 24.05.1998
and 17.09.1999.
6. According to the appellant, he ceased to be a Director of
the company from 27.12.1997, therefore, he was not
responsible in any manner for what had happened in the
company after he had resigned as a Director of the company.
7. The First Information Report was lodged by respondent
no.2 and consequently the then Xth Additional Chief
Metropolitan Magistrate, Bangalore issued a non bailable
warrants against the appellant.
8. On Company Petition filed at the instance of the
creditors, the Company Court on 23.7.2002 directed the
winding up of the company. In the winding up petition,
nothing had been mentioned about the appellant because he
was not the Director of the company at the relevant point of
time.
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9. The Karnataka High Court on 10.6.2004 directed
quashing of the entire proceedings in Criminal Petition
No.4007 of 2002 regarding the erstwhile Directors of the
company. The proceedings before the Xth Additional Chief
Metropolitan Magistrate were based on the complaint filed by
respondent no.2 stating that he and his wife had invested in
the Short Term Deposit Scheme with the company.
10. The High Court held that some of the Directors of the
company had retired in April 1999 and that the non-payment
of matured funds and non payment of interest amount had
taken place after April 1999. According to the appellant, he is
in no manner responsible for company's non payment of either
the mature funds and interest amount. The appellant
submitted that the petition had been filed for some collateral
purposes for unnecessary exerting the pressure on the former
Directors.
11. The learned Judge also held that material ingredients of
the offence of cheating had not been made out. The appellant
filed a petition before the High Court of Karnataka under
section 482 of the Code of Criminal Procedure seeking to
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quash the proceedings initiated on the basis of the complaint
registered as CC 22656 of 2001 arising out of the Crime
No.425/1999 pending before the Xth Additional Chief
Metropolitan Magistrate, Bangalore.
12. The appellant submitted that he cannot be held liable or
responsible for any of the alleged illegalities committed by the
company after he had resigned from the company. The
appellant's main grievance is that in the impugned judgment,
the learned Single Judge has not dealt with this principal
argument advanced by the appellant. In the impugned
judgment the court observed:-
"It is needless to say that there are some documents
produced by the petitioner to show that at the
relevant point of time he was not the Director of the
Company. It is also his case that he also being an
investor, the ratio followed by this court in the case
of similarly situate persons, applies to his case also.
However, it is for the trial court to ascertain as to
whether there is investment by the petitioner or not,
when he was appointed as a Director, when he
resigned and whether the alleged incident has taken
place during his directorship and further, to
ascertain the preliminary aspect as to whether there
is a prima facie case against him and whether he
has participated in the proceeding or not as in-
charge and managing affairs keeping in view the
various decisions and pass orders in accordance
with law."
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13. The court further observed that the petition was disposed
of with a direction to the appellant to approach the trial court
seeking for order of discharge.
14. According to the appellant, even according to the
averments of the complaint in the First Information Report
there were no allegations whatsoever against the appellant, in
that event, the High Court ought to have quashed the
proceedings against the appellant instead of compelling him to
approach the Trial Court for obtaining the order of discharge.
The casual approach of the High Court has led to grave
miscarriage of justice.
15. According to the appellant, respondent no.2 had invested
in the Pensioner's Benefit Fund after approval of the scheme
by the Reserve Bank of India and therefore, in any event, the
element of cheating as alleged cannot be made out by any
stretch of imagination. The complaint and the First
Information Report, as aforementioned, do not make out any
case against the appellant.
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16. In the facts and circumstances of this case, the High
Court was not justified in refusing to quash the complaint
against the appellant and compelling him to go to the trial
court for seeking an order of discharge.
17. We have heard the learned counsel for the parties. The
learned counsel appearing for the State has failed to point out
any specific allegation or averment against the appellant.
Admittedly, the appellant had resigned from the Board of
Directors of the Company with effect from 27.12.1997 and
therefore, cannot be held responsible for any activities of the
company after he ceased to be a Director of the company.
Even, according to the allegation of respondent no.2, no
criminal case can be made out against the appellant.
18. It may be pertinent to mention that a letter has been
placed on record which was sent by respondent no.2, R.
Narayanamurthy to the Inspector of Police, Indranagar Police
Station, Indranagar, Bangalore which reads as under:-
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"From:
R. Narayanamurthy,
S/o Late N.A. Ramaswamy,
105, Second Main Road,
4th Cross, Sadanandnagar,
NGEF Layout,
Bangalore - 560038
To
The Inspector of Police,
Indranagar Police Station,
Indranagar,
Bangalore-560033
Dear Sir,
Sub: Complaint against RPS Benefit Fund Ltd. and Mr.
M.A.A. Annamalai, Director of the company.
I wish to inform you that I am withdrawing all my charges
against the abovesaid company and its director M.A.A.
Annamalai, s/o Annamalai Chettiar residing at No.1,
Velayudam Street, Nungambakkam, Chennai -6000034.
I further wish to inform you that I am withdrawing all my
criminal cases against Mr. M.A.A. Annamalai and other
directors because of my advanced age and ill health and also
as I have received 55% of the deposited amount from the
Official Liquidator, High Court of Madras at Chennai and I
am also confident to receive further amounts in due course.
I also understand that Mr. M.A.A. Annamalai resigned from
the Board of RPS benefit Fund Ltd. on 8/12/1997 whereas I
have deposited my money with the company only in
December 1998 and in the year 1999. His name has been
inadvertently included as an accused by the Investigating
Officer.
Hence I am withdrawing all my criminal charges against Mr.
M.A.A. Annamalai and the company.
Thanking you,
Yours faithfully,
Sd/-
(R. Narayanamurthy)
Date: 16/09/09"
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19. This letter indicates that respondent no.2 is not
interested in prosecuting the appellant. According to the
appellant, the proceedings initiated against the appellant in
this case are liable to be quashed.
20. It may be pertinent to mention that respondent no. 2 also
filed an affidavit on 16.9.2009 before this Court. In this
affidavit, reference has also been made to the affidavit filed
before the High Court on 24.6.2009 in which he prayed that
all cases against the Company and the Directors be withdrawn
as he had already received 55% of the deposit amount from
the Official Liquidator, High Court of Madras at Chennai. In
the said affidavit filed before this Court, it was also mentioned
that the appellant had resigned as Director from RPS Benefit
Fund Ltd. on 8.12.1997 but his name had been included as
one of the accused by the Investigating Officer. In this
connection, he had also mentioned that the deponent was to
withdraw the charges of cheating against all the Directors of
the RPS Benefit Fund Ltd., including the appellant pending
before the 10th Additional Chief Metropolitan Magistrate,
Bangalore.
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21. The learned counsel for the appellant submitted that,
apart from the affidavit of respondent no. 2, no case under
section 420 IPC is made out against the appellant. The
primary requirement to make out an offence of cheating under
section 415 punishable under section 420 IPC is
dishonest/fraudulent intention at the time of inducement is
made. In order to appreciate the controversy in proper
perspective, we deem it appropriate to reproduce section 415
IPC. The same reads as under:
"415. Cheating.- Whoever, by deceiving any person,
fraudulently or dishonestly induces the person so
deceived to deliver any property to any person, or to
consent that any person shall retain any property, or
intentionally induces the person so deceived to do or
omit to do anything which he would not do or omit if he
were not so deceived, and which act or omission causes
or is likely to cause damage or harm to that person in
body, mind, reputation or property, is said to "cheat"."
22. Two main ingredients of section 420 IPC are dishonest
and fraudulent intention. The Indian Penal Code has defined
the word "dishonestly" in section 24 IPC. Section 24 IPC reads
as under:
"24. Dishonestly - Whoever does anything with the
intention of causing wrongful gain to one person or
wrongful loss to another person, is said to do that thing
"dishonestly"."
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23. The word "fraudulently" has also been defined in section
25 IPC. Section 25 IPC reads as under:
"25. Fraudulently - A person is said to do a thing
fraudulently if he does that thing with intent to
defraud but not otherwise."
24. In the instant case, according to the appellant there has
been no dishonest intention nor have any allegations as to the
extent of such a dishonest intention been made in the
complaint and FIR. In fact, no material whatsoever has been
produced by the respondent no.2 which would indicate any
such dishonest/fraudulent intention at any stage leave alone
at the stage of the alleged inducement of inviting depositors to
deposit money with the company. Furthermore, the
complaint against the Chairman and the Managing Director
itself has been quashed by an order of the High Court for the
very reason that such dishonest/fraudulent intention was
not made out in this case. The judgment of the High Court
acquired finality before no appeal was preferred before this
Court.
25. It is submitted that the FIR merely alleged a violation
under the Money Circulation and Banning Act without giving
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any basis or material for the same, cannot be sustained. In
the instant case, a company was operating under license from
the Reserve Bank of India and was so carrying on a legitimate
business under a license by the statutory authority. The mere
fact that the company got into financial distress and went into
liquidation would not in any manner make the activity carried
out by them unlawful so as to invoke sections 3 to 6 of the
Money Circulation and Banning Act. In fact, to fall within the
mischief of the Act, it must be shown that the activity ought to
be an unlawful one to make quick and easy money and a
lawful activity duly approved by the Reserve Bank of India
cannot fall under the mischief of the said Act.
26. According to the appellant, the company started its
activities only after getting license from the Reserve Bank of
India and the depositors were legally invited to invest in the
company thereafter and respondent no.2 was one of the
depositors. Admittedly, in the liquidation proceedings, more
than 55% of outstanding company's liabilities had been
cleared despite the company having been wound up.
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27. The appellant submitted that a complaint under section
420 IPC stands on a different footing than a complaint under a
special statute. Unlike special statutes, like the Negotiable
Instruments Act which casts a vicarious liability on officers in
charge of and responsible for the company in an offence under
the Indian Penal Code, there is no role for vicarious liability.
The appellant has also alleged that even assuming that the
company can be said to have committed an offence, this would
not be enough to sustain a complaint against any officer of the
company for an offence under the Indian Penal Code unless an
allegation or material of the said officer having been involved
in the commission of the offence is made out. Any special
provision like section 141 of the Negotiable Instruments Act, a
deemed provision is included where if the offence is committed
by a company, the officers responsible for the conduct of the
business of the company are deemed to be liable and a
presumption of their liability arise unless duly discharged by
them. There is no such presumption under the Indian Penal
Code and while so necessary allegation/ material must be
available not merely against the company but also against the
accused persons as having participated in such offence. In
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the instant case, there is not even a whisper anywhere either
in the complaint or in any material collected to show a direct
participation of the appellant who was merely included on the
ground that, once upon a time, he was one of the Directors of
the company.
28. The appellant also submitted that even assuming that
there could have been a vicarious liability thrust on the
appellant, even then there cannot be any such vicarious
liability in absence of any allegations and material to show
that the appellant was in charge of or responsible for the
conduct of the company's business which had given rise to the
offence. In the instant case, the appellant ceased to be the
Director of the company w.e.f. 27.12.1997 following his
resignation on 8.12.1997, which fact was also recorded in the
Statutory Form 32 filed before the Registrar of Companies.
The complaint itself expressly stated that the offence had
taken place only thereafter and in fact the FIR expressly stated
that the occurrence of offence was between 24.5.1998 and
17.9.1999. At that stage, the appellant had admittedly ceased
to be a Director of the company and was not even connected
with the company in any manner at the time when the alleged
15
offence was committed and cannot be prosecuted in respect of
such acts of the company.
29. The appellant, in order to strengthen his stand, has
placed reliance on a numbers of judgments of this Court.
Reliance has been placed on the case of Hira Lal Hari Lal
Bhagwati v. CBI, New Delhi (2003) 5 SCC 257. In this case,
the Court has observed that for establishing the offence of
cheating, the complainant is required to show that the
accused had fraudulent or dishonest intention at the time of
making promise or representation. From his failure to keep
promise subsequently, such a culpable intention right at the
beginning cannot be presumed.
30. Reliance has also been placed on another case between
Uma Shankar Gopalika v. State of Bihar & Another (2005)
10 SCC 336, in which this Court observed that it is well
settled that every breach of contract would not give rise to an
offence of cheating and only in those cases breach of contract
would amount to cheating where there was any deception
played at the very inception. If the intention to cheat has
developed later on, the same cannot amount to cheating.
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31. The learned counsel for the appellant also relied on the
case of S.V.L. Murthy etc. v. State represented by CBI,
Hyderabad (2009) 6 SCC 77, in which this Court observed as
under:
"41. An offence of cheating cannot be said to have
been made out unless the following ingredients are
satisfied:
(i) deception of a person either by making a false
or misleading representation or by other action
or omission;
(ii) fraudulently or dishonestly inducing any
person to deliver any property; or
(iii) to consent that any person shall retain any
property and finally intentionally inducing that
person to do or omit to do anything which he
would not do or omit.
For the purpose of constituting an offence of
cheating, the complainant is required to show that
the accused had fraudulent or dishonest intention
at the time of making promise or representation.
Even in a case where allegations are made in regard
to failure on the part of the accused to keep his
promise, in the absence of a culpable intention at
the time of making initial promise being absent, no
offence under Section 420 of the Penal Code can be
said to have been made out."
32. In Vir Prakash Sharma v. Anil Kumar Agarwal (2007)
7 SCC 373, this Court observed as under:
"13. The ingredients of Section 420 of the Penal
Code are as follows:
(i) Deception of any persons;
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(ii) Fraudulently or dishonestly inducing any
person to deliver any property; or
(iii) To consent that any person shall retain
any property and finally intentionally
inducing that person to do or omit to do
anything which he would not do or omit.
No act of inducement on the part of the
appellant has been alleged by the respondent. No
allegation has been made that he had an intention
to cheat the respondent from the very inception."
33. This Court in Pepsi Foods Ltd. & Anr. v. Special
Judicial Magistrate & Ors. (1998) 5 SCC 749 observed as
under:
"28. Summoning of an accused in a criminal case is
a serious matter. Criminal law cannot be set into
motion as a matter of course. It is not that the
complainant has to bring only two witnesses to
support his allegations in the complaint to have the
criminal law set into motion. The order of the
Magistrate summoning the accused must reflect
that he has applied his mind to the facts of the case
and the law applicable thereto. He has to examine
the nature of allegations made in the complaint and
the evidence both oral and documentary in support
thereof and would that be sufficient for the
complainant to succeed in bringing charge home to
the accused. It is not that the Magistrate is a silent
spectator at the time of recording of preliminary
evidence before summoning of the accused. The
Magistrate has to carefully scrutinise the evidence
brought on record and may even himself put
questions to the complainant and his witnesses to
elicit answers to find out the truthfulness of the
allegations or otherwise and then examine if any
offence is prima facie committed by all or any of the
accused."
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34. The learned counsel appearing for the State of Karnataka
supported the impugned judgment of the High Court and
submitted that no interference is called for by this court. He
placed reliance on the case of State of Haryana & Others v.
Bhajan Lal & Others 1992 Supp (1) SCC 335 in which this
Court observed as under:
".....that the power of quashing a criminal
proceeding should be exercised very sparingly and
with circumspection and that too in the rarest of
rare cases; that the court will not be justified in
embarking upon an enquiry as to the reliability or
genuineness or otherwise of the allegations made in
the FIR or the complaint and that the extraordinary
or inherent powers do not confer an arbitrary
jurisdiction on the court to act accordingly to its
whims or caprice."
35. The learned counsel for the State also submitted that, in
the instant case, the FIR was not only registered under section
420 IPC but under sections 3, 4, 5 and 6 of the Prize Chits
and Money Circulation Schemes (Banning) Act, 1978.
36. He also placed reliance on the case of Rajesh Bajaj v.
State NCT of Delhi & Others (1999) 3 SCC 259, in which
this Court, while dealing with section 482 Cr.P.C. has held as
under:
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"It is not necessary that a complainant should
verbatim reproduce in the body of his complaint all
the ingredients of the offence he is alleging. Nor is it
necessary that the complainant should state in so
many words that the intention of the accused was
dishonest or fraudulent. Splitting up of the
definition into different components of the offence to
make a meticulous scrutiny, whether all the
ingredients have been precisely spelled out in the
complaint, is not the need at this stage. If factual
foundation for the offence has been laid in the
complaint the court should not hasten to quash
criminal proceedings during investigation stage
merely on the premise that one or two ingredients
have not been stated with details. For quashing an
FIR (a step which is permitted only in extremely rare
cases) the information in the complaint must be so
bereft of even the basic facts which are absolutely
necessary for making out the offence".
37. The learned counsel for the State further submitted that
the mere settlement of the case with the complainant on
whose complaint the initial FIR was lodged does not dislodge a
criminal prosecution by the State. Several other witnesses
exist who would testify to the transactions and it would be up
to the trial court to test the prosecution case.
38. Reliance was also placed on the case of Medchl
Chemicals & Pharma (P) Ltd. v. Biological E.Ltd. &
Ors.(2000) 3 SCC 269, wherein this Court observed as under:
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"Needless to record however and it being a settled
principle of law that to exercise powers under Section
482 of the Code, the complaint in its entirety shall have
to be examined on the basis of the allegation made in
the complaint and the High Court at that stage has no
authority or jurisdiction to go into the matter or
examine its correctness. Whatever appears on the face
of the complaint shall be taken into consideration
without any critical examination of the same. But the
offence ought to appear ex facie on the complaint".
39. It is further submitted by the counsel for the State that
the complaint clearly disclosed the offences under sections 3,
4, 5 and 6 of the Act and also offence under section 420 IPC.
40. Reliance has been placed by the learned counsel for the
State that this Court in Kuriachan Chacko & Others v.
State of Kerala (2008) 8 SCC 708, while dealing with the
Prize Chits and Money Circulation Schemes (Banning) Act, has
held that:
"21. The Preamble of the 1978 Act declares that it has
been enacted "to ban the promotion or conduct of prize
chits and money circulation schemes and for matters
connected therewith and incidental thereto".
22. Section 2 is legislative dictionary and defines certain
terms. The phrase "money circulation scheme" is
defined in clause (c) which reads as under:
2.(c) `money circulation scheme' means any
scheme, by whatever name called, for the
making of quick or easy money, or for the
receipt of any money or valuable thing as the
consideration for a promise to pay money, on
any event or contingency relative or
applicable to the enrolment of members into
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the scheme, whether or not such money or
thing is derived from the entrance money of
the members of such scheme or periodical
subscriptions;
In this case, it was further held that:
"39. We are unable to agree with the learned counsel.
The courts below rightly held that prima facie case had
been made out against the accused. Both the
ingredients necessary for application of Section 2(c) of
the Act are present in the case on hand. The trial court,
for coming to that conclusion, referred to certain
documents. The advertisement clearly declared that a
member would get double the amount when after his
enrolment, two members were enrolled under him and
thereafter, 4 other persons were enrolled and after the
enrolled 4 persons, 8 persons were enrolled under them.
Thus, only after 14 persons under the first enrolled
person become members under the Scheme, the first
person would get Rs.1250 i.e. double the amount of
Rs.625 (1+2+4+8). The trial court also noted that
Kuriachan Chacko (Accused 1) who proposed the
project for implementation, described how the project
would work from which also it is clear that the double
amount will be given to a person who purchases a unit
only after 14 persons are enrolled subsequent to him."
41. We have carefully considered the rival contentions. It
emerges that:
a) In the instant case, the appellant ceased to be a
Director of the company from 27.12.1997
whereas the alleged offences, if any, were
committed during the period from 24.5.1998 to
17.9.1999.
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b) Admittedly, there are no allegations against the
appellant in the First Information Report.
c) The company had invited investment from the
depositors to invest in the business/benefit funds
after receiving due approval of the scheme from
the Reserve Bank of India. Therefore, in any
event, the element of cheating as alleged cannot
be made out by any stretch of imagination.
d) The complainant/respondent no.2 submitted in
writing to this Court that he does not want to
proceed against the appellant because according
to him the appellant has been inadvertently
included as an accused by the Investigating
Officer. He further mentioned in the letter that
he had already received 55% of the deposited
amount from the Official Liquidator and he did
not want to proceed against the appellant.
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e) Even assuming that there could have been a
vicarious liability thrust on the appellant, even
then there cannot be any such vicarious liability
in absence of any allegations and material to
show that the appellant was in-charge of or
responsible for the conduct of the company's
business which had given rise to the offence.
From any angle of the matter, the appellant
cannot be compelled to face the criminal trial in
this case.
42. The inherent power should not be exercised to stifle the
legitimate prosecution but at the same time no person be
compelled to face criminal prosecution if basic ingredients of
the alleged offence against him are altogether absent.
43. On consideration of the totality of the facts and
circumstances of this case, the impugned judgment of the
High Court is set aside and the appeal is allowed and the
proceedings initiated against the appellant on the basis of the
complaint registered as CC 22656 of 2001 pending before the
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Xth Addl. Chief Metropolitan Magistrate, Bangalore, are
quashed.
44. As a result, this appeal is allowed.
.................................J.
(Dalveer Bhandari)
.................................J.
(A.K. Patnaik)
New Delhi;
August 12, 2010.
