Holding

The High Court was justified in quashing the criminal proceedings as the complaint lacked any allegation of fraudulent intent and the matter was essentially a civil dispute.

Summary

Alpic Finance Ltd., a non‑banking financial company, financed Rs 92.5 million for the purchase of 100 dental chairs for a trust run by the respondents under a lease‑hire purchase agreement. The respondents defaulted on rental instalments and some chairs were found missing, prompting Alpic to file a private criminal complaint alleging cheating, criminal breach of trust and misappropriation under Sections 420, 406, 423 and 120‑B IPC, and to obtain a search warrant under Section 93 CrPC. The magistrate issued process and the warrant, but the respondents obtained a quashing of the proceedings under Section 482 CrPC from the Karnataka High Court, which also ordered the return of seized property. On appeal, the Supreme Court held that the complaint did not allege any fraudulent or dishonest inducement and that the dispute was essentially civil; consequently, the High Court was justified in exercising its power under Section 482 to quash the criminal proceedings. The appeal was dismissed.

Issues considered

The appropriateness of invoking Section 482 CrPC to quash the criminal complaint.
Whether the complaint disclosed the essential ingredients of offences such as cheating and criminal breach of trust.
Whether a civil dispute arising from a lease‑finance default can be pursued as a criminal prosecution.

Legislation cited

Code of Criminal Procedure, 1973s. 200, s. 482, s. 93
Indian Penal Code, 1860s. 120-B, s. 406, s. 420, s. 423, s. 424

Subjects

criminal breach of trustcheatinglease financeSection 482 CrPCquashing of criminal proceedingscivil vs criminal jurisdictionfraudmisappropriationdefaulthire purchase

Judgment

ALPICFINANCE LTD. A
v.
P. SADASIVAN AND ANR.

FEBRUARY 16, 2001

[S. RAJENDRA BABU AND K.G. BALAKRISHNAN, JJ.] B

Penal Code, 1860/Criminal Procedure Code, 1973-Sections 420, 406,
423, 42./ r/11• 120-BI 93. 482-Lease finance for purchase of dental chairs-
Default in payment of rental instalments by respondents to finance company-
Missing of certain chairs from the premises of respondents-Complaint for C
criminal breach of trust and misappropriation-High Court quashing the
criminal proceedings-Held, there was no wilful misrepresentation or
fraudulent inducement by re;,pondents at the time of entering into lease
agreement-Quashing of criminal proceedings justified.

Appellant, a non-banking financial company, financed an amount of D
Rs. 92,50,000 to respondents, who are trustees of a trust running a Dental
College, for purchase of 100 hydraulically operated dental chairs through a
lease agreement. The respondents were liable to pay rentals to the appellant
quarterly, The respondents defaulted in the payment of rentals. The appellant,
on physical ·verification, found certain chairs missing from the premises of E
the respondent. The appellant made a complaint before Chief Metropolitan
Magistrate for criminal breach of trust and misappropriation of property
under Sections 420, 406, 423, 424 r/w 120-B l.P.C. The appellant also made
an application under Section 93 Cr.P.C. for issue of warrant for search and
seizure of the property from the premises of the respondent. The Magistrate
issued summons to the respondents and issued a search warrant. The F
respondents challenged the proceedings before High Court under Section
482 Cr.P.C. The High Court quashed thl' proceedings before the Magistrate
and directed the appellant company to return all the properties seized by the
Police pursuant to the issue of search warrant.

In appeal to this Court, the appellant contended that the allegations in
G
the complaint was clearly made out for criminal breach of trust or cheating
and misappropriation of the property by the respondent under the provisions
of the I.P.C.
,-
The respondents contended that the complaint was filed before the
1059 H .·~
1060 SUPREME COURT REPORTS [2001] I S.C.R.

A Magistrate with a ma/a fide intention to harass the respondents; that the
finance lease transaction between the parties was of civil nature; that a
substantial amount has been repaid to the appellant as per the lease agreement;
that the default in payment was not wilful; that there was no intention of
misappropriation or cheating; and that there was no removal of disputed
B property clandestinely to defeat the interest of the appellant

Dismissing the appeal, the Court

HELD : I.I. 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 and may also constitute the
C 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 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
D criminal breach of trust or cheating. To deceive is to induce a man to believe
that a thing is true which is actually false and the person, who is deceiving
knows or believes it 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.
In the complaint, there is no allegation that there was fraud or dishonest
E inducement on the part of the respondents and thereby the appellant 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 he, having accepted the pecuniary advantage involved in
the transaction, fails to pay his debt, he does not necessarily evade the debt by
F deception. The appellant has no case that the respondents obtained the article
by any fraudulent inducement or by wilful misrepresentation. The respondents,
though defaulted some instalment, have paid substantial amount towards the
consideration.11066-E-G; 1067-A-B-C]

1.2. It is difficult to discern an element of deception in the whole
G transaction, whereas it is palpably evident that the appellant had an oblique
motive of causing harassment to the respondents by seizing the entire articles
through magisterial proceedings. The High Court was justified in quashing
the proceedings of the Magistrate under Section 482 Cr.P.C.11067-DI

Smt. Nagawwa v. Veeranna Shivalingappa Konja/gi & Ors., 119761 3
H SCC 736; State o/Haryana & Ors. v. Bhajan Lal & Ors., 119921Supp.1 SCC
ALPIC FINANCE LTD. v. P. SADASIVAN [BALA KRISHNAN, J.] 1061

- ....,,. 335; Rupan Deal Bajaj (Mrs.) & Anr. v. Kanwar Pal Singh Gill & Anr.,
119951 6 SCC 194; Madhavrao Jiwajirao Scindia & Ors. v., Sambhajirao
A

Chandrojirao Angre & Ors., 119881 1 SCC 692; Trisuns Chemical Industry v.
Rajesh Agarwal & Ors., 11999) 8 SCC 686 and Pratibha Rani v. Suraj Kumar,
(1985) 2 sec 370, referred to.

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. B
194 of2001.

From the. Judgment and Order dated 22.11.99 of the Karnataka High
Court in Cr!. R.P. No. 327of1999.

P.S. Mishra, Mangal Charan S. Inna and S.R. Setia for the Appellant. c

~
R. Y.enkataramani, S. Sunil and Satya Mitra Garg, for the Respondents.

The Judgment of the Court was delivered by

BALAKRISHNAN, J. Leave granted. D

The appellant is a registered company having its head office at Mumbai.
It is a non-banking financial institution functioning under the regulation of
the Reserve Bank of India. It is carrying on business, inter alia, of leasing
and hire purchase. The first respondent is the Chairman and founder trustee
E
of a trust by name 'Visveswaraya Education Trust'. The second respondent,
wife of the first respondent is also a trustee. The trust runs a dental college
by name Rajiv Gandhi Dental College. The respondents entered into an
agreement with the appellant company whereby the appellant agreed to finance
the purchase of JOO hydraulically operated dental chairs. The total cost of the
~
chairs was around Rs. 92,50,000. The appellant company agreed to finance the F
respondents for the purchase of these chairs through a lease agreement and
as per the agreement, the respondents were liable to pay rentals quarterly. Ttie
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
G
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 H
1062 SUPREME COURT REPORTS [200 l] 1 S.C.R.

A 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 company filed a private complaint
under Section 200 Cr. P.C. before the Chief Metropolitan Magistrate, Bangalore
B alleging that the respondents had committed offences under Sections 420, 406
and 423 read with Section 120-8 l.P.C. In that proceedings, the appellant
company moved an application under Section 93 Cr. P.C. to issue a search
warrant to seize the property in dispute and also to hand over these items
to the complainant. The learned Magistrate took cognisance of the alleged
C complaint and issued summons to the respondents and passed an order on
the application filed under Section 93 of the Cr. P.C. 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 Cr.P.C. before the learned Single Judge of the Karnataka High
Court at Bangalore. The learned Single Judge was pleased to quash the entire
D proceedings and directed the appellant company to return all the properties
seized by the Police pursuant to the warrant issued by the learned Magistrate.
Thus, the order of the learned Magistrate taking cognisance and issuing
process to- the respondents as well as the order of search and the direction
for restoration of the property to the appellant company were set aside.
E Aggrieved by the same, the appellant company has preferred this appeal.

We heard the learned counsel on either side. Learned senior Counsel
for the appellant company Mr. P.S. Mishra argued in detail and contended that
the learned Single Judge has seriously erred in quashing the proceedings
under Section 482 Cr. P.C. The learned counsel for the appellant company
F contended ihat the allegations in the complaint clearly made out offences
punishable under Sections 420, 406, 423, 424 read with Section 120-B l.P.C.
The learned Counsel for the respondents, on the other hand, contended that
the complaint was filed only to harass the respondents and it was motivated
by ma/a fide intention. It was argued that the entire transaction was of civil
G 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 iteins of the disputed property clandestinely to
defeat the interest of the appellant.

H The short question arising for consideration is whether the learned
ALPIC FINANCE LTD. v. P. SADASIVAN [BALAKRISHNAN, .J.] 1063

Single Judge was justified in invoking the powers under Section 482 Cr.P.C. A
in setting aside the proceedings pending before the Magistrate.

Contours of the power under Section 482 Cr. P.C. have been explained
in series of decisions by this Court. In Smt. Nagawwa v. Veeranna
Shivalingappa Konjalgi and Others, [ 1976] 3 SCC 736, it was held that the
Magistrate while issuing process against the accused should satisfy himself B
J. as to whether the allegations in the complaint, if proved, would ultimately end
in the conviction of the accused. It was held that the order of Magistrate
issuing process against the accused could be quashed under ·the following
circumstances:

(I) Where the allegations made in the complaint or the statements C
. of the witnesses recorded in support of the same taken at their
face value make out absolutely no case against the accused or
the complaint does not disclose the essential ingredients of an
offence which is alleged against the accused;

(2) Where the allegations made in the complaint are patently absurd D
and inherently improbable so that no prudent person can ever
reach a conclusion that there is sufficient ground for proceeding
against the accused;

(3) Where the discretion exercised by the magistrate in issuing
process is capricious and arbitrary having been based either on E
no evidence or on materials which are wholly irrelevant or
inadmissible; and

(4) Where the complaint suffers from fundamental legal defects,
such as, want of sanction, or absence of complaint by legally
competent authority and the like. F
In State of Haryana and Ors. v. Bhajan Lal and Others, (1992] Supp.
I SCC 335, a question came up for consideration as to whether quashing of
the FIR tiled against the respondent Bhajan Lal for the offences under Sections
161 & 165 of !PC and Section 5(2) of the Prevention of Corruption Act was G
~ proper and legal. Reversing the order passed by the High Court, this Court
explained the circumstances under which such power could be exercised.
Apart from reiterating the earlier norms laid down by this Court, it was further
explained that such power could be exercised where the allegations made in
the FIR or complaint are so absurd and inherently improbable on the basis
of which no prudent person can ever reach a just conclusion that there is H
1064 SUPREME COURT REPORTS [200 I] I S.C.R.

A sufficient ground for proceeding against the accused. However, this court in
Rupan Deal Bajaj (Mrs.) and Anr. v. Kanwar Pal Singh Gill & Anr., [1995]
6 SCC 194, held that "at the stage of quashing FIR or complaint, the High
Court is not justified in embarking upon an enquiry as to the probability,
reliability or genuineness of the allegations made therein."

B 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 civil suit. In one case reported
in Madhavrao Jiwajirao Scindia and Others v. Sambhajirao Chandrojirao
Angre and Others, [ 1988] I SCC 692, this Court held that if the allegations
C 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
D 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
E 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 :
+
F "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,
G
including the trust deed as also the correspondence following the
creation of the tenancy, the submissions advanced on behalf of the
parties, the natural 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
H must be held that the criminal case should not be continued."
ALP!C FINANCE LTD. v. P. SADASIVAN [BALAKRISHNAN, J.J 1065

In another case recently "decided by this Court in Trisuns Chemical A
Industry v. Rajesh Agarwal and Other, [ 1999] 8 SCC 686, the complainant
company had ·alleged that the directors of another company offered to supply
"toasted soyabean extractions" for a price higher than the market price. The
Complainant Company had to pay the price in advance as demanded by the
accused company. Complainant paid the amount through cheques. However, B
the accused supplied the commodity, which was of most inferior and sub-
standard quality and the complainant suffered a loss of Rs. 17 lakhs. The
Complainant alleged that he was induced to pay the price on the representation
that the best quality commodity would be supplied. A criminal complaint was
filed alleging commission of the offence punishable under Section 420-A. The
Magistrate forwarded the complaint for investigation under Section 156(3) Cr. C
PC. The accused directors moved the High Court for quashing the complaint
alleging that the dispute was purely of a civil nature and hence no prosecution
should have been permitted. The High Court accepted this plea and the
complaint was quashed. But this court held in paras 8 and 9 of the judgment
as follows:
D
" ......... merely because an act has a civil profile is not sufficient to
denude it of its criminal outfit.

E

We are unable to appreciate the reasoning that the prov1s1on
incorporated in the agreement for referring the disputes to arbitration
is an effective substitute for a criminal prosecution when the disputed
act is an offence. Arbitration is a remedy for affording reliefs to the
party affected by breach of the agreement but the arbitrator cannot· F
conduct a trial of any act, which amounted to an offence, albeit the
same act may be connected with the discharge of any function under
the agreement. Hence, those are not good reasons for the High Court
to axe down the complaint at the threshold itself. The investigating
agency should have had the freedom to go into the whole gamut of G
the allegations and to reach a conclusion of its own. Pre-emption of
such investigation would be justified only in very extreme cases."

In Pratibha Rani v. Suraj Kumar, [1985] 2 SCC 370, the question arose
that when the civil as well as criminal remedy is available to a party, can a
criminal prosecution be completely barred. In this case, the matter related to H
1066 SUPREME COURT REPORTS [200 I) I S.C.R.

A the Stridhan property. The coinplainant alleged that her husband, father-in"
law and other relatives misappropriated her jewellery and other valuable
articles entrusted to them by her parents at the time of marriage. The
complainant alleged that these dowry articles were meant for her exclusive use
~· -
and that the accused misbehaved and maltreated her and ultimately he turned
B her out without returning the dowry articles. The accused filed a criminal
miscellaneous petition under Section 482 for quashing the Criminal proceedings
and the High Court quashed the same. The accused contended that the
dispute was of a civil nature and no criminal prosecution would lie. Under that
circumstance, this court held in paragraph 21 at page 382 as under: -

c " ... There are a large number of cases where criminal law and civil law
can run side by side. The two remedies are not mutually exclusive but
clearly coextensive and essentially differ in their content and
consequence. The object of the criminal law is to punish an offender
who commits an offence against a person, property or the State for
which the accused, on proof of the offence, is deprived of his liberty
D and in some cases even his life. This does not, however, affect the
civil remedies at all for suing the wrongdoer in cases like arson,
accidents, etc. It is an anathema to suppose that when a civil remedy
is available, a criminal prosecution is completely barred. The two
types of actions are quite different in content, scope and import...."
E
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 basis of civil claim and may also constitute
the ingredients of some crime punishable under criminal law. When there is
F dispute between the parties arising out of a transaction involving passing of +
valuable properties between them, the aggrieved person may have 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
G is that respondents committed the offence under Section 420 l.P.C. and the
case of the appellant is that 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 practicing
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
H offence. There is no allegation that the respondents made any wilful
ALPIC FINANCE LTD. v. P. SADASIVAN [BALAKRISHNAN, J.] 1067

misrepresentation. Even according to the appellant, parties entered into a A
~ y. 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 B
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.

Moreover, the appellant has no case that the respondents obtained the
article by any fraudulent inducement or by willful misrepresentation. We are C
told that respondents, though committed default in paying some insta'.lments,
have paid substantial amount towards the consideration.

Having regard to the facts and circumstances, it is difficult to discern
an element of deception in the whole transaction, whereas it is palpably
evident that the appellant had an oblique motive of causing harassment to D
the respondents by seizing the entire. articles through magisterial proceedings.
We are of the view that the learned judge was perfectly justified in quashing
the proceedings and we are disinclined to interfere in such matters.

The appeal is dismissed with no order as to costs.
E
B.S. Appeal dismissed.