Supreme Court of India
CENTRAL BUREAU OF INVESTIGATION, SPE, SIU (X), NEW DELHIversusDUNCANS AGRO INDUSTRIES LTD. CALCUTTA
- Citation
- 1996 INSC 720
- Decided
- 9 July 1996
- Disposal
- Dismissed
- Bench
- G N RAY
Holding
A complaint may be quashed under Section 482 CrPC only if, on its face, the allegations do not constitute a criminal offence; the FIRs in this case failed to disclose a prima facie offence of criminal breach of trust, forgery or cheating, and given the civil settlement and delay, proceeding with the complaints was not expedient.
Summary
The Central Bureau of Investigation (CBI) sought to continue investigations into two FIRs alleging criminal breach of trust, forgery and cheating against Duncans Agro Industries Ltd. and its officers. The Calcutta High Court quashed the FIRs, holding that the allegations did not prima facie constitute an offence and that the matter was essentially a civil dispute already resolved by the banks. On appeal, the Supreme Court examined whether the FIRs, on their face, disclosed a cognizable offence and whether the expression “entrusted with property” under Section 405 IPC covered hypothecated stock. It held that hypothecation does not amount to entrustment of property and that the FIRs failed to disclose a criminal breach of trust, forgery or cheating. Moreover, the banks’ civil suits had been settled and a long lapse of time made further investigation impracticable, rendering continuation of the criminal proceedings not expedient. Consequently, the Court upheld the High Court’s order quashing the FIRs and dismissed the appeals.
Issues considered
- The adequacy of the FIRs on their face to disclose offences of criminal breach of trust, forgery and cheating.
- Whether hypothecated stock can be considered ‘property entrusted’ under Section 405 IPC.
- Whether the existence of parallel civil suits and settlement of bank claims precludes further criminal prosecution.
- Whether the offences alleged are compoundable and thus barred by compromise.
- Whether the High Court was justified in exercising its power under Section 482 CrPC to quash the FIRs.
Legislation cited
- Code of Criminal Procedure, 1973s. 482
- Companies Act, 1956s. 125, s. 394(2)
- Indian Penal Code, 1860s. 405, s. 406, s. 409, s. 420, s. 467, s. 468, s. 471
Subjects
criminal breach of trustentrustmenthypothecationSection 482 CrPCFIR quashingcompoundable offencecivil vs criminal jurisdictionbanking fraudcorporate restructuringdelay in investigation
Judgment
A CENTRAL BUREAU OF INVESTIGATION, SPE, SIU (X),
NEW DELHI
v.
DUNCANS AGRO INDUSTRIES LTD. CALCUTTA
JULY 9, 1996
B
[G.N. RAY AND G.B. PATTANA!K, JJ.]
Criminal Procedure Code, 1973-Section 482-Quashing criminal com-
C plaint-Guiding p1inciples-Held, action to be taken at the threshold before
evidence led in suppolt of the complaint-It is necessmy to consider whether
on the face of allegation;~ a criminal offence is constituted or not-C01;1plaint
for offences u/Ss. 120B, 409, 420, 467, 468 & 471-Allegations did not make
out any offence-Claims of Bank satisfied in civil suits-Long time elapsed
since complaint was filed in 1987-Proceeding fwther with the complaint will
D not be expedient-Decision of High Coult quashing complaint justified.
Indian Penal Code, 1860-Sections 405, 406, 409-Criminal Breach of
Tnlst--Offence of-Expression 'entrusted with prope1ty' or with any dominion
over property'-Scope-Held, apression includes all cases in which goods are
entmsted and dishonestly disposed of in violation of law or in violation of
E contract-Ownership or beneficial interest in ownership of the property
entmsted must be in some person other than the accused-Cash Credit
facilities on hypothecation of stocks etc. with Bank-Whether constitute
entrustment-Held, No.
F F!Rs were lodged by the Central Bureau of Investigation for the
commission of offences u/s 120B r/wSs 409, 420, 467, 468 and 471 Indian
Penal Code. The allegations made were that the accused had conspired
with a criminal design to defraud the Hank and to deliberately misap-
propriate the huge stock lying at different places. It was alleged that Mis
National Tobacco Company which was a division of the respondent Com-
G pany had cash credit facilities on hypothecation of stocks etc. with United
Bank of India, to the tune of Rs. 17.50 crores subject to the drawing power
according to hypothecation of raw materials/stocks etc.; that the respon- •
dent obtained an order from the Court that National Tobacco Company
would henceforth function under the name and style of New Tobacco
H Company Ltd. which would be fully owned subsidiary of respondent Com-
360
C.B.l. v. DUNCANS AGRO JNDs.1;m. 361
pany, approached the united Bank of India to transfer the credit limits A
standing in their name to M/s. New Tobacco Company and thereafter the
Board of Directors of the United Bank resolved that the credit limits of
the Bank in res1iect of National Tobacco Company, would be allowed to be
transferred in the new account of new Tobacco Company with retrospective
effect \\ithout specil)ing whether stocks had been inspected and how the
B
Bank would remain a secured creditor of the respondent Company; that
the Board of Directors of the United Bank of India were misled because
of the omissions and commissions of the ollicials of the Bank and the
Board of Directors acted on legal opinion of the Chief Ollicer (Legal)
although such opinion was detrimental to the interest of the Bank; that
credit limits were got transferred to the New Tobacco Company and C
respondent managed with the Executives and Directors of the Bank to
transfer the debts of the respondents to 'Nil' mthout any payment; that
the Directors of the New Tobacco Company assured the United Bank that
the Board's resolution would be furnished to the Bank to the effect that
without the Bank's written consent, the holding level of percentage of D
shares in the New Tobacco Company by respondent Company would not
defraud the Bank and to nullify the assurance given, the respondent
Company entered into a memorandum of understanding mth New Tobac-
co Company in order to render the very basis of the scheme approved by
the High Court infructuous and to complete the delinking of the respon- ·
dent company and New Tobacco Company so that the assets of the respon- E
dent Company would remain out of reach of its cre~itors and by such
process, the Bank was defrauded; that the stock worth about Rs. 12 crores
were either fraudulently or dishonestly removed or disposed ofmthout any
payment to the Bank although the same were hypothecated mth the Bank,
that the Chairman of the respondent Company, Director, New Tobacco F
Company and Director, National Tobacco Company along mth some Bank
Officers, General Manager, the Chief Ollicer (Legal), Law Officer, Assis-
tant Manager (Advances) of United Bank of India and other persons had
conspired mth a criminal design to defraud the Bank and to deliberately
misappropriate the huge stock lying at different places.
G
The respondent Company filed criminal revision for quashing the
F!Rs lodged by the Central Bureau of investigation. The High Court al-
lowed the revisions and quashed the impugned F!Rs. Hence these appeals.
The appellants submitted that the F!Rs contained allegations of acts H
362 SUPREME COURT REPORTS 11996] SUPP. 3 S.C.R.
A \\'hich constituted essential ingredients of the offences of misappropriation
of' the property entrusted to the Bank, forgery, creating false documents,
cheating, causing dan1age to the Bank, etc. etc.; that the investigation had
not been completed in respect of the allegations made in the FIR and at
that stage, the High Court must accept each of the allegations made in the
FIR as correct on its face value for the purpose of determining as to
B
whether the ingredients of the offence alleged in the FIR are contained
therein or not and that the High Court was nut justified in quashing the
Ff Rs so as to Strangulate the investigations at the inception and what value
to be attached to the allegations made in the FIR is tu be examined at trial
when on the basis of FIR charge sheet will be framed; that it was not
C alleged that the FJRs were made with an oblique or malafide purpose,
hence !be same were not liable tu be <1uashed even before completing the
investigations; that a particular act may constitute both civil wrong as well
as criminal ttrong but merely because civil action is also pursued, such
course nf action does not render criminal action itnpermissible and to
D quash an FIR on the ground that a civil remedy has already been invoked
\\'ould be destructive to the object of the legislation and that in cases \\'here
civil and criniinal remedies are sought to be pursued, the criminal case
has to be given preference over civil cases; that in a case grave misap ..
propriation of huge amounts of public funds, delay caused by the accused
could not be valid ground for quashing the criminal proceedings and that
E in such circumstances, the CBI should be permitted to proceed with the
investigation for the purpose of framing the chargesheet.
The respondents submitted that the two FIRs did not make out any
offence of criminal breach of trust, forgery or cheating; that when the
F Board of Directors of the United Bank approved the transfer of credit
facilities, there was no question of the Board being misinformed of the
material facts in the matter; that even if the legal opinion of the Chief
Officer (Legal) was not correct, no ill motive could be assigned to !bat
Officer because the opinion itself was placed for consideration by the
highest administrative body of the Bank; that there was no false statement
G in the declaration of stocks and since the stocks were 'hypothecated' and
not 'pledged' with the bank, the debtor was always entitled to remove any •
part of those stocks and sell them from time to time and that the value of
the hypothecated property continued to be much more than the amount of
loan at any point of time and even if there is a contractual term that the
H value of the hypothecated stocks should not be allowed to go down below
C.B.l. v. DUNCANS AGRO INDS. L1D. 363
a particular amount, there n1ay be breach of contract enti.tling the Bank A
to take civil proceeding for damages against the debtor; that the essential
ingredients of criminal breach of trust being entrustment of property or
ent.rust1nent of dominion over property, the grant of credit facility or
giving of a loan in pursuance of that credit facility cannot possibly amount
to entrustment of property and even if there is any contravention of the
B
terms of the contract under \Yhich credit facilities are given, it \Viii be
merely a breach of contract for which the Bank may make debtor liable
for dan1ages under the civil law and there ,rill be no occasion for commit-
ting any offence of criminal breach of trust; that no offences u/Ss 467, 468
and 471 IPC even prima facie had been committed even on the face value
of the allegations in the FIR and no element of forgery could be assigned C
on account of signing by a Junior Officer of the Bank as Chief ~1Ianager
which post was not occupied by hi1n as it was in the usual course of
business of the Hank; that there \'Vas not any reference to any false
representation about the existence of' stocks on any particular day, there-
fore no offence of cheating was made out even prima facie and it \l'as D
\\Tongly stated by the CBI that the grant of credit facility amounted to
delivery of property; that even if an offence of cheating was n1ade out, the
offence being compoundable & disputes having been compromised in the
civil suits filed by the Banks, it \\ill no longer be a fit case for carrying out
further investigation in respect of the offences alleged after such a long
lapse of time and no interference by this Court under Article 136 of the E
Constitution against the impugned decision of the High Court was called
for; that the challenge to the FIR has been made after more than four
years, the investigations had not yet been completed and when the interest
of the Banks had been safeguarded in the civil suits, no useful purpose will
be served in proceeding with further investigation after such a long lapse F
of time.
Dismissing the appeals, this Court
HELD 1.1. For the purpose of quashing the complaint, it is necessary
to consider whether the allegations in the complaintprima facie make out G
an offence or not. It is not necessary to scrutinise the allegations for the
purpose of deciding whether such allegations are likely to be upheld in the
trial. Any action by way of quashing the complaint is an action to be taken
at the threshold before evidences are led in support of the complaint. For
quashing the complaint by way of action at the threshold, it is, therefore, H
364 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A necessary to consider whether on the face of the allegations, a crin1inal
offence is constituted or not. [382-E-F]
1.1. The expression 'entrusted with property' or •,vith any dominion
over property' has been used in a wide sense in Section 405 J.P.C. Such
B expression includes all cases in which goods are entrusted, that is, volun-
tarily handed over for a specific purpose and dishonestly disposed of in
violation of law or in violation of contract. The expression 'entrusted'
appearing in Section 405 I.P.C is not necessarily a term of law. It has wide
and different implications in different contexts. It is, however, necessary
that the mrnership or beneficial interest in the ownership of the property
C entrusted in respect of which offence is alleged to have been committed
must be in some person other than the accused and the latter must hold
it on account of some person or in some \Vay for his benefit., The expression
'trust' in Section 405 J.P.C. is a comprehensive expression and has been
used to denote various kinds of relationship like the relationship of trustee
D and beneficiary, bailor and bailee, master and servant, pledger and
pledgee. When some goods are hypothecated by a person to another
person, the ownership of the goods still remains with the person who has
hypothecated such goods. The property in respect of which criminal breach
of trust can be committed must necessarily be the property of some person
other than the accused or the beneficial interest in or ownership of it must
E be in other person or for his benefit. In a case of pledge, the pledged article
belongs to some other person but the same is kept in trust by the pledgee.
Jn the instant case, a floating charge was made on the goods by way of
security to cover up credit facility. In such case for disposing of the goods
covering the security against credit facility the offence of criminal breach
F of trust is not committed. (382-H, 383-A-E]
1.3. A particular act may constitute both civil wrong as well as
criminal wrong and merely because a civil action is also pursued, it does
not render the criminal action impermissible. Jn the facts of the case, long
after the completion of civil suits, the further investigation in connection
G with the complaints may not be expedient. The opinion given by the Senior
Manager (Legal) that the credit facility which was given to DAIL for its
tobacco division should be transferred to the newly formed Company,
namely, New Tobacco Company Limited, cannot be held to be per se
malafide or illegal in view of the provisions of section 394 of the Companies
H Act. That apart, the legal opinion of the said Senior Manager (Legal) was
C.B.L v. DUNCANS AGRO INDS. LTD. 365
placed for consideration by the highest administrative body of the Bank A
i.e. the Board of Directors and the decision was taken by the Board that
the credit liability which stood in favour of DAIL should be transferred in
favour of the New Tobacco Company Limited. In the aforesaid circumstan-
ces, even if the Senior Manager (Legal) or any other otlicer of the Bank
bad nut acted properly, in view of the fact that the ultimate decision was B
taken by _the Board of Directors, it cannot be reasonably held that some of
the Officers of the Bank connived and misled the Board. No allegation has
been made against the members of the Board. [383-G-H, 384-A-C]
1.4. In the facts of the case, there is enough justification for the High
Court to hold that the case was basically a matter of civil dispute. The C
Banks had already filed suits for recovery of the dues of the Banks on
account of credit facility and the said suits have been compromised on
receiving the payments from the concerned Companies. Even if an offence
of cheating is p1ima facie constituted, such offence is a compoundable
offence and compromise decrees passed in the suits instituted by the D
Banks, for all intents and purposes, amount to compounding of the offence
of cheating. Long time has elapsed since the complaint was filed in 1987.
Although such FIRs were filed in 1987 and 1989, the Banks had not chosen
tu institute any case against the alleged erring otlicials despite allegations
made against them in the FIRs. Considering that the investigations had
nut been completed till 1991 even though there was no impediment to E
complete the investigation and further investigations are still pending and
also considering the fact that the claims of the Banks had been satisfied
and the suits instituted by the Banks had been compromised on receiving
payments, the said complaints should not be pursued any further.
Proceeding further with the complaints will not be expedient. In the special F
facts of the case, the decision of the High Court in quashing the complaints
does not warrant any interference under Article 136 of the Constitution.
[384-D-G]
The Superintendent and Remembrancer of Legal Affai1~, West Bengal
v. S.K Roy, [19741 4 SCC 230; State of Haryana v. B!zajan Lal, [1992] Supp. G
1 SCC 335; State of Bihar v. P.P. Shamia, [1992] Supp 1 SCC 222; Janata
Dal v. H.S. Clzoudhaiy, [1992] 4 SCC 305; Collector of Customs and Central
Excise, Bltubneswar, District Puri v. Paradir Pmt Trust and Another, [1990]
4 SCC 250; M.S. Sheriff v. The State of Madras and Othw, [1954] SCR
1144; Union of India" v. B.R. Bajaj, [1994] 2 SCC 277; Velji Raghaiji Patel H
366 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A v. State of Maharasiztru, [1965) 2 SCR 429; State of Gujarat v. Jaswantlal
Nathalal, [1968) 2 SCR 408 and Ferozc Di11shaw Lam v. U11ion of /11dia, JT
3 SC 131; referred to.
CRIMINAL APPELLATE JURISDICTION Criminal Appeal
Nos. 657-58 of 1995.
B
From the Judgment and Order dated 23.12.92 of the Calcutta High
Court in Cr!. R. No. 859 of 1991 with Cr!. R.No. 1203 of 1991.
K.T.S. Tulsi, Additional Solicitor General, Vikas Pahwa, AS.
C Bhasme, P. Parmeshwaran and A Bhattacharya for the Appellant.
Shanti Bhushan and Rajinder Singh and P.N. Misra for the Respon-
dent.
The Judgment of the Court was delivered by
D
G.N. RAY, J. The appeals are directed against a common judgment
dated December 23, 1992 passed by the Calcutta High Court in Crl. R. No.
859 of 1991 and Cr!. R. No. 1203 of 1991. By the impugned judgment, the
High Court allowed the said criminal revisions and quashed the impugned
E FIR Nos. RC-4/87-SIU(X) dated August 14, 1987 and RC-l(S)/89-SIU(X)
dated June 12, 1989. The respondent, Duncans Agro Industries Ltd.,
moved the Calcutta High Court for quashing the said FIRs lodged by the
Central Bureau of Investigation.
It was i11ter alia alleged in the FIR dated August 14, 1987 that reliable
F information was received by the complainant, the Superintendent of Police,
CBI, SIU (X), New Delhi, that M/s National Tobacco Company which was
a division of M/s. Duncans Agro Industries Ltd. had cash credit facilities
on hypothecation of stocks etc. with United Bank of India, Royal Exchange
Branch, Calcutta. The ultimate credit facilities limit sanctioned to M/s
G Duncans Agro Industries Ltd. in the account of M/s National Tobacco
Company as on January 12, 1984 was to the tune of Rs. 17.50 crores subject
to the drawing power according to hypothecation of raw materials/stocks
etc. M/s. Duncans Agro Industries Ltd. was submitting the monthly state-
ments of raw materials held by its division, M/s National Tobacco Company
and such hypothecated raw materials were liable to physical inspection and
H verification by Bank authorities. In 1984, M/s Duncans Agro Industries Ltd.
C.B.I.v. DUNCANSAGROINDS.l:ID.[G.N.RAY,J.J 367
made an application before the Calcutta High Court and obtained an order A
from the High Court on August 10, 1984 that National Tobacco Company,
a Tobacco Division of Duncans Agro Industries Ltd. would henceforth
function under the name and style of New Tobacco Company Limited
which would be a fully owned subsidiary of Mis Duncans Agro Industries
Ltd. and the management of the said newly constituted company would be B
carried as per the Scheme of Arrangement approved by the High Court.
It was further alleged in the said FIR that after the approval of the
aforesaid Scheme of Arrangement, M/s. Duncans Agro Industries Limited
approached the United Bank on December 3, 1984, to transfer the credit
limits standing in their name to Mis New Tobacco Company Limited and
Shri S.K. Ghosh. Chief Officer (Legal) of the United Bank of India gave C
opinion on January 22, 1985 that the order of the Calcutta High Court was
binding on the Bank and consequently the Bank would either continue the
advances with transieree Company or to sue transferee Company i.e. M/s
New Tobacco Company Limited, for recovery of its dues. The said Chief
Officer of the Bank advised the Bank that the Bank would not be in a D
position to enforce its right in respect of debts and immovable assets of
the transferor company. The Board of Directors of United Bank of India
resolved that the credit limits of the Bank in respect of National Tobacco
Company would be allowed to be transferred in the new account of New
Tobacco Company Limited with retrospective effect from April l, 1984 E
subject to the condition that the company would furnish an undertaking to
create mortgage on all their assets and properties in favour of the Bank
and without written consent of the Bank, holding level of percentage share
of M/s Duncans Agro Industries Limited in the National Tobacco Com-
pany would not undergo any change. Such resolution was drafted in the
meeting of the Board of Directors held on May 30, 1985. The note of Shri
F
S.K. Ghosh, Chief Officer (Legal) along with a Board Note dated May 30,
1985 prepared by Shri S.N. Ghoshal, General Manager of the Bank were
placed before the Board of Directors. While recommending transfer limits
in favour of New Tobacco Company, the Bank officials did not specify
whether stocks had been inspected and how the Bank would remain a G
secured creditor of Mis Duncans Agro Industries Limited for National
Tobacco Company. It was also not mentioned by the officials of the Bank
as to whether stocks had been inspected and verified and whether registra-
tion of hypothecation charged under Section 125 of the Companies Acl was
valid and effective or whether the bank was holding certificate of registra- H
368 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A lion from the Registrar of Companies as provided for by the Companies
Act. It was further alleged in the FIR that the Board of Directors of United
Bank of India were misled because of the omissions and commissions of
the officials of the Bank and the said Board of Directors acted on legal
opinion of Shri Ghosh although such opinion was detrimental to the
B interest of the Bank. In the FIR, it was also alleged that credit limits were
got transferred to the New Tobacco Company and Mis Duncans Agro
Industries Limited had managed with the executive and Directors of the
Bank to transfer the debts of the said Duncans Agro Industries Limited to
'Nil' without any payment. It was alleged that Mis Duncans Agro Industries
Limited instead of filing a memorandum of complete satisfaction of charge
C with the Registrar of Companies, itself managed with Shri D.K. Sengupta,
Asstt. Manager (Advances) to issue a memorandum of complete satisfac-
tion of charge when there had been no repayment whatsoever. It was also
alleged in the FIR that the Directors of the New Tobacco Company in their
letter dated June 26, 1985 addressed to Chief Manager, United Bank of
D India, Royal Exchange Branch, Calcutta, assured that the Board's resolu-
tion would be furnished to the Bank to the effect that without the Bank's
wrillen consent, the holding level of percentage of shares in the New
Tobacco Company by Duncans Agro Industries Limited would not under-
go any change, It was also alleged in the FIR that in order to defraud the
E Bank and to nullify the assuran,:;e given to the Bank, Mis Duncans Agro
Industries Limited entered into a memorandum of understanding with Mis
New Tobacco Company on March 6, 1986 in order to render the very basis
of the scheme approved by the High Court infructuous and to complete
the delinking of Duncans Agro Industries Limited and New Tobacco
F Company so that the assets of Duncans Agro Industries Limited would
remain out of reach of its creditors. By such process, the United Bank of
India was defrauded. It was alleged in the FIR that the stock worth about
Rs. 12 crorcs were either fraudulantly or dishonestly removed Or disposed
of without any payment to the Bank although the same were hypothecated
with the Bank. In the FIR, it was alleged that Shri G.P. Goenka, Chairman
G of Mis Duncans Agro Industries Limited, Shri N.K. Jain, Director, New
Tobacco Company Limited and Shri Bhasker Banerjee, Director, National
Tobacco Company along with some Bank Officers, namely Shri G.N.
Ghoshal, General Manager, Shri N. Ganguli, Chief Manager, Shri S.K.
Ghosh, Chief Officer (Legal), Shri S.K. Hajra, Law Officer, Shri D.K.
H Sengupta, Assistant Manager (Advances) of United Bank of India and
C.B.I.v. DUNCANS AGRO INDS. LTIJ. [G.N. RAY,J.] 369
other persons had conspired with a crimiral design to defraud the Bank A
and to deliberately misappropriate the huge stock lying at different places.
It was alleged that the said facts had disclosed commission of offences
under Section 120B read with Sections 409, 420, 467, 468 and 471 Indian
Penal Code.
B
In the second FIR dated 12.6.1989 filed by the Superintendent of
Police, CBI, SPE, SIU (X), New Delhi against (1) Sri Gauri Prasad
Goenka, Director Duncans Agro Industries limited. (2) Sri B. Mukherjee
Manager, Tobacco Accounts and authorised Signatory, Duncans Agro
Industries Ltd. and (3) Mis Duncans Agro Industries Ltd. it was alleged
that during the course of investigation of RC-4i37-SJU (X), CBI, SPE, New C
Delhi it transferred that Tobacco Division of Mis Duncans Agro Industries
Limited had been enjo)fog credit facilities against hypothecation of stocks
and shares of tobacco in the name of Mis National Tobacco Company
Limited from the United Bank of India, Royal Exchange Branch, Calcutta
and Andhra Bank, Kakinada Branch (A.P.) to the tune of 1.5.25 crores till D
1983. The credit limits were enhanced by Reserve Bank of India from 15.25
crores to 17.50 crores on the request of the Company and recommended
by United Bank of India. Out of enhanced credit facilities, a sum of Rs.
1.58 crores was to be financed by the Canara Bank, Lake Road Branch,
Calcutta with the concurrence of United Bank of India and Andhra Bank.
Sri G.P. Goenka was one of the Directors of Duncans Agro Industries Ltd. E
and was having the control over the affairs of the said company. Sri B.
Mukherjee was Manager (Accounts) and responsible for preparation of
accounts of Tobacco Division and both the said G.P. Goenka and B.
Mukherjee were also amongst the authorised signatories for operating
current account.
F
It was a11ege<l in the FIR that after getting the sanction of cnhanccc.1
credit facilities, Sri G.P. Goenka, Sri B. Mukherjee and other officials of
Tobacco Division of Duncans Agro Industries Limited entered into a
criminal conspiracy to cheat Canara Bank, Lake Road Branch and to
obtain credit in their account by falsely and dishonestly declaring that G
tobacco stocks and stores were available at Guntur for hypothecation to
Canara Bank, Lake Road Branch over and above the stocks hypothecated
to United Bank of India and Andhra Bank. Pursuant to the authorities
given by the Board of Directors Shri G.P. Goenka executed documents
with Canara Bank creating a floating charge of stocks and stores at Guntur H
370 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A valuing 158 Lakhs and B. Mukherjee declared lo Canara Bank that tobacco
stocks worth Rs. 1,44,40,122 were lying at Guntur as on 28.3.84 over and
above the stocks hypothecated to United Bank and Andhra Bank. A
balance sheet of Tobacco Division of Duncans Industries Limited was
prepared under the overall charges of B. Mukherjee and audited by M/s
B Price Water House and Company, Calcutta, showing total value of stocks
and stores of tobacco at Rs. 12,39,27,002.19 p. In the said Balance Sheet,
advance against hypothecation in the stocks and stores have been shown
Rs. 13,78,82,585.17 from United Bank and Rs. 2,27,12,86,350 from Andhra
Bank making a total of Rs. 16,05,95,4D8. l7. No available stocks were
indicated free from any hypothecation. Sri B. Mukherjee in the stock
C statement submitted to United Bank of India declared that value of Tobac-
co stocks and stores as on 31.3.1984 was Rs. 16, 92,75,446. On the same
date, the value of stocks and stores worth more than Rs. 3 crores was
declared to Andhra Bank. Thus allhough no stocks and stores of Tobacco
beyond the hypothecated stocks and stores to the said two Banks were
D available, the officials of the Canara Bank acting upon the documents
executed by G.P. Goenka and declaration given by B. Mukherjee were
induced to sanction and release interim Joan of Rs. l crore in April 1984
and balance of Rs. 58 lakhs in June 1984. It was alleged in the FIR that
above facts disclose commission of offence under Section 120B read with
420 !PC and substantive offences under Section 420 !PC against G.P.
E Goenka, B. Mukherjee and others.
Mr. Tulsi, learned Additional Solicitor General appearing for the
appellants, has submitted that both the F!Rs contain allegations of facts
which constitute essential ingredients of the offences referred to in the
F respective FIR. Mr. Tulsi has submitted that the essential ingredients for
the offence of criminal breach of trust defined in Section 405 and punish-
able under Sections 406 and 4D9 !PC are:
(a) Entrustment of property in any manner or creation of dominion
over property; (b) Dishonest misappropriation, conversion to his
G own use or disposal of the said property; (c) Misappropriation etc.
in violation of any legal contract touching the discharge of such
trust; (d) Misappropriation either by the person entrusted \vith
property or through any other person.
H He has submitted that allegations in FIR No. RC-4/1987 satisfy each
C.B.I. v. DUNCANS AGRO INDS. LTD. [G.N. RAY,J.] 371
of the essential ingredients of the offences under Section 405. It has been A
submitted by Mr. Tulsi that the ultimate credit facility limit sanctioned to
Mis Duncans Agro Industries limited (hereinafter referred to as DAIL) in
the account of National Tobacco Company as on January 12, 1984 was to
the· tune of Rs. 17.50 crores subject to drawing power. In view of
hypothecation of raw material stocks etc., DAIL was submitting the month-
B
ly statement of raw materials held by its division, National Tobacco Com-
pany and the same was liable to physical inspection and verification by
Bank officials. Such facts clearly constitute entrustment as envisaged under
Section 405 !PC. The allegations in the FIR about the request made by
DAIL to the United Bank of India for transfer of credit facilities in their
name to Mis New Tobacco Company on December 3, 1984 and as a result c
of conspiracy a wrong opinion was given by the Chief Officer (Legal) and
the Board of Directors of the Bank was misled so that the transfer limit in
favour of New Tobacco Company was allowed by the Board without
inspection and verification of the stocks and by deliberately withholding of
relevant materials from the Board by the officials of the Bank and the D
allegations that later on, a memorandum of understanding \Vas entered
between DAIL and New Tobacco Company by which the shareholding of
DAIL as per the scheme of arrangement approved by the High Court was
altered, clearly constitute an offence of misappropriation of the property
entrusted to the Bank. Mr. Tulsi has also submitted that the allegations
that stock worth about Rs. 12 crores were fraudulently or dishonestly E
removed or disposed of without any payment to the Bank with whom the
same were hypothecated with the connivance of the concerned Bank
officials p!ima facie make out the offence of misappropriation of the
entrusted property in clear breach of trust. Mr. Tulsi has also submitted
that essential ingredients of the offence of forgery punishable under Sec- F
tion 468 and 471 IPC as contained in Section 464 IPC have also been made
out in .the FIR. Mr. Tulsi has submitted that the essential ingredients for
creating false document a.s contained in Section 464 are:
(a) Dishonest or fraudulently making of the document; (b)
Intention to create a belief that it was made by or by the authority G
of a person; ( c) Knowledge that it was not made with the authority
of that per.son.
Mr. Tulsi has also submitted that the allegations to the following
effect that : "Shri D.K. Sengupta signed the memorandum as Chief H
372 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A Manager, which post was not being occupied by him nor he had any
authority lo sign as such. Shri S.K. Hajra, Law Officer has wilfully and
unauthorisedly filled up the body portion of the said memorandum of
satisfaction." - prima facie make out an offence under Sections 468 and 471
!PC.
B Mr. Tulsi has also submitted that the essential ingredients of the
offence of cheating as contained in Section 415 !PC are :
(a) Dishonest inducement; (b) Delivery of any property as a
result of inducement; (c) Damage or harm to the person induced.
c Mr. Tulsi has submitted that each of such ingredients of the said
offence is sati,fied on the face of the allegations made in the FIR. There
is specific allegation that the representation was made by the officers of
the Bank with regard to the existence of stock worth Rs. 17.50 crorcs for
hypolhccalion lo the Bank and credit facility was granted to the tune of
D Rs. 17.50 ·crores on the belief of due hypothccation of stock. There is also
allegation in FIR that stock worth Rs. 12 crores had been fraudulently or
dishonestly used or disposed of without any payment to the Bank. Such
allegations constitute ingredients of cheating, causing damage to the Bank
which was induced because of false statement made by DAIL and its
E officials. Mr. Tulsi has submitted that entrustmenl of physical possession
of the property is not essential for the offence defined in Section 405 !PC.
The expression '\vhoever being in any manner entrusted with property or
with any dominion over property", clearly negatives the contention that
since physical possession was not exclusively transferred to the Bank,there
can not be a case of enlrustment. Jf the offence under Section 405 !PC is
F interpreted in the aforesaid manner, it will open the flood gate for Bank
frauds, corruption amongst public servants and will endanger the smooth
flow of trade and commerce. In support of this contention, Mr. Tulsi has
relied on the decision of this Court in The Supc1intendent and Ren1e1nbran-
cer of Legal Affai1:,, West Bengal v. S.K Roy, [1974] 4 SCC 230. It has been
G held in the said decision that :
There arc, ho\vcver, two distinct parts involved in the Commission
of the offence of criminal breach of trust. The first consists of the
creation of an obligation in relation to the property over which
dominion or control is acquired by the accused. The second is a
H misappropriation or dealing with the property dishonestly and
C.B.I.v. DUNCANS AGRO INDS. LTD. [G.N. RAY,J.] 373
contrary to the terms of the obligation created. A
In the case of an offence by a public servant punishable under
Section 409, I.P.C. the acquisition of dominion or control over the
property must also be in the capacity of a public servant. This is
not the same thing as having the authority, as a public servant to
get the control or dominion over property annexed with an obliga-
B
tion. The gravamen of the offence is the dishonest misappropria-
tion of the money or property which comes into the possession or
under the control of a public servant who has the ostensible
authority to receive it even though, technically speaking, from the
point of view of the distribution of departmental duties under c
internal rules of an office, it may not be within the scope of his
authority or duty to accept the money. The fact that a public
servant acts fraudulently in the exercise of his duties as a public
servant to get dominion or control over some property will be an
aggravating and not an exculpating circumstance. The 11 entrust- D
mcntn results from \Vhat the person handing over money or proper-
ty to a public servant, and believe about the purpose for which he
hands over money or property is made to think, understand and
believe about the purpose for which he hands over money or
properly to a public servant. If this takes place because of and due
to the exercise of the official authority the requirements of Section E
409, IPC, are satisfied.
Ordinarily, it is the ostensible or apparent scope of a public
servant's authority \vhen receiving property and not its technical
limitation, under some internal rules of the department or office F
concerned, and the use made by the servant of his actual official
capacity \Vhich \VOuld determine whether there is a sufficient i.1exus
or connection between the acts complained of and the official
capacity so as to bring it within the ambit of Section 409 !PC.
To constitute an offence under Section 409, !PC it is not G
required that mis-appropriation must necessarily take place after
the creation of a legally correct cntrustment of dominion over
property. The entrustment may arise in nany manner whatsoever 11 •
That manner may or may not involve fraudulent conduct of the
accused. Section 409, IPC covers dishonest misappropriation in H
374 SUPREME COURT REPORTS (1996] SUPP. 3 S.C.R.
A both types of cases; that is to say, those where the receipt of
property is itself fraudulent or improper and those where the
public servant misappropriates what may have been quite properly
and innocently received. All that is required is what may be
11 11
described as entrustment or acquisition of dominion over proper-
ty in the capacity of a public servant who, as a result of it, becomes
B
charged with a duty lo act in a particular way. or, at least honestly.
The obligation to act in a certain manner with regard to or to
deal honestly with property, over which a public servant obtains
dominion or control by the use of his official capacity may arise
c either expressly or impliedly.
Mr. Tulsi has also submitted that the investigations had not been
completed in respect of the allegations made in the FIR. At that stage, the
High Court must accept each of the allegations made in the FIR as correct
on its face value for the purpose of determining as to whether the in-
0 gredients of the offences alleged in the FIR arc contained therein or not.
Mr. Tulsi has submitted that the High Court has grossly erred in quashing
the complaints. Mr. Tulsi has also submitted that the High Court is not
justified in quashing the F!Rs so as to strangulate the investigations at the
inception. What value to be attached to the allegations made in the FIR is
E to be examined at trial when on the basis of FIR charge sheet will be
framed. It is not the duty of the High Court lo embark upon appreciation
of evidence in quashing the proceedings. Jn support of this contention, Mr.
Tulsi has relied on the decisions of this Court in State oj'Hwyana v. Bltajan
Lal, [1992] Supp. 1 SCC 335; State of Bihm· v. P.P. Shanna, [1992] Supp. 1
SCC 222, Janata Dal v. H.S. Clwudhwy, [1992] 4 SCC 305.
F
Mr. Tulsi has al5o submitted that it is not alleged that the FIRs were
made \Vith an oblique or niala fide purpose. Hence, the same arc not liable
to be quashed even before completing the investigations.
Mr. Tulsi has also submitted that a particular act may constitute both
G civil \Vrong as well as criminal \vrong but merely b~cause civil action is also
pursued, such course of action. docs not render criminal action i1npcrmis-
sible. it has been contended by Mr. Tulsi that since the very definition of
offence of criminal breach of trust is founded on legal contract touching
upon the discharge or trust) almost every case of criminal breach of trust
H is bound lo have an element of civil liability. Policy of the legislature in
C.B.i.v, DUNCANS AGRO INDS. LID. [G.N.RAY,J.] 375
enacting the offence under Section 405 !PC, therefore, is to treat the A
breach of contract in the matter of property which is entrusted as an
aggravated civil wrong and thereby constituting a criminal offence. That
being the policy, to quash a FIR on the ground that a civil remedy has
already been invoked would be destructive of the object of the legislation.
In this connection, Mr. Tulsi has relied on the decision of this Court in
B
Collector of Customs and Central Excise, Bhubneshwm; Distlict Pwi v.
Paradip Po1t Tntst and Another, [1990] 4 SCC 250. It has been held in the
said decision that :
Where the same act or event constitutes an offence under
Chapter XVI and at the same time constitutes a contravention or C
abctment of contravention of any of the provisions of the Customs
Act or failure to perform any duty prescribed under the Act or
amounts to non-compliance with any of the provisions of the Act
there will be possibility of prosecutions and punishment under
Chapter XVI of the Act and any other provision of law and at the
same time confiscation and penalty under Chapter XVI of the Act. D
Mr. Tutsi has also submitted that -in cases where civil and cri1ninal
remedies are sought to be pursued, the criminal case has to be briven
preference over civil cases. In support of this submission, Mr. Tulsi has
referred to a decision of this Court in M.S. Slwiff v. The State of Madras
and Others, [1954] SCR 1144. It has been held in the said decision that : E
Simultaneous prosecution of civil and criminal proceedings regard-
ing the same matter is likely to embarrass the accused and so
ordinarily, and in the absence of special circumstances, the
criminal proceedings should be given precedence and the civil
proceedings should be stayed pending the termination of the
F
criminal.
Mr. Tulsi has also submitted that in a case of grave misappropriation
of huge amounts of public funds, delay caused by the accused was not a
valid ground for quashing the criminal proceedings. In this connection, Mr. G
Tulsi has relied on the decision of this Court in Union of India v. B.R. Bajaj,
[1994] 2 SCC 277. In the said case, the FIR of 1984 was quashed by the
Court in 1986 but after nine years, the decision of the High Court was set
aside and it \Vas directed that the investigation should recommence. Mr.
Tulsi has submitted that F!Rs disclose the offences of cheating the
nationalised Banks of huge sum of money by the accused in a calculated H
376 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A manner. In such circumstances, it will be only proper that the CBI should
be permitted to continue \\ith further investigations and on the face of the
allegations in the F!Rs which clearly constitute offences against the ac-
cused, there was no reason to quash the F!Rs and thereby slopping the
investigation at the threshold. He has, the1dore, submitted that the appeal
should be allowed and the CBI should be permitted to proceed with the
B investigation for the purpose of framing the chargesheet.
Mr. Shanti Bhushan, learned Senior Counsel appearing for the
respondents, has disputed the contentions made by Mr. Tulsi. He has
submitted that the two FIRs did not make out any offence of criminal
C breach of trust, forgery or cheating and, therefore, the High Court was
justified in quashing the said FIRs. Referring to the allegations made in
the FIR No. RC-4/87 dated September 14, 1987 that inspite of the Scheme
of Arrangement approved by the High Court of Calcutta separating the
Tobacco Division of DAIL into a new company i.e. New Tobacco Company
Limited Mis DAIL would remain liable for all assets and liabilities of the
D newly formed subsidiary Company, Mr. Shanti Bhushan has submitted that
pursuant to the Scheme of Arrangement duly sanctioned by the Calcutta
High Court on or about .July 31, 1984, the Tobacco Division of DAJL was
transferred lo and vested along with all its assets and liabilities in New
Tobacco Company Limited with effect from April l, 1984. DAIL was the
E transferor Company and New Tobacco Company Limited was the trans-
feree Company. The order of the High Court was to the effect that all the
assets and liabilities and duties of the said transferor Company relating to
its Tobacco Division be transferred from the said date without further act
or deed to the said transferee Company. Accordingly and also pursuant lo
Section 394 (2) of the Companies Act, 1956 all the assets and liabilities of
F the Tobacco Division stood transferred to the New Tobacco Company
Limited and such assets and liabilities became assets and liabilities of the
said transferee Company. The liability of DAIL to the United Bank of
India as on April 1, 1984 stood transferred to New Tobacco Company
Limited. The order of the High Court clearly provided that no further act
G or deed was necessary to give effect to the Scheme of Arrangement. In
view of such Scheme of Arrangement, the Board of Directors of the United
Bank of India approved the transfer of credit facilities from Mis DAIL to
the New Tobacco Company Limited. There was no question of the Board
being misinformed of the material facts in the matter. Further in June/July
1985 fresh hypothecalion documents were executed by the New Tobacco
H
C.B.I.v. DUNCANS AGRO INDS. u'o. jG.N. RAY,J.J 377
Company Limited and a memorandum of satisfaction of charge was filed A
by the Bank in respect of DAIL to the Registrar of Companies. The
necessary documents were also filed by the Bank with the Registrar
evidencing the charge created in favour of New Tobacco Company
Limited.
Mr. Shanti Bhushan has also submitted that the allegation in the FIR
B
that the opinion of Shri S.K. Ghosh, Chief Officer (Legal) of the United
Bank of India to the effect that the Bank would not be in a position to
enforce its right in respect of the transferor Company was erroneous and
designedly made, is also incorrect and without any basis. Mr. Shanti
Bhushan has submitted that as a matter of fact, the said opinion of Shri c
S.K. Ghosh was in accordance with the Scheme of Arrangement since all
the assets and liabilities of the Tobacco Division of DAIL stood transferred
to New Tobacco Company from April 1, 1984. Mr. Shanti Bhushan has
further submitted that even if it is assumed that such legal opinion was not
correct, no ill motive can be assigned to the said Officer because the D
opinion itself was placed for consideration by the highest administrative
body of the Bank, namely, the Board of Directors. Mr. Shanti Bhushan has
also referred to the allegation in the FIR that :
"On March 6, 1986 M/s. New Tobacco Company Limited submitted E
a statement to United Bank of India wherein the aggregate value
of stocks etc. was to the tune of Rs. 5.13 crores only as against Rs.
16.55 crores on November 30, 1985. It is alleged that the stocks
worth about Rs. 12 crores were either fraudulently and dishonestly
removed or disposed of without any payment to the bank with F
whom the same were hypothecated, with the connivance of the
concerned bank officials."
Mr. Shanti lihushan has submitted that it is not alleged that the
statement of stocks was incorrect either on March 6, 1986 or on November G
30, 1985. In fact, two statements correctly pointed out that while the value
of the stocks on November 30, 1985 was Rs. 16.58 crores, the value of
stocks on March 6, 1986 had gone down to Rs. 5.13 crores. There was,
therefore, no false statement in the declaration of stocks. Mr. Shanti
Bhushan has also submitted that since the stocks were 'hypothecated' and
not 'pledged' with the bank the possession over the stocks was with the H
378 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A Company and not with the bank. The difference between a 'pledge' and a
'hypothecation' is that while in the case of 'pledge' the stocks are given in
the custody of the bank and are kept under their lock key and any removal
of any part of those stocks by the debtor, without the consent of the Bank
would be an offence, it would not be so in the case of 'hypothecation'. In
B a case of hypothecation, there is only a floating charge on various assets.
The possession over those assets continues to be with the debtor and the
debtor was always entitled to remove any part of those stocks and sell them
from time to time. Mr. Shanti Bhushan has submitted that if there is a
contractual term that the value of the hypothecated stocks should not be
allowed to go down below a particular amount, there may be a breach of
C contract entitling the Bank to take civil proceeding for damages against the
debtor. However, it has not been alleged that there has been a breach of
any such contract particularly when the documents which are being relied
upon by the Bank themselves show that the value of the hypothecated
property continued to be much more than the amount of loan at any point
D of time. If a reference is made to the said balance sheet, it would show that
the advances under the cash credit facility granted by the United Bank of
India were secured not only by the hypothecation of stocks but also by the
hypothecation of book debts and plant and Machinery of the Company's
Tobacco Division. Mr. Shanti Bhushan has submitted that while the loans
due to the United Bank of India amounted to Rs. 13,78,82,685.17, the
E value of the hypothecated property on the' same date we.s nearly double of
that amount. Reference to the balance sheet would show that the book
debts comprised goods worth Rs. 15,34,82,521.12 and machinery as on
March 31, 1984 worth Rs. 1,14,71,499 and the stocks and spares were of
the value of Rs. 12,39,27,002.19 as on March 31, 1984.
F
Mr. Shanti Bhushan has further submitted that even in the case of
the FIR relating to the Canara Bank, it is apparent that the balance sheet
of Tobacco Division of DAIL as on March 31, 1984 which was filed by the
CBI,showed that the value of the property hypothecated to United Bank
of India exceeded the amount of the loan as on that date by more than Rs.
G 15 crores and thus some part of the stocks worth more than Rs. 2 crores
were available for being hypothecated to Canara Bank. Mr. Shanti Bhushan
has submitted that the CBI had misread the balance sheet and erroneously
proceeded on the footing that it was only the stocks which were alone
hypothecated to the United Bank of India. Balance Sheet itself indicated
H that book debts of more than Rs. 15 crores and the machinery worth more
C.B.l.v. DUNCANSAGROINDS.r:m. [G.N.RAY,J.J 379
than Rs. 2 crores were also hypothecated to the United Bank of India and A
thus stocks worth more than Rs. 2 crores were clearly available for
hypothecation to the Canara Bank.
Mr. Shanti Bhushan has referred to the allegations in the FIR that :
"The ultimate credit facility limit sanctioned to Mis DAIL in B
the account of Mis New Tobacco Company as on 12.1.1984 was to
the tune of Rs. 17.50 crores subject to drawing power agreeing to
hypothecation of raw materials, stocks etc. Mis DAIL was submit-
ting the statements of raw materials held by its division Mis New
Tobacco Company and the same was liable for physical inspection C
and verification by Bank officials."
Mr. Shanti Bhushan has submitted that the above allegations did not
make out any offence of criminal breach of trust. According to Mr. Shanti
Bhushan, the essential ingredients of criminal breach of trust is entrustment
of property or entrustment of dominion over property. The grant of credit D
facility or giving of a loan in pursuance of that credit facility cannot possibly
amount to entrustment of property. A loan is quite different from entrust-
ment of money. Similarly, when the debtor hypothecates his goods to the
Bank by way of security, there is no entrustment of those goods to the Bank
by the debtor. Even if there is any contravention of the terms of the
E
contract under which credit facilities are given, it will be merely a breach
of contract for which the Bank may make debtor liable for damages under
the civil law. There will be no occasion for committing any offence of
criminal breach of trust. In support of this contention, Mr. Shanti Bhushan
has relied on the decision of this Court in Velji Raglzavji Patel v. State of
Maharashtra, [1965] 2 SCR 429. It has been held in the said decision that F
in order to establish entrustmcnt of dominion over property to an accused
person, the mere existence of that person's dominion over property is not
enough. It must be further shown that his dominion was the result of
entrustment.
Mr. Shanti Bhushan has also referred to a decision of this Court in G
State of Gujarat v. Jaswant/a/ Natha/al, [1968] 2 SCR 408. Jn the said
decision it has been indicated that the term 'entrusted' found in Section
405 !PC governs not only the words 'with the property' immediately follow-
ing it but also the words or 'with any dominion over the property' occuring
thereafter. Before there can be any entrustment, the entrustment carries H
380 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A with it the implication that the person handing over any properly or on
whose behalf that property is handed over to another, continues to be its
owner. A mere transaction of sale cannot amount to an enlrustment. It has
been observed in the said decision that although the government had sold
the cement in question to BSS solely for the purpose of being used in
B connection with the construction work referred to earlier, that cir-
cumstance does not make the transaction in question anything other than
a sale. After delivery of the cement, the Government had neither any right
nor dominion over it. If the purchaser had failed to comply with the
requirements of any law relating to cement control, he should have been
prosecuted for the same. But the court was unable to hold that there was
C any breach ohrust.
Coming to the question of offences under Sections 467, 468 and 471
!PC Mr. Shanti Bhushan has also submitted that no offence under the
aforesaid Sections even prima facie, has been committed even on the face
D value of the allegations in the FIR. Mr. Shanti Bhushan has submitted that
it is the case of the CBI that since it is stated in the FIR that Shri D.K.
Sengupta had signed the memorandum as Chief Manager which post was
not occupied by him, an offence of forgery has been committed. It was
alleged in the FIR that Mr. D.K. Sengupta had issued a memorandum of
E complete satisfaction of the charge even though there had been no repay-
ment whatsoever. Mr. Shanti Bhushan has submitted that such statement
is erroneous and cannot be sustained. It has been submitted by Mr. Shanti
Bhushan that in view of the order of the High Court under Section 394(2)
of the Companies Act, the liabilities of the Tobacco Division of DAIL got
F transferred to the New company, i.e. New Tobacco Company. There was,
thus a statutory discharge of the liabilities of M/s DAIL and the memoran-
dum of complete satisfaction was properly issued even though there had
not been any repayment of the loan by M/s DAIL. Mr. Shanti Bhushan has
submitted that notice may be taken by the Court to the usual practice of
the Bank that when formal document is issued in the name of the Chief
G Manager, the Officer dealing with the matter, i.e. Asstt. Manager, puts his
signature on the document, on behalf of the higher officer. Such signature
on a document, on behalf of the high officer by lower officer who specifi-
cally deals with it is in the usual course of business of the Bank and no
element of forgery can be assigned on account of such signature by a junior
H officer of the Bank.
C.B.L v. DUNCANS AGRO INDS. LID. [G.N. RAY,J.] 381
Coming lo the offence under Section 420 I PC as alleged in the FIR, A
Mr. Shanti Bhushan has submitted that the offence of 'cheating' has been
defined in Section 415 !PC and consists of fraudulently and dishonestly
inducing a person by deceiving him to deliver any property or to do or omit
lo do anything which he would not do or omit if he were not so deceived.
Two essential ingredients of offence would be (i) To make a false statement B
so as to deceive any person and (ii) fraudulently and dishonestly inducing
the person to deliver any property or to do or omit to do something. It is
submitted that neither in the FIR nor in the extracts from the FIR which
have been referred to in the CBI's submission, there is any reference to
any false representation about the existence of stocks of Rs. 17.50 crores
on any particular day. That the credit facility limit sanction to Mis DAIL
c
on 12.1.1984 was to the tune of Rs. 17.50 crores. It is also wrongly stated
in the written submission of the CBI that the grant of credit facility amounts
to delivery of property. The grant of credit facility only means that the Bank
is prepared to give loans upto the limit sanctioned. Hence, no case of
cheating has been made out even prima facie. D
Mr. Shanti Bhushan has also submitted that even if a view is taken
that an offence of cheating as alleged in FIR is prima facie maintainable
the offence of cheating is compoundable. In civil proceedings, the claims E
of both the Banks have been satisfied and the disputes have been com-
promised in the civil suits filed by the Banks. Accordingly, it will no longer
be a fit case for carrying out further investigation in respect of the offences
alleged. Referring to a recent decision of this Court in Feroze Dinshaw Lam
v. Union of India, Judgment Today (3) SC 131, Mr. Shanti Bhushan has
submitted that in that case although a clear offence of fabrication of
F
evidence had been established against Godrej Company and its Directors
and officials, the Supreme Court set aside the order of the High Court
directing a complaint to be filed holding that in view of all the circumstan-
ces including the payment of the Excise Duty, it would not be expedient to
proceed against the accused persons. Mr. Shanti Bhushan has submitted G
that any further investigation in the matter of offences alleged in the F!Rs
after such a long lasose of time and after the claims of the Banks have been
satisfied in Civil Suits instituted by the Banks, is not at all expedient and
on that score also no interference by this Court under the discretionary
jurisdiction under Article 136 of the Constitution against the impugned H
382 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A decision of the High Court is not called for.
Mr. Shanti Bhushan has also submitted that the first FIR was
registered in 1987 and the second one was registered in 1989. The challenge
lo the Fl Rs were made in the Calcutta High Court only in 1991. The CBI
B therefore, had more than four years' ti1nc to con1pletc the investigation
without any interruption. But admittedly the investigations have not yet
been completed. Mr. Shanti Bhushan has submitted that F!Rs have been
filed in order to resort to arm twisting tactics by the CBI and for launching
a fishing and roving enquiry without any reasonable basis. Jn any event,
when the interest of the Banks have been safeguarded in the civil suits
C instituted by the Banks having ended in compromise no useful purpose will
b_e served in proceeding with further investigation after such a long lapse
of time. Such course of action, in the facts of the case, will be an abuse of
the process of law and impugned order of quashing the F!Rs being
reasonable no interference by this Court is warranted. The appeals, there-
D fore, should be dismissed.
After giving our careful consideration to the facts and circumstances
of the case and the submissions made by the respective counsel for the
parties, it appears to us that for the purpose of quashing the complaint, it
is necessary to consider whether the allegations in the complaint p1ima
E facie make out an offence or not. It is not necessary to scrutinise the
allegations for the purpose of deciding whether such allegations are likely
to be upheld in the trial. Any action by way of quashing the complaint is
an action to be taken at the threshold before evidences are led in support
of the complaint. For quashing the complaint by way of action at the
F threshold, it is, therefore, necessary to consider whether on the face of the
allegations, a criminal offence is constituted or not. In recent decisions of
this Court, in the case of Bhajan Lal (supra), P.P. Sharma (supra) and
Janta Dal (supra), since relied on by Mr. Tulsi, the guiding principles in
quashing a criminal case have been indicated.
G In the instant case, a serious dispute has been raised by the learned
counsel appearing for the respective party as to whether on the face of the
allegations, an offence of criminal breach of trust is constituted or not. In
1
our vic\l.r, the expression 'entrusted \Vith property) or with any dominion
over property' has been used in a wide sense in Section 405 l.P.C. Such
H expression includes all cases in which goods are entrusted, that is, volun-
C.B.Lv. DUNCANS AGRO INDS. LTD. [G.N. RAY,J.[ 383
tarily handed over for a specific purpose and dishonestly disposed of in A
violation of law or in violation o~ contract. The expression 'entrusted
appearing in Section 405 I.P.C. is not necessarily a term of law. It has wide
and different implications in <lifierent contexts. It is, ho\vever, necessary
that the ownership or beneficial interest in the ownership of the property
entrusted in respect of which offence is alleged to have been committed
B
must be in some person other than the accused and the latter must hold it
on account of some person or in some way for his benefit. The expression
'trust' in Section 405 I.P.C. is a comprehensive expression and has been
used to denote various kinds of relationship like the relationship of trustee
and beneficiary, bailor and bailee, master and servant, pledger and
pledgee. When some goods are hypothecated by a person to another c
person, the ownership of the goods still remains with the person who has
hypothecaled such goods. The property in respect of which criminal breach
of trust can be committed must necessarily be the property of some person
other than the accused or the beneficial interest in or ownership of it must
be in other person and the offender must hold such property in trust for D
such other person or for his benefit. In a case of pledge, the pledged article
belongs to some other person but the same is kept in trust by the pledgee.
In the instant case, a floating charge was made on the goods by way of
security to cover up credit facility. In our view, in such case for disposing
of the goods covering the security against credit facility the offence of
criminal breach of trust is not committed. In the facts and circumstances E
of the case, it, however, appears to us that the Respondents moved the
High Court only in 1991 although the first FIR was filed in 1987 and the
second was filed in 1989. The CBI, therefore, got sufficient time to com-
plete the investigation for the purpose of framing the charge.
F
Although Mr. Tulsi, the learned Additional Solicitor General, is
justified in his submission that a particular act may constitute both civil
wrong as well as criminal wrong and 1\lerely because civil action is also
pursued, it does not render the criminal action impermissible, in the facts
of the case, it appears to us that long after the completion of civil suits, the
further investigation in connection with the complaints may not be ex- G
pedient. It may be noted that the opinion given by the Senior Manager
(Legal) that the credit facility which was given to DAIL for its tobacco
division should be transferred to the newly formed company, namely, New
Tobacco Company Limited, cannot be held to be per se malafide or illegal
in view of the provisions of Section 394 of the Companies Act. Thal apart, H
384 SUPREME COURT REPORTS [1996] SUPP. 3 S.C.R.
A the legal op1111on of the said Senior Manager (Legal) was placed for
consideration by the highest administrative body of the Bank i.e. the Board
of Directors and the decision was taken by the Board that the credit
liability which stood in favour of DAIL should be transferred in favour of
the New Tobacco Company Limited. Jn the aforesaid circumstances, it
B appears lo us lhal even if the Senior Manager (Legal) or any other officer
of the Bank had not acted properly, in view of the fact that the ultimate
decision was taken by the Board of Directors, it cannot be reasonably held
that some of the Officers of the Bank connived and misled the Board. lt
may be noted that no allegation has been made against the members of the
Board.
c In the facts of the case, it appears to us that there is enough
justification for the High Court to hold that the case was basically a matter
of civil dispute. The Banks had already filed suits for recovery of the dues
of the Banks on account of credit facilil y and the said suits have been
compromised' on receiving the payments fro1n the concerned con1panies.
D Even if an offence of cheating is p1ima facie constituted, such offence is a
compouudablc offence and compromise decrees passed in the suits in-
stituted by the Banks, for all intents and purposes, amount lo compounding
of the offence of cheating. It is also to be noted that long time has elapsed
since the complaint was filed in 1987. It may also be indicated that although
E such F!Rs were filed in 1987 and 1989, the Banks have not chosen to
institute any case against the alleged erring officials despite allegations
made against them in the FIRs. Considering that the investigations had not
been completed till 1991 even though there was no impediment to com-
plete the investigations and further investigations are still pending and also
considering the fact that the claims of the Banks have been satisfied and
F the suits instituted by the Banks have been compromised on receiving
payments, we do not think that the said complaints should be pursued any
further. In our view, proceeding further with the complaints will not be
expedient. In the special facts of the case, it appears to us that the decision
of the High Court in quashing the complaints does not warrant any
G interference under Article 136 of the Constitution. We, therefore, dismiss
these appeals.
R.A. Appeals dismissed.
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