Supreme Court of India
M.A.A. ANNAMALAIversusSTATE OF KARNATAKA & ANOTHER
- Citation
- 2010 INSC 507
- Decided
- 12 August 2010
- Disposal
- Appeal(s) allowed
Holding
A former director cannot be prosecuted for cheating under Section 420 IPC or for offences under the Money Circulation Schemes Act when the essential ingredients of the offence are absent, the scheme had RBI approval, and there is no allegation of his participation or vicarious liability.
Summary
The appellant, a former director of R.P.S. Benefit Fund Ltd., filed a petition under Section 482 of the CrPC to quash criminal proceedings initiated under Section 420 IPC and Sections 3, 4, 5 and 6 of the Prize, Chits and Money Circulation Schemes (Banning) Act, 1978. The FIR alleged cheating by the company for failing to return deposits, but the appellant had resigned on 27‑12‑1997, well before the alleged offences (24‑05‑1998 to 17‑09‑1999) occurred. The complainant later wrote to the police withdrawing the complaint against the appellant, stating that his inclusion was inadvertent and that he had already received 55% of his money from the liquidator. The Supreme Court held that the essential ingredients of cheating—dishonest or fraudulent intention—were absent, the scheme had RBI approval, and there was no allegation of the appellant’s participation or vicarious liability. Consequently, the Court set aside the High Court order and quashed the criminal proceedings. The appeal was allowed, resulting in the dismissal of the case against the appellant.
Issues considered
- The applicability of Section 482 CrPC to quash the FIR alleging cheating and violations of the Money Circulation Schemes Act.
- Whether the appellant, having resigned as director before the alleged period, can be held liable for cheating under Section 420 IPC.
- Whether the scheme’s RBI approval negates the element of cheating and the applicability of the Money Circulation Schemes Act.
- Whether vicarious liability can be attached to a former director absent specific allegations of participation.
Legislation cited
- Code of Criminal Procedure, 1973s. 482
- Indian Penal Code, 1860s. 24, s. 25, s. 415, s. 420
- Prize Chits and Money Circulation Schemes (Banning) Act, 1978s. 3, s. 4, s. 5, s. 6
Subjects
Section 482 CrPCquashing criminal proceedingscheating under IPC 420vicarious liabilitymoney circulation schemesRBI approvaldirector liabilitycriminal procedure
Judgment
[2010] 9 S.C.R. 1124
A M.A.A. ANNAMALAI
v.
STATE OF KARNATAKA & ANOTHER
(Criminal Appeal No. 1504 of 2010)
AUGUST 12, 2010
B
[DALVEER BHANDARI AND A.K. PATNAIK, JJ.]
Code of Criminal Procedure, 1973: s.482 - Quashing of
criminal proceedings - FIR lodged against accused alleging
C cheating - Grievance of complainant that he had deposited
certain amount in a scheme floated by the company in which
accused was one of the directors - Company closed down
and amount remained due to the complainant - Petition u/
s. 482 for quashing of proceedings - High Court disposed of
o the petition, with direction to the accused to approach trial court
for discharge - On appeal, held: A person cannot be
compelled to face criminal prosecution if basic ingredients of
the alleged offence against him are a/together absent - There
were no a/legations in the FIR against the accused - The
E scheme under which deposit was made was approved by RBI
and, therefore, element of cheating cannot be made out -
Moreover, accused had resigned from the directorship prior
to the relevant period and was not in-charge of or responsible
for the conduct of the company's business - He, thus, could
F not be made vicariously liable - Criminal proceedings against
him quashed - Penal Code, 1860 - s.420 - Prize, Chits and
Money Circulation Schemes (Banning) Act, 1978 - ss.3, 4,
5 and 6.
Respondent no.2 filed an FIR against the appellant
G u/s.420 IPC read with ss.3, 4, 5 and 6 of Money Circulation
and Banning Act, 1978. The allegation in the FIR was that
respondent no.2 and his wife had invested money in the
Benefit Fund Scheme in a company in which the
H 1124
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1125
ANR.
appellant was one of the directors. The company closed A
down its business and an amount of about Rs.2.91 lacs
remained due to respondent no.2. The Magistrate issued
non-bailable warrants against the appellant on the basis
of the FIR.
B
The appellant filed a petition u/s.482, Cr.P.C. for
quashing of the criminal proceedings against him on the
ground that he had resigned from the company and
ceased to be its director w.e.f. 27.12.1997 and, therefore,
was not liable in any manner for the acts done during the
period between 24.5.1998 and 17.9.1999. The petition was C
disposed of with a d!rection to the appellant to approach
the trial court for seeking an order of discharge.
In the instant appeal, it was contended for the
appellant that respondent no.2 had filed an affidavit in the D
Supreme Court admitting that the appellant had resigned
as a director but his name was inadvertently included as
one of the accused by the Investigating Officer. The
appellant also placed reliance on a letter· sent by
respondent no.2 to the Inspector of Police stating that he E
was not interested in the prosecution of the appellant as
he had received 55% of the deposit amount from the
official liquidator.
Allowing the appeal, the Court
F
HELD: 1.1. The inherent power should not be
exercised to stifle the legitimate prosecution but at the
same time no person can be compelled to face criminal
prosecution if basic ingredients of the alleged offence
against him are altogether absent. [Para 42] [1143-D] G
1.2. 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 the
inducement is made. The company had invited
H
1126 SUPREME COURT REPORTS [2010] 9 S.C.R.
A 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.
[Paras 21, 41] [1133-E-F; 1142-E-F]
B 1.3. Admittedly, there were no allegations against the
appellant in the FIR. He 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. The complainant/respondent no.2 submitted
C • in writing to this Court that he did not want to proceed
against the appellant because according to him the
appellant was inadvertently included as an accused by
the Investigating Officer. He further mentioned in the letter
that he had already received 55% of the deposited
D amount from the Official Liquidator. Assuming that there
could have been a vicarious liability thrust on the
appellant; even then there cannot be any such ·vicarious
liability in the absence of any allegations and material to
show that the appellant was in-charge of or responsible
E for the conduct of the company's business which had
giv9n rise to the offence. [Paras 41, 42] [1142-D-G-H; 1143-
A-D]
1.4. On consideration of the totality of the facts and
F circumstances of the case, the impugned judgment of the
High Court is set aside and the proceedings initiated
against the appellant on the basis of the complaint
pending before the Magistrate are quashed. [Para 43]
[1143-E]
G Hira Lal Hari Lal Bhagwati v. CBI, New Delhi (2003) 5
SCC 257; Uma Shankar Gopalika v. State of Bihar & Another
(2005) 10 SCC 336; S. V.L. Murlhy etc. v. State represented
by CBI, Hyderabad (2009) 6 SCC 77; Vir Prakash Sharma v.
Anil Kumar Agarwal (2007) 7 SCC 373; Pepsi Foods Ltd. &
H Anr. V. Special Judicial Magistrate & Ors. (1998) 5 SCC 749;
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1127
ANR.
State of Haryana & Others v. Bhajan Lal & Others 1992 Supp A
(1) SCC 335; Rajesh Bajaj v. State NCT of Delhi & Others
(1999) 3 SCC 259; Medch/ Chemicals & Pharma (P) Ltd. v.
Biological E.Ltd. & Ors.(2000) 3 SCC 269; Kuriachan Chacko
& Others v. State of Kera/a (2008) 8 SCC 708 - referred to.
Case Law Reference: B
(2003) 5 sec 251 referred to Para 29
(2005) 1o sec 336 referred to Para 30
(2009) 6 sec 11 referred to Para 31 c
(2001) 1 sec 373 referred to Para 32
(1998) 5 sec 749 referred to Para 33
1992 Supp (1) sec 335 referred to Para 34
D
(1999) 3 sec 259 referred to Para 36
(2000) 3 sec 269 referred to Para 38
(2008) 8 sec 108 referred to Para 40
E
CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 1504 of 2010.
From the Judgment & Order dated 26.05.2008 of the High
Court of Karnataka at Bangalore in Criminal Petition No. 2625
of 2004. F
C.A. Sundaram, Rohini Musa, Abhishek Gupta, Zafar
lnayat, Annandh Kannan, Binu Tamta for the Appellant.
Sanjay R. Hegde for the Respondents.
G
The Judgl!lent of the Court was delivered by
DALVEER BHANDARI, J. 1. Leave granted.
2. This appeal is directed against the judgment and order
ljf
1128 SUPREME COURT REPORTS [2010) 9 S.C.R.
A 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.
B 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.
c 4. Respondent no.2 filed a complaint with the Indira Nagar
Police Station, Bangalore, alleging:
1 that RPS Benefit Fund had invited deposits
from the public vide circular dated
06.12.1998 and that monies had been
D invested by the Petitioner and his wife in the
Pensioner's Benefit Fund, pursuant to the
approvai of the scheme by the Reserve Bank
of India;
E 2 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;
F 3 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
G on 15.10.1999 with the Indira Nagar Police Station alleging the
offence under section 420 Indian Penal Code read with 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
H 17.09.1999.
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1129-
ANR. [DALVEER BHANDARI, J.]
6. According to the appellant, he ceased to be a Director A
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 B
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 C
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.
9. The Karnataka High Court on 10.6.2004 directed D
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
E
Deposit Scheme with the company.
10. The High Court held that some of the Directors of the
company had retired in April ·1 ::199 and that the non-payment
of matured funds and non payment of interest amount had taken
place afterApril 1999. According to the appellant, he is in no F
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.
G
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
quash the proceedings initiated on the basis of the complaint H
1130 SUPREME COURT REPORTS [2010] 9 S.C.R.
A 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
8
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
C the court observed:-
"lt 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 Dire_ctor of the Company. It is also
his case that he also being an investor, the ratio followed
D 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 investme.nt by the
petitioner or not, when he was appointed as a Director,
when he resigned and whether the alleged incident has
E 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
F accordance with law."
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.
G 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
H Trial Court for obtaining the order of discharge. The casual
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1131
ANR. [DALVEER BHANDARI, J.]
approach of the High Court has led to grave miscarriage of A
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 B
by any stretch of imagination. The complaint and the First
Information Report, as aforementioned, do not make out any
case against the appellant.
16. In the facts and circumstances of this case, the High C
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 D
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 E
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 "gainst 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. F
Narayanamurthy to the Inspector of Police, lndranagar Police
Station, lndranagar, Bangalore which reads as under:-
"From:
R. Narayanamurthy,
S/o Late N.A. Ramaswamy, G
105, Second Main Road,
4th Cross, Sadanandnagar,
NGEF Layout,
Bangalore - 560038
Tu H
1132 SUPREME COURT REPORTS · [2010] 9 S.C.R.
A The Inspector of Police,
lndranagar Police Station,
lndranagar,
Bangalore-560033
Dear Sir,
B
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.
c Annamalai, s/o Annamalai Chettiar residing at No.1,
Velayudam Street, Nungambakkam, Chennai -6000034.
I further wish to inform you that I am withdrawjng all my
criminal cases against Mr. M.A.A. Annamalai and other
D 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.
E
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
F Officer.
Hence I am withdrawing all my criminal charges against
Mr. M.A.A. Annamalai and the company.
Thanking you,
G
Yours faithfully,
Sd/-
(R. Narayanamurthy)
Date: 16/09/09"
H
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1133
ANR. [DALVEER BHANDARI, J.]
19. This letter indicates that respondent no.2 is not A
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 B
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 C
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 de'ponent was to withdraw the D
charges of cheating against <ln the Directors of the RPS Benefit
Fund Ltd., including the appellant pending before the 10th
Additional Chief Metropolitan Magistrate, Bangalore.
21. The learned cmmsel for the appellant submitted that, E
- apart from the affidavit of .respondent no. 2, no case under
section 420 IPC is m~e out against the appellant. The primary
requirement to makeout an offence of cheating under section
415 punishable under section 420 IPC is dishonesUfraudulent
intention at the t~me of inducement is made. In order to F
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 G
to deliver any pi;operty 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 H
1134 SUPREME COURT REPORTS [2010] 9 S.C.R.
A 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
8
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
C "dishonestly"."
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
D
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
E 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
F the company. Furthermore, the complaint against the Chairman
and the Managing Director itself has been quashed by an order
of the High Court fo; 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
G preferred before this Court.
25. It is submitted that the FIR merely alleged a violation
under the Money Circulation and Banning Act without giving any
basis or material for the same, cannot be sustained. In the
instant case, a company was operating under license from the
H
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1135
ANR. [DALVEER BHANDARI, J.]
Reserve Bank of India and was so carrying on a legitimate A
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 B
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 C
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 D
despite the company having be~n wound up.
27. Th.e 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 E
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 F
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 G
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
H
1136 SUPREME COURT REPORTS [2010] 9 S.C.R.
A 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 the
instant case, there is not even a whisper anywhere either in the
complaint or in any material collected to show a direct
B 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,
C 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
D 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
E 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 offence was committed
and cannot be prosecuted in respect of such acts of the
F 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
G Bhagwati v. CBI, New Delh((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
H cannot be presumed.
I
M.A.A.! ANNAMALAI v. STATE OF KARNATAKA & 1137
, ANR. [DALVEER BHANDARI, J.]
30. Reliance has also been placed on another case A
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 B
played at the very inception. If the intention to cheat has
developed later on, the same cannot amount to cheating.
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 C
under:
"41. An offence of cheating cannot be said to have been
made out unless the following ingredients are satisfied:
D
(1) deception of a person either by making a false or
misleading repre.sentation or by other action or
omission;
(i1) fraudulently or dishonestly inducing any person to
deliver any property; or E
(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. F
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 G
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."
H
1138 SUPREME COURT REPORTS [2010] 9 S.C.R.
A 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:
B (1) Deception of any persons;
(i1) Fraudulently or dishonestly inducing any person to
deli\ier any property; or
(iii) To consent that any person shall retain any property
c and finally intentionally inducing that person to do
or omit to dq anything which he woula not do or
omit.
No act of inducement on the part of the appellant has
D 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
E 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
F 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
G 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
fvlagdrate is a silent spectator at the time of recording of
H preliminary evidence before summoning of the accused.
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1139
ANR. [DALVEER BHANDARI, J.]
The Magistrate has to carefully scrutinise the evidence A
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." B
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 C
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 o
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." E
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.
F
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:
G
"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 "\ccused was dishonest or fraudulent. H
1140 SUPREME COURT REPORTS [2010] 9 S.C.R.
A 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
B
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
c 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
D 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
E Chemicals & Pharma (P) Ltd. v. Biological E.Ltd. & Ors.(2000)
3 sec 269, wherein this Court observed as under:
"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
F examined on the basis of th~ 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
G 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,
H 4, 5 and 6 of the Act and also offence under section 420 IPC.
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1141
ANR. [DALVEER BHANDARI, J.]
40. Reliance has been placed by the learned counsel for A
the State that this Court in Kuriachan Chacko & Others v. State
of Kera/a (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 B
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 C
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 o
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 the scheme, whether or not such money or thing
is derived from the entrance money of the members
E
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 F
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 G
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,
H
1142 SUPREME COURT REPORTS [2010] 9 S.C.R.
A 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
B 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."
c 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
D 2i.12.1997 whereas the alleged offences, if
any, were committed during the period from
24.5.1998 to 17.9.1999.
(b) Admittedly, there are no allegations against
the appellant in the First Information Report.
E
(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.
F 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
G 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%
H
M.A.A. ANNAMALAI v. STATE OF KARNATAKA & 1143
ANR. [DALVEER BHANDARI, J.]
of the deposited amount from the Official A
Liquidator and he did not want to proceed
against the appellant.
{e) Even assuming that there could have been
a vicarious liability thrust on the appellant, B
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 C
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 D
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 E
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
Xth Addi. Chief Metropolitan Magistrate, Bangalore, are
quashed.
44. As a result, this appeal is allowed.
D.G. Appeal allowed.
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