2021 (12) TMI 1526 - HC - Customs

Petition filed under section 482 of the Code of Criminal Procedure for quashing and setting aside the FIR -offences punishable under Sections 406 and 420 of the Indian Penal Code - non-payment for goods supplied -privity of contract - false misrepresentation induced to deliver the property - HELD THAT - It appears that the matter was considered more on the provisions of Sections 503 read with Section 506 of IPC and for the purpose of non-payment of loan amount and the agreement entered into between the petitioner and the complainant it was observed that the fact of non-payment of loan amount would have been incorporated in the agreement and there was no clause in the agreement that the amount referred in the FIR remain to be paid by the petitioners. In this case the present petitioner had initially denied any entrustment of the property. He had contended that there was no privity of contract with the complainant. The petitioner had stated that he has placed orders from M/s. Oswal Overseas in the end of 2013 and for that purpose he has placed reliance on the payment of customs duties and taxes at the Custom Department of Sri Lanka and on that basis he stated that he had made part payment to M/s. Oswal Overseas. Further he has alleged that M/s. Oswal Overseas was sending the goods with overpriced invoices. He had also stated that he was constrained to confront for the same to the said company and also stated in his communication to Indian Embassy that he was not knowing the complainant and that he was transacting with M/s. Oswal Overseas. The petitioner therefore referring to the FIR dated 03.01.2017 has stated that there was no privity of contract with the complainant. The complainant has relied on packing list No. AP 1 to 98 of the goods which were sent to the accused at Sri Lanka. He has also relied upon the invoice bills produced by M/s. Oswal Overseas before him i.e. container bill and the custom clearance bill of the goods. The copy of packing list produced on record shows that the exporter is M/s. Oswal Overseas and the consignee is Maayu Import and Export Pvt. Ltd. No. 103 3rd Floor Cross Street Colombo-11 Sri Lanka and the said list shows the list of suppliers. Goods are sent under various heads which includes Ansh Prints (saree) Varun Suits (cotton suit) Sanskar Trade (cotton suit) Bindiya Prints (saree) Oswal Overseas (saree) Ram Textiles Prints (cotton suit). The packing list shows the goods by Ansh Prints (sarees) listed as AP 1 to 98. The delivery confirmation for PSM logistics shows the shipper name as M/s. Oswal Overseas with the Container Number and final destination as Colombo Sri Lanka with the warehouse name as Punjab Conware. The said packing list shows that the petitioner had purchased the goods from various parties including the complainant under the name of Ansh Prints (saree) and even from M/s. Oswal Overseas. The copy of Certificate of Origin of the Memon Chamber of Commerce shows the exporter name as M/s. Oswal Overseas and the consignee name as M/s. Maayu Import Export Pvt. Ltd. under the vessel Santa Rufina/033E JNPT/India and port of discharge at Colombo Sri Lanka. The fabrics and sarees sent to the petitioner are reflected in the said certificate. The copy of invoice bill and the freight fare of the goods is produced on record to support the contention that the goods have been sent to the petitioner. Here in the instant case the petitioner had denied the privity of contract with the complainant. The complainant had written a letter to Indian Embassy; there too the petitioner denied of any shipment of goods to him or to his company and had even denied to any goods being sent by complainant to his company. The complainant has given the details showing that how the petitioner has misrepresented and induced him to deliver the goods. The copy of documents of supply of goods are produced on record to substantiate the facts stated in the complaint. The complainant even stated in the affidavit that the others were also cheated by the petitioner. The allegations made in the FIR suggest the ingredients of offences under Sections 406 and 420 of Indian Penal Code. Thus this Court does not find any reason to exercise the powers under Section 482 of Cr.P.C. The application thus fails and is rejected.

Summary

The primary legal questions considered in this judgment revolve around the applicability of criminal law provisions-specifically Sections 406 (criminal breach of trust) and 420 (cheating) of the Indian Penal Code (IPC)-to a commercial dispute involving alleged non-payment for goods supplied. The core issues are:

(i) Whether the impugned First Information Report (FIR) discloses a prima facie case for offences under Sections 406 and 420 IPC or if it is a mere civil dispute disguised as criminal proceedings.

(ii) Whether the petitioner was entrusted with property or had privity of contract with the complainant, which is essential to establish criminal breach of trust under Section 406 IPC.

(iii) Whether there existed a dishonest or fraudulent intention on the part of the petitioner at the time of inducement to supply goods, which is necessary to constitute cheating under Section 420 IPC.

(iv) The scope and exercise of inherent jurisdiction under Section 482 of the Code of Criminal Procedure (Cr.P.C.) to quash criminal proceedings in cases where allegations disclose only civil liability or abuse of process of court.

Issue-wise Detailed Analysis:

1. Applicability of Sections 406 and 420 IPC to the Transactions in Question

The legal framework requires that for criminal breach of trust under Section 406 IPC, the accused must have been entrusted with property or dominion over it, and must have dishonestly misappropriated or converted it in violation of law or contract. For cheating under Section 420 IPC, there must be a false or misleading representation made dishonestly at the time of inducement, causing the victim to deliver property or consent to retention thereof.

The Court examined precedents including the Supreme Court's rulings in S.W. Palantikar and International Advanced Research Centre for Powder Metallurgy and New Materials (ARCI), which emphasize that mere breach of contract or failure to pay money does not constitute cheating unless there is a dishonest or fraudulent intention at the inception of the transaction.

Further, the Court referred to the principle that the intention to cheat must be shown to exist at the time of inducement, and subsequent failure to fulfill a promise is insufficient to establish criminal liability.

The petitioner denied any privity of contract with the complainant and contended that the transactions were with M/s. Oswal Overseas, not with the complainant. The petitioner also alleged over-invoicing by M/s. Oswal Overseas and stated that payments were made to that company, not to the complainant.

However, the complainant produced documentary evidence including invoices, packing lists, container bills, customs clearance bills, and certificates of origin showing goods supplied and consigned to the petitioner's company. The complainant alleged that the petitioner induced him by misrepresenting his business credentials and promising payment by cheque within 60 to 90 days, but failed to pay despite repeated demands and assurances.

The Court noted that the FIR detailed the supply of goods worth approximately Rs. 39,18,108/- and the petitioner's failure to pay, along with allegations of false promises and evasion of contact.

The Court held that the factual matrix and documentary evidence prima facie disclose the ingredients of offences under Sections 406 and 420 IPC, including entrustment of property and dishonest inducement.

2. Entrustment and Privity of Contract

Entrustment is a crucial element for criminal breach of trust. The petitioner's initial denial of any privity of contract with the complainant was examined against the evidence submitted by the complainant, including the packing lists and invoices showing the petitioner as consignee of goods supplied by the complainant.

The Court referred to authoritative precedents such as Chelloor Mankkal Narayan Ittiravi Nambudiri and Jaswantrai Manilal Akhaney, clarifying that entrustment does not require a formal trust but a relationship where property is handed over to be retained or disposed of under certain conditions.

The documentary evidence and the complainant's affidavit indicated that the petitioner had dominion over the goods supplied, satisfying the entrustment requirement for Section 406 IPC.

3. Dishonest or Fraudulent Intention at the Time of Inducement

The Court emphasized the distinction between mere breach of contract and criminal cheating, relying on the Supreme Court's observations that dishonest intention must exist at the time inducement is made.

The petitioner's denial of the contract and the complainant's allegations of false promises and misrepresentations were considered. The Court found that the allegations in the FIR, if taken at face value, prima facie disclose dishonest inducement and misrepresentation, which are core ingredients of cheating under Section 420 IPC.

The Court also noted that the petitioner's contention of overpricing and payments to M/s. Oswal Overseas are matters of defense to be examined at trial and do not negate the prima facie case.

4. Exercise of Inherent Jurisdiction under Section 482 Cr.P.C. to Quash FIR

The Court analyzed the scope of Section 482 Cr.P.C., which is to be exercised sparingly to prevent abuse of process or to secure ends of justice.

Precedents such as Paramjeet Batra, Anil Kohli, and Rashmi Jain were considered, which hold that criminal proceedings should not be quashed merely because the dispute is commercial or civil in nature, if the allegations disclose a criminal offence.

The Court distinguished cases where no criminality was found on the face of the complaint from those where the complaint prima facie discloses criminal offences. It was observed that the presence of arbitration or civil remedies does not bar criminal prosecution if offences under Sections 406 and 420 IPC are made out.

The Court also noted that the petitioner had earlier sought quashing of a look-out circular and was protected during the proceedings, but that did not preclude investigation or trial.

5. Treatment of Competing Arguments

The petitioner argued that the dispute is purely civil, involving a time-barred claim, and that the FIR was filed after an unexplained delay of three years, constituting abuse of process. He also contended that no willful misrepresentation or dishonest intention existed at the time of contract, and that the involvement of M/s. Oswal Overseas complicates the matter.

The complainant and State argued that the petitioner's denial of privity of contract itself indicates fraudulent intention, and that documentary evidence supports the supply of goods and failure to pay. They contended that the petitioner's defense regarding overpricing and payments is to be tested at trial, not at the quashing stage. The complainant also alleged the petitioner's habitual offending and involvement in other similar cases, underscoring the need for investigation.

The Court found that the petitioner's contentions raised disputed factual questions unsuitable for determination at the quashing stage and that the FIR prima facie disclosed offences requiring investigation and trial.

Significant Holdings:

"The essential ingredients of the offence of Section 415 of IPC reads as under: (i) deception of a person either by making a false or misleading representation or by other action or omission; (ii) fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person to do or omit to do anything which he would not do or omit if he were not so deceived and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property."

"Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown at the beginning of the transaction."

"The powers under Section 482 of the Code of Criminal Procedure are to be used sparingly and only for the purpose of preventing abuse of the process of any court or otherwise to secure ends of justice."

"Whether a complaint discloses a criminal offence or not depends upon the nature of facts alleged, and whether essential ingredients of criminal offence are present or not has to be judged by the High Court."

"The presence of arbitration or civil remedy does not bar criminal prosecution if the allegations prima facie disclose commission of offence under Sections 406 and 420 IPC."

"The allegations made in the FIR suggest the ingredients of offences under Sections 406 and 420 of Indian Penal Code. Thus the reasons given hereinabove, this Court does not find any reason to exercise the powers under Section 482 of Cr.P.C."

Final determinations:

The Court rejected the petitioner's application under Section 482 Cr.P.C. for quashing the FIR. It held that the allegations prima facie disclose offences under Sections 406 and 420 IPC and that the matter requires investigation and trial. The Court granted an interim stay on implementation of the order for eight weeks to enable the petitioner to challenge the order before the Supreme Court, balancing the liberty of the petitioner with the interest of justice.