TMI Blog1996 (7) TMI 552X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 hypothacation of stocks etc, with United Bank of India, Royal Exchange Branch, Calcutta. The ultimate credit facilities limit sanctioned to m/s Duncans Agro Industries Ltd., in the account of M/s National Tobacco Company as on January 12, 1984 was to the tune of ₹ 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 statements of raw materials held by its division, M/s National Tobacco Company and such hypothecated raw materials were liable to Physical inspection and verification by Bank authorities. In 1984, M/s Duncans Agro Industries Ltd, mode an application before the Calcutta High Court and obtained an order 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 fully downed subsidiary of M/s Duncans Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided 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 interest of the Bank. In the FIR, it was also alleged that credit limits were got transferred to the New Tobacco Company and M/S 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 M/s Duncans Agro Industries Limited instead of filing a memorandum of complete satisfaction of charge with the Registrar of Companies, itself managed with Shri D.K.Sengupta, Asstt. Manager (Advances) to issue a memorandum of complete satisfaction of charge when there had been no repayment whatsoever. It was also 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. Sengupta, Assistant Manager (Advances) of United Bank of India and other persons had conspired w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ank although the same were hypothecated with the Bank. In the FIR, it was alleged that Shri G.P. Goenka, Chairman of M/s 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 credit facilities, a sum of ₹ 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 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. It was alleged in the FIR that after getting the sanction of enhanced 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 tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any manner or creation of dominion over property; b) Dishonest misappropriation, conversion to his own use of 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 with property or through any other person. He has submitted that allegations in FIR No. RC-4/1987 satisfy each of the essential ingredients of the offences under Suction 403. It has been submitted by Mr. Tulsi that the ultimate credit facility limit sanctioned to M/s 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 ₹ 17.50 crores subject to drawing power. In view of hypothecation of raw materials stocks etc., DAIL was submitting the monthly statement of raw materials held by its division. National Tobacco Company and the same was liable to physical inspection and verification by Bank officials. Such facts clearly constitute entrustment as envisaged under Section 405 IPC. The allegations in the FIR about the request made by DAIL to the United Bank of India for transfer of credit facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 17.50 crores for hypothecation to the Bank and credit facility was granted to the tune of ₹ 17.50 crores on the belief of due hypothecation of stock. There is also allegation in FIR that stock worth ₹ 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 officials. Mr. Tulsi has submitted that entrustment of physical possession of the property is not essential for the offence defined in Section 405 IPC. The expression whoever 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 entrustment. If the offence under Section 405 IPC is interpreted in the aforesaid manner, it will open the flood gate for Bank frauds, corruption amongst public ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xus or connection between the acts complained of and the official capacity so to bring it within the ambit of Section 409 IPC. To constitute an offence under Section 409, IPC it is not required that mis-appropriation must necessarily take place after the creation of a legally correct entrustment of dominion over property. The entrustment may arise in any manner whatsoever , That manner whatsoever , That manner may or may not involve fraudulent conduct of the accused. Section 409, IPC covers dishonest misappropriation in both types of cases; that is itself fraudulent or improper and those where the public servant misappropriation what may have been quite properly and innocently received. All that is required is what may by described as entrustment or acquisition of dominion over property in the capacity of a public servant servant who, as a result of it, becomes charged with a duty to 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 the use of his official capacity may arise either expressly or impliedly. Mr. Tulsi has also su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Where the same act or event constitutes an offence under Chapter XVI and at the same time constitutes a contravention or abetment 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. Mr. Tulsi has also submitted that in cases were civil and criminal remedies are sought to be pursued, the criminal case has to be given preference over civil cases. In support of this submission, Mr. Tulsi has referred to a decision of this Court in M. S. Sheriff Vs. The State of Madras and Others (1954 SCR 1144). It has been held in the said decision that : Simultaneous prosecution of civil and criminal proceedings regarding 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 criminal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id date without further act or deed to the said transferee Company. Accordingly and also pursuant to Section 394 (2) of the Companies Act, 1965 all the assets and liabilities of 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 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 M/s 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 hypothecation documents were executed by the New Tobacco Company Limited and a memorandum of satisfaction of charge was filed 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 favou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. In 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 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 contract the Bank to take civil proceeding for damages against the debtor. However, it has not been alleged that there has been breach of any such contract particularly when 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 of time, much more than the amount of loan at any point 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 ware secured not only 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the debtor hypothecates his goods to 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 contract under which credit facilities are given, it will be merely a breach of contract for which the Bank may made 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 Raghavji Patel Vs. State of Maharashtra (1965 (2) SCR 429). It has been held in the said decision that in order to establish entrustment 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 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 State of Gujarat Vs. Jaswantlal Natha lal (1968 (2) SCR 408). In the said decision it has been indicated that the term entrusted found in Section 405 IPC Governs not only the words with the property immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also no interference by this Court under the discretionary jurisdiction under Article 136 of the Constitution against the impugned 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 to the Firs. were made in the Calcutta High Court only in 1991. The CBI therefore, had more than four years time to complete the investigations without any interruption. But admittedly the investigations have not yet been completed. Mr. Shanti Bhushan has submitted that FIRs have been filed in order to resort to are twisting tactics by the CBI and for launching an fishing and roving enquiry without any reasonable basis. In any event, When the interest of the Banks have been safeguarded in the civil suits instituted by the Banks having ended in compromise, no useful propose will be 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 FIRs being reasonable no interference by this Court is warranted. The appeals, therefore, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing a criminal case have been indicated. 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 our view, the expression entrusted with property or with any dominion over property has been used in wide sense in Section 405 I.P.C. Such expression includes all case in which goods are entrusted, that is, voluntarily 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 implication in different context. It is, however, 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Manager (Legal) was placed for consideration by the highest administrative body of the bank i.e. the Board that the credit liability which stood in favour of DAIL should be transferred in favour of the New Tobacoo Company Limited. In the aforesaid circumstances, it appears to use that 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. It may be noted that no allegation has been made against the members of the Board. In the facts of the case, it appears to use that there is enough justification for the High Court to hold that the case was basically a matter of civil dispute. It Banks had already filed suits for recovery of the dues of the Banks on account of credit facility and said suits have been compromised on receiving the payments from the concerned Companies. Even if an offence of cheating is prima facie constituted, such offence is compoundable offence and compromise decrees passed in the suits instituted by the banks, for all intents and purposes, am ..... 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