2011 (3) TMI 1482 - HC - Companies Law

Whether petitioners Nos. 1 to 3 have fraudulently represented and deceived the company that there was no charge over the machinery and the fourth petitioner issued a no lien certificate? Held that - It is well-settled that one of the ingredients of cheating as defined in section 415 of the Indian Penal Code, 1860, is existence of a fraudulent or dishonest intention of making an initial promise or existence thereof from the very beginning of formation of contract. The petitioner would state that production of no lien certificate is only a formality, but the fact remains that when they have produced such certificate there was already a lien in the property. It is submitted that under sections 125 and 126 of the Companies Act, 1956, the charges were already notified and the complainant is deemed to have noticed such charges. The decision relied on by learned senior counsel by the petitioner relates to a suit filed by a bank for recovery of the amount secured by mortgage of the property. In that context, the Bombay High Court held that a purchaser is bound to make all reasonable enquiries as to the title of his vendor and if the company had created a mortgage and such mortgage of charge is registered under section 125 of the Companies Act, 1956, the effect of section 126 of the Act would operate even on subsequent purchaser. Therefore, the deemed provision is not applicable to the case before us. Appeal dismissed.

Summary

Issues:
1. Petition seeking to quash a private complaint.
2. Allegations of fraudulent misrepresentation and deception.
3. Interpretation of relevant legal provisions under the Companies Act, 1956.
4. Application of criminal law provisions on cheating and fraudulent intention.
5. Consideration of civil nature of the dispute and abuse of court process.

Analysis:
1. The petitioners sought to quash a private complaint initiated by the respondent, a finance company, alleging fraudulent misrepresentation. The complaint accused the petitioners of inducing the company to enter into a hire purchase agreement based on false documents, leading to financial loss and invoking arbitration.
2. The core issue revolved around the petitioners' alleged fraudulent intention, with the respondent contending that the petitioners deceived them by misrepresenting the absence of any charge on machinery hypothecated with IDBI since 1987. The respondent argued that the petitioners' actions constituted offenses under sections 420, 468, and 471 of the Indian Penal Code, 1860.
3. The interpretation of sections 125 and 126 of the Companies Act, 1956 was crucial in determining the complainant's deemed knowledge of previous charges on the machinery. The petitioners argued that the complainant should have been aware of the charges, while the respondent emphasized the fraudulent nature of the petitioners' actions.
4. The court analyzed the legal requirements for establishing cheating under section 415 of the Indian Penal Code, emphasizing the necessity of fraudulent or dishonest intent from the inception of the contract. The petitioners' defense centered on the production of a no lien certificate as a formality, while the respondent highlighted the petitioners' alleged deceptive conduct.
5. Additionally, the court deliberated on the nature of the dispute, considering whether the criminal proceedings were an abuse of the court process for a matter deemed civil in nature. The respondent argued for the continuation of the trial to determine the petitioners' fraudulent intentions, while the petitioners contended that the dispute was primarily civil.
6. Ultimately, the court dismissed the criminal original petition, emphasizing that the issues of prior knowledge of charges and fraudulent intent were to be determined at trial. The court found no valid reason to interfere with the ongoing proceedings, indicating a need for further examination of the allegations and legal arguments presented by both parties.