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2018 (8) TMI 2067 - HC - Indian LawsDishonor of Cheque - framing of charges against the petitioners - criminal breach of trust - whether the allegations made in the FIR when taken on their face value would constitute the offences punishable under Sections 406 and 420 of the IPC? - HELD THAT - In the opinion of this Court, simply because the company withheld payment either to the milk suppliers or it failed to make payment due to the milk van and salary to the informant, the same would not constitute an offence punishable under Section 406 of the IPC - In order to make out a case of criminal breach of trust, it is not sufficient to show that the money has been retained by the company but also that the company dishonestly disposed of the same or dishonestly retained the same. The mere fact that the accused persons did not pay the amount due would not amount to criminal breach of trust. It is well settled position in law that in order to attract the provisions of Section 420 IPC, the guilty intent at the time of making the promise is a prerequisite and an essential ingredient thereto, and subsequent failure to fulfil the promise by itself would not attract the provisions of Section 420 IPC - In Dalip Kaur Ors. Vs. Jagnar Singh Anr. 2009 (7) TMI 1365 - SUPREME COURT , the question for determination before the Supreme Court was whether breach of contract of an agreement for sale would constitute an offence under Section 406 or Section 420 of the IPC. After examining the fact of the case and relevant Sections of the IPC, the Supreme Court held that an offence of cheating‟ would be constituted when the accused has fraudulent or dishonest intention at the time of making of promise or representation. A pure and simple breach of contract does not constitute the offence of cheating‟. In the present case, what has been alleged by the informant in his written report is that the company did not make appropriate payment to the milk suppliers. It also failed to make payment due to the milk van and salary of the informant as also wages due to the labour of the milk van. Apart from the allegation of non-payment of dues to various persons, as discussed above, there is no iota of allegation they had dishonest intention in misappropriation of property. There is no allegation that the company or the petitioners made any willful misrepresentation. There is also no allegation that the petitioners induced the informant to believe anything to be true which was false and which the petitioners knew or believed to be false - in view of the allegation made by the informant, the agreement, if any, was between the milk suppliers and the company and the informant had got no concern with such agreement. In the event, the company failed to fulfill its liability under the agreement, the aggrieved persons would have been the milk suppliers. Apart from the fact that the allegations made in the FIR lacks necessary ingredients of sections 406 and 420 of the IPC, concept of vicarious liability is unknown to criminal law. The IPC does not provide for vicarious liability upon the directors of the comapny for any offences alleged to be committed by a company. From perusal of the cheques, it would be apparent that the alleged cheques were issued under the signature of petitioner no. 1 on behalf of Natural Dairy Pvt. Ltd. Thus, the liability to pay, if any, was of the company of which the petitioner no.1 was the authorized signatory - It is settled position in law that when a cheque, which is drawn by the company, is dishonoured, the company will have to be made a party to the proceedings under Section 138 of the NI Act and failure to do so will vitiate the prosecution. This Court is of the opinion that the criminal proceedings initiated against the petitioners in the present case, is an abuse of the process of law and, as such, the criminal proceedings as well as the impugned order cannot be sustained. The Court is also of the opinion that the learned Judicial Magistrate-1 st Class, Patna without appreciating the facts and considering the settled provisions of law rejected the application filed by the petitioners under Section 239 of the CrPC in the most mechanical manner. Application allowed.
Issues Involved:
1. Quashing of order rejecting discharge petition under Section 239 of CrPC. 2. Applicability of Sections 406 and 420 of IPC. 3. Applicability of Section 138 of the NI Act. 4. Vicarious liability of company directors under IPC and NI Act. Detailed Analysis: 1. Quashing of Order Rejecting Discharge Petition: The petitioners filed an application under Section 482 of the CrPC to quash the order dated 25.08.2017 by the Judicial Magistrate-1st Class, Patna, which rejected their discharge petition under Section 239 of CrPC. The court noted that the inherent powers to quash proceedings arise only when the allegations do not disclose any offence or are frivolous. A person can be discharged only if the charges are groundless. 2. Applicability of Sections 406 and 420 of IPC: - Section 406 IPC (Criminal Breach of Trust): - The court examined whether the allegations in the FIR constituted an offence under Section 406 IPC. It was noted that there was no allegation of entrustment with property and dishonest misappropriation. - The court concluded that mere non-payment by the company does not constitute an offence under Section 406 IPC. There must be dishonest misappropriation or conversion of property. - Section 420 IPC (Cheating): - The court analyzed whether the allegations constituted an offence under Section 420 IPC, which involves cheating and dishonest inducement. - It was held that for an offence under Section 420 IPC, the guilty intent at the time of making the promise is essential. Mere failure to fulfill a promise does not attract Section 420 IPC. - The court cited various Supreme Court judgments to emphasize that a breach of contract does not constitute cheating unless there is fraudulent intent at the time of the agreement. 3. Applicability of Section 138 of the NI Act: - Legal Flaws in Prosecution: - The court noted that for an offence under Section 138 of the NI Act, a statutory notice must be served, which was not done in this case. - The informant was not the aggrieved person as per Section 138 of the NI Act. - The court highlighted that cognizance under Section 138 can only be taken upon a written complaint by the payee or holder in due course, not based on an FIR. - Vicarious Liability: - The court referred to the Supreme Court's decision in Aneeta Hada v. Godfather Travels and Tours Private Limited, which mandates that the company must be arraigned as an accused for prosecution under Section 138 of the NI Act. Without the company being made a party, the directors cannot be prosecuted. 4. Vicarious Liability of Company Directors: - The court reiterated that the concept of vicarious liability is unknown to criminal law unless specifically provided by statute. - It cited Supreme Court judgments stating that the IPC does not impose vicarious liability on directors for offences committed by the company. - The court concluded that without the company being an accused, the directors cannot be charged under Sections 406, 420 IPC, or Section 138 of the NI Act. Conclusion: The court held that the criminal proceedings against the petitioners were an abuse of the process of law. The order rejecting the discharge petition was set aside, and the criminal proceedings were quashed. The application was allowed.
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