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TMI Blog2017 (4) TMI 1400X X X X Extracts X X X X X X X X Extracts X X X X ..... maran, for M/s.Mc.Gan Law firm For Respondent:- Mr. K.Srinivasan, Spl. Public Prosecutor for CBI (cases) COMMON ORDER Heard Mr.Muralikumaran, learned counsel appearing for M/s.Mc.Gan Law firm, who is on record for the petitioner in Crl.O.P.No.21243 of 2014 and in Crl.R.C.No.1195 of 2015 and Mr. K.Srinivasan, learned Special Public Prosecutor for CBI (cases) appearing for the respondent in both the cases. 2. With the crucial issue, involved in both the petitions is one and the same, and the parties to the petitions are also one and the same, both the petitions have been consolidated together, heard jointly, and disposed of in this common order. 3. Criminal Original Petition No.21243 of 2014 has been filed by Mr. Naresh Prasad Agarwal, who is the second accused in C. CNo.3 of 2014 ,on the file of the learned Special Judge for CBI cases ( XII Judge, City Civil Court), Chennai under Section 482 of the Code of Criminal Procedure to quash the charge sheet filed against him by the respondent-police. 3A. The petitioner Mr. Ganesh Agarwal had originally filed a petition in Crl.M.P.No.3615 of 2014 under Section 239 of the Code of Criminal Procedure to discharge him from the criminal c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to empower the High Court to exercise the powers of an appellate Court to prevent failure of justice in cases where the Code does not provide for appeal. The power, however, is to be exercised only in exceptional cases where there has been a miscarriage of justice owing to : (i) a defect in the procedure or (ii) a manifest error on a point of law; (iii) excess jurisdiction, (iv) abuse of power, & (v) where the decision upon which the trial Court relied has since been reversed or overruled when the revision petition was being heard. 8. As observed by the Supreme Court in State of M.P. Vs. S.B.Johari, (AIR 2000 SC 665: (2000) 2 SCC 57: 2000 SCC (Crl) 311 : 2000 Crl.L.J.944), under Section 401 of Criminal Procedure Code quashing of the charge by the High Court would be justified if even on considering the entire prosecution evidence, the offence is not made out. 9. In Trilok Singh V Satya Deo Tripathi, (AIR 1979 SC 850: (1979) 4 SCC 396: (1980) Crl.L.J. 822) , the Supreme Court has observed that if the charge in a criminal proceeding constituted a bona fide civil dispute, the High Court can quash the charge. 10. It has mainly been alleged that the petitioners (A2 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... civil liability can be converted into a criminal liability? and if it is done so, could it be construed as abuse of process of Court? 15. While speaking on behalf of a Division Bench of the Apex Court in Indian Oil Corporation vs M/S NEPC India Ltd., & Ors.(2006) 6 SCC 736) : (2006) 3 SCC (Crl.) 188), Hon ble Mr Justice Raveendran has dealt elaborately with the point Existence or availment of civil remedy under criminal law . While answering the above question he has observed that: It is necessary to take notice of a growing tendency in business circles to convert purely civil disputes into criminal cases. This is obviously on account of a prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. Such a tendency is seen in several family disputes also, leading to irretrievable break down of marriages/families. There is also an impression that if a person could somehow be entangled in a criminal prosecution, there is a likelihood of imminent settlement. Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure though criminal prosecution should be depreca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .Shiv Sahai & Sons, PO Box No.7428, No.60-61 Narasima Dasari Lane, NSC Bose Road, Chennai-600 001 as well as against unknown officials of MMTC Ltd., Chennai Regional Office, Chennai and Union Bank of India, Main Branch, Chennai. 22. The petitioner in Crl.O.P.No.21243 of 2014, Mr. N.P. Agarwal was originally ranked as third accused in the First Information Report. Mr. N.Ganesh Agarwal, who has been arraigned as 3rd accused in the Charge sheet (petitioner in Crl.R.C.No.1191 of 2015) was originally not at all shown as an accused in the First Information Report. 23. As per the prosecution, the suspected offences alleged to have been committed by the accused persons are, criminal conspiracy, cheating, falsification of accounts and criminal misconduct. 24. The term offence has been defined in the first part of Section 40 of IPC in the following manner: Except in the chapters and sections mentioned in clauses 2 and 3 of this Section, the word offence denotes a thing made punishable by this Code The Supreme Court of India in State of Maharashtra Vs Mayor Hons.George, (AIR 1965 SC 722: 1965 Crl.L.J.641: (1965) 1 SCR 123) has held that unless statute either clearly or by necessary impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petitioners were having such criminal intention to commit the offence as alleged by the prosecuting agency assumes importance and to be answered by them in an unambiguous manner: 26. Secondly the entire prosecution case seems to have been constructed on the foundation of the Memorandum of Understanding dated 02.04.2008 which was entered into between MMTC Limited, Chennai House, No.6 Esplanade, Chennai 600 108, having registered office at Core 1 Scope Complex No.7 Lodi Road, New Delhi, (hereinafter referred to as seller ) and M/s. Shiv Sahai & Sons, having its registered Office at P. Box No.7428, Narasima Dasari Lane, 60-61 NSC Bose Road, Chennai 600 001 (hereinafter referred to as customer ). 27. Minerals and Metals Trading Corporation of India Limited, (in short it may hereinafter be referred to as MMTC Ltd.,) a public sector undertaking of the Government of India, is one of the agencies of the Government, which is authorized to import bullion (Gold, Silver) under the Export-Import Policy. MMTC Ltd., Chennai Regional Office is also doing bullion trade with the customers. It imports the bullion under the Open General Licence and sells the same to local customers under the followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion trading through buyers Credit Scheme and in pursuance of the said conspiracy , Mr.S.Gurusamy (A1), Mr. V.Gurumurthy (A2) and unknown officials of MMTC Ltd., by abusing their official position, had extended undue favours to Mr. N.P.Agarwal, Proprietor, M/s. Shiv Sahai and Sons (A3) and thus caused a wrongful loss to the tune of ₹ 89.6 crores on MMTC Ltd by intentionally omitting to recover the said amount from the account of Mr. N.P.Agarwal, Proprietor of M/s. Shiv Sahai & Sons (A3). 33. Further, in pursuance of the criminal conspiracy Mr. S.Gurusamy (A1), Mr. V.Gurumurthy (A2) and unknown officials of the MMTC Ltd., along with unknown officials of the Union Bank of India, Main Branch had manipulated the books of accounts of MMTC Ltd., and the Union Bank of India and Mr.S.Gurusamy (A1) and Mr.V.Gurumurthy (A2) and unknown officials of the MMTC Ltd., had covered up the unrecovered amount of ₹ 89.6 crores as debit balance in the Foreign Vendors Account and thereby caused wrongful gain to Mr. N.P.Agarwal, (A-3) and the other accused themselves. The First Information Report also discloses that the above information establishes prima facie commission of offence, under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paragraph therein reveals that the first accused Mr.V.Gurumoorthi had retired from MMTC Ltd., Chennai on 30th November, 2010 and hence the sanction for prosecution is not required for him. It is also revealed that that the allegations against Mr. S.Gurusamy, who was originally cited as accused No.1 in the First Information Report could not be proved conclusively, as the investigation did not reveal his involvement in the case and hence, he was not charge-sheeted. 38. Further, the final report also reveals that one Mr.Ganesh Agarwal has been implicated as third accused. He is non other than the son of Mr. N.P.Agarwal. The final report has further tend to disclose that Mr. Ganesh Agarwal who is the , Proprietor of M/sShiv Sahai and Sons (India) Limited had been actively associated in the bullion business of his father and had also been dealing with the MMTC Ltd., in bullion matters. Therefore, the Investigating Authority had deleted the original first accused Mr. S.Gurusamy, who was the former Chief General Manager (Finance & Accounts) of MMTC Ltd., Regional Office, Chennai ; instead implicated Mr. Ganesh Agarwal, son of Mr. N.P.Agarwal as the third accused alleging that he had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would cover the foreign exchange. 42. It is also alleged that accused 1 to 3 had intentionally omitted to cover the Indian rupee against the US Dollars, on the date of availing the foreign currency loans. 43. It is also the case of prosecution alleged that the first accused Mr. V.Gurumoorthi in conspiracy with accused 2-3 had intentionally omitted to collect the loss due to speculation on foreign exchange from accused 2 -3. Instead in pursuance of the conspiracy and by abusing and misusing his official position, A-1 Mr.V.Gurumoorthi had availed a series of loans against the fixed deposits (LADs) and made repayments of the foreign currency loans availed for the transactions of accused 2&3. It is also alleged that the accused 2 & 3 knowing fully well that the failure to cover the foreign exchange resulted in loss to the MMTC Ltd., had intentionally omitted to take steps to make payments, but continued to cause the loss to the MMTC Ltd., by speculating on foreign exchange, which resulted in loss to MMTC Ltd., and thereby accused 1 to 3 had cheated the MMTC Ltd., Government of India undertaking to the tune of ₹ 113.38 crores by making wrongful loss to the Government and corresp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... criminal conspiracy, A-1 maintained improper accounts and falsified the books of accounts of the MMTC Ltd., by showing inflated fixed deposit amount of ₹ 38,99,01,189/- and deflated Loan-Against-Deposit amount of ₹ 45,43,17,044/- both in the account of the MMTC Ltd., in Union Bank of India, Chennai Main Branch, Chennai.A-1 Shri V.Gurumoorthi also obtained pecuniary consideration to tune of ₹ 41,700/- offered by A-2 Shri. N.P.Agarwal and A-3 Ganesh Agarwal in the form of air ticket for his visit to Singapore along with his wife, during October, 2010. Thus A-1 to A-3 committed the offences punishable u/s.120-B,r/w 420 , 477-A IPC and 13(2) r/w 13(1)(d) of PC Act and substantive offences thereof. 47. On a conjoint reading of the allegations made in the First Information Report and in the final report, this Court is able to find that both the First Information Report and the final report are conflicted against each other. Though Mr. S.Gurusamy, had been shown as A-1 in the first information report, his name was subsequently deleted at the time of filing of the charge sheet without assigning any valid reason by simply saying that the allegations against Mr.S.Gurusamy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the cases which are within the competence of higher officers, he will forward his detailed comments to the DIG and obtain orders from superior officer competent to order registration. The verification of SIRs must begin only after the Competent Authority has approved its registration. At this stage a regular SIR number will be assigned to the SIR which will also be entered in the Source Information sub-module of CRIMES Module with all other details . Clause No.8.29 reads thus: After registration, verification may be entrusted to an officer other than who has submitted the SIR. As far as possible, the requisition of records/documents should be avoided during verification of SIRs. In case, it is absolutely necessary to do so, the requisition must go to the concerned Vigilance Officer under the signatures of the SP after obtaining permission from the DIG concerned. It must be ensured that no record/documents are requisitioned before the Competent Authority has passed orders for registration of an SIR. Clause No.8.32 envisages that: The verification of an SIR must be completed within a period of three months. In case of delay, the approval of the Competent Authority should be o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt) Chennai on the said date. It is thus made clear that the procedures enunciated in Chapters 8 and 9 of CBI Manual have not been followed. 50. Clause 9.1 of the CBI Manual says that it is therefore, necessary that the SP must carefully analyze the material available at the time of verifying and verification report submitted by the superior officer, registration of preliminary enquiries is not resorted to where a case can be registered. Where material or information available clearly indicates that it would be a case of misconduct and not criminal misconduct it would be appropriate that the matters referred to the department at this stage by sending a self- contained note. In such cases, no 'preliminary enquiry' should be registered. 51. Mr.Muralikumaran, has contended that the procedure enunciated under CBI Manual are mandatory which ought to have been scrupulously followed by the officers concerned prior to the registration of the case. In support of his contention, he has placed reliance upon the decision of this Court and made in MCR. Vyas v. Inspector of Police 2014 SCC online Mad 4930. Paragraph Nos.44, 50 and 54 of this decision are very much relevant. 52. In par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule if could deprive the right of the person, then serious prejudice would be caused to the said person. 53. In Manu Sharma's case cited supra, the Apex Court has held that if any source of information is received against an officer of high rank even for verification of source information the respondent / CBI has to get approval from the Competent Authority. The Competent Authority is the director of CBI, and after such approval by Competent Authority, the Verification officer shall submit his detailed report to the Competent Authority for obtaining orders. This procedure has not been followed in this case, because the provisions of the CBI manual are mandatory to be followed. 54. In Nirmal Singh Kahlon v. State of Punjab (2009) 1 SCC 441,it has been observed by the Apex Court that lodging of FIR by CBI is governed by the manual. It may hold a preliminary enquiry; it has been given the said power in Chapter VI of the CBI Manual. A prima facie case may be held to have established only on completion of a preliminary enquiry". "Following Vineet Narain case, the Apex Court in Shashikant v. CBI (2007) 1 SCC 630 "has held that CBI Manual has to be mandatorily follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd another, reported in 2008 (56) BLJR 2254 wherein Hon ble Mr Justice S.B.Sinha while penning down the Judgment on behalf of a Division Bench, in paragraph Nos. 122,123 and 124 has observed as under: 122. Guidelines issued should not only be substantially complied, but also in a case involving penal proceedings, vis-a-vis a departmental proceeding, rigours of such guidelines may be insisted upon. Another important factor which must be borne in mind is as to whether such directions have been issued in terms of the provisions of the statute or not. When directions are issued by an authority having the legal sanction granted therefor, it becomes obligatory on the part of the subordinate authorities to comply therewith. 123. Recently, this Court in State of Kerala and Ors. v. Kurian Abraham(P)Ltd.& anr.MANU/SC/0801/2008: [2008] 303 ITR 284 (SC) , following the earlier decision of this Court in Union of India v. Azadi Bachao Andolan MANU/SC/0784/2003 : [2003] 263ITR 707(SC) has held that statutory instructions are mandatory in nature. 124. Logical corollary of these discussions is that the guidelines such as those present in the Standing Order cannot be blatantly flouted and subs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciple of reasonableness and rationality which is legally as well as philosophically an essential element of equality or non-arbitrariness is projected by Article 14 and it must characterize every state action, whether it be under the authority of law or in exercise of executive power without making of law. The State cannot, therefore, act arbitrarily in entering into relationship, contractual or otherwise with a third party, but its action must conform to some standard or norm which is rational or non-discriminatory. The action of the Executive Government should be informed with reason and should be free from arbitrariness. 61. It is indeed unthinkable that in a democracy governed by the rule of law, the executive Government or any of its officers should possess arbitrary power over the interests of the individual. Every action of the executive Government must be informed with reason and should be free from arbitrariness. That is the very essence of the rule of law and it bare minimal requirement. And to the application of this principle it makes no difference whether the exercise of the power involves affection of some right or denial of some privilege. This principle is laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s have also signed, whereas in the place of customer viz., Shiv Sahai no signature is found and beneath the signature of Mr. P.Ramachandran, it is stated MMTC Limited, a Government of India Undertaking, Chennai House, 6, Espalanade, Chennai-600 001. 65. The Executive Power of the Union of India and the State to carry on any trade or business, acquire, hold and dispose property and make contracts is affirmed by Article 298 of the Constitution of India. It is to be mentioned here that if the formal requirements of Article 299 of the Constitution of India are complied with, the contract can be enforced against the Union or the States. Thus, Article 299 lays down three conditions for making valid contracts in the exercise of the executive power of the Center or a State. (i) The contract must be expressed to be made by the President or the Governor as the case may be, (ii) All contracts made in the exercise of the executive power are to be executed on behalf of the President/Governor as the case may be, and (iii) The execution must be by such person and in such manner as the President or the Governor as the case may be, may direct or authorize. The expression executed does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the parties to go for arbitral proceedings, if any dispute or difference whatsoever arising between them relating to the construction, meaning, scope, operation or effect of the sale purchase agreement, or even if there is any breach thereof, shall be settled through arbitration in accordance with the Rules of Arbitration of the Indian Council of Arbitration and the award made in pursuance thereof shall be binding on the parties. This is the specific stipulations made in clause 11 of the said Memorandum Of Understanding. It is also to be noted that the venue of arbitration shall be Chennai . 71. Page Nos.37 to 72 of the typed set of papers filed by the petitioners contain the copy the plaint filed by MMTC Ltd., in C.S.No.249 of 2013 on the file of this Court. It appears that the above Civil Suit has been filed against the following three persons: (a) Shiv Sahai and sons, represented by its proprietor Mr. N.P.Agarwal; (b) Shiv Sahai & Sons (India) Ltd., being its successor in title to Shiv Sahai & Sons, a proprietary concern through its directors represented by Mr. N.P.Agarwal; & (c) Mr.V.Gurumurthy (Retired General Manager (F & A) of MMTC, Ltd., 72. It is pertinent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be decided in the suit except reference to arbitration. 75. The respondent/plaintiff has contested the above said Application by filing their counter-affidavit. After hearing both parties, a learned single Judge of this Court, (R.S.Ramanathan,J) while allowing the said Application has held that having regard to the fact that the respondent/plaintiff submitted to the arbitration proceedings initiated by the applicants, it is not open them to recede and file a Suit in respect of the dispute covered under MOU and also in respect of various claims made against the applicants. Therefore, I am of the firm view that the dispute raised in the Suit is liable to be referred to Arbitration, as the same is covered under clause 11 of MOU, dated 2.4.2008. 76. This Court would like to place it on record certain observations made by the learned single Judge in the order referred to above, as they are very much relevant for the disposal of these petitions. (para 22) ..According to me, except, bald allegations in some paragraphs stating that the third defendant, in connivance and in collusion with the applicants, fudged the accounts and caused loss to the respondent/plaintiff, no specific a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated supra, no serious allegations of fraud were attributed against the applicants/defendants 1 and 2 and the allegations of fraud, or suppression of facts were made only against the third respondent, who was the Officer of the respondent-Corporation. (para 31). In the Judgment reported in (2003) 6 SCC 503 (supra), viz., the Judgment relied upon by the learned senior counsel for the applicants, the Hon ble Supreme Court held as follows: If, in an agreement between the parties before the Civil Court, there is a clause of arbitration, it is mandatory for the civil Court to refer the dispute to an arbitrator. In the instant case, the existence of an arbitral clause in the agreement is accepted by both the parties as also by the Courts below. Therefore, in view of the mandatory language of Section 8 of the Act, the Courts below ought to have referred the dispute to arbitration. (para 32). Therefore, in view of the ratio decidendi laid down by the Hon ble Supreme Court , point No.1 is answered in favour of the applicants by holding that no specific allegations, much less, any allegations of fraud were made against the applicants, and having regard to the fact that the third defendan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Justice,while penning down the Judgment, has made reference to paragraph 8 of the plaint in C.S.No.244 of 2013. In paragraph 4 of the Judgment, the Hon ble Chief Justice has observed that: " a perusal of the plaint shows that in paragraph 8, there is a categorical averment that a request was made by the first respondent/first defendant for commencement of purchase of bullion under Buyers Credit Scheme and on that basis, goods were sold on the understanding that all expenses and losses in respect of the transactions will be on the account of the first respondent. These transactions took place from the period 01.04.2007 to 31.12.2012. The plaint also alleges that the third defendant (not a party in this appeal), an employee of the appellant , was looking after the books of accounts during the period 01.04.2007 to 30.11.2010. In paragraph 8 of the Judgment, it has been observed that Some discrepancies in transactions are stated to have been detected by the Special Audit, post an internal audit. This Special Audit Report was submitted by the Chartered Accountants. It is in view thereof that the appellant alleges fraud having been practiced on the appellant. 81. In paragraph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Index annexed to the typed set of papers filed by the learned Special Public Prosecutor, this Court is able to understand that the above said Special Leave Petition came up before the Supreme Court on 5.7.2016 and on that day, the Hon ble Supreme Court has ordered that interim order to continue till the next date of hearing 85. Mr. Muralikumaran, learned counsel appearing for M/s. Mcgan Law Firm, has submitted that the entire case of prosecution, as observed by the Division Bench of this Court in the afore said Judgment in O.S.A.No. .244 of 2014 dated 28.10.2014 is civil in nature and therefore, the criminal proceedings initiated by the respondent police against the petitioners could not be maintained. 85 (a) As indicated by Mr. Muralikumaran, at page No.4 of the plaint under the caption of Buyers Credit Scheme , it has been stated that Buyers credit (BC) is an extension of the outright sale scheme. There is an arbitrage opportunity due to interest disparities in India and overseas. In order to avail this benefit, the plaintiff (MMTC Ltd.,) was requested by the customer to avail buyer s credit. Even in the charge sheet also, the respondent/police has stated that the extended sch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oan is taken from foreign banks. 90. He further contends that with regard to the allegations of loss towards foreign exchange at ₹ 36.02 crores, interest on the LAD which was alleged to have not been passed on to the customer at ₹ 36.18 crores and loss of a sum of ₹ 18.42 crores towards usance of LC charges, that the foreign exchange loss even according to prosecution was due to not taking up of the forward cover and taking up forward cover is the duty of the MMTC. Relying on the CAG report and the Special Audit report in Page.No. 498, the counsel for the petitioners contended that the instruction of the Central Office of MMTC was not followed by the Regional Office of MMTC, with regard to taking of forward cover and the same is purely a lapse on the part of the MMTC and the loss resulted due to the said lapse is being resisted by the petitioners by initiating arbitration proceedings. The MMTC has also filed a Civil Suit claiming the very same amount contending that the loss is caused due to the petitioners action. 91. It is to be noted that at the last paragraph of Chapter V of the Report No. 13 of 2013 (page No.218 of the Index to the additional typed set of p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signed or authenticated, otherwise than in conformity with the requirements of Section 227 and 229, the auditor concerned and the person, if any, other than the auditor, who signs the report or signs or authenticates the document shall, if the default is willful, be punishable with fine which may extend to ₹ 10000/- (Rupees ten thousand only) Section 233A deals with the Power of Central Government to direct special audit in certain cases. Sub Section (1) enacts that Where the Central Government is of the opinion- (a) that the affairs of any company are not being managed in accordance with sound business principles or prudent commercial practices, or (b) that any company is being managed in a manner likely to cause serious injury or damage to the interests of the trade, industry or business in which it pertains; or (c) that the financial position of any company is such as to endanger its solvency; the Central Government may at any time by order direct that a special audit of the company s accounts for such period or periods as may be specified in the order, shall be conducted and may by the same or a different order appoint either a chartered accountant as defined in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he petitioner, Mr. N.P.Agarwal and the MMTC Ltd., It reads that The Chennai Regional Office of the Company entered into gold trading under Buyers Credit System with M/s.Shiv Sahai and Sons (M/s.SSS) from 2007-2008 onwards. However, it was observed that foreign exchange exposure was not hedged as the forward cover was kept open. As per para 7 (i) of the Agenda item No.2 given in the Note for Consideration of Audit Committee of Directors for 67th meeting of the Committee held on 10th February, 2012, the differential exchange rate and the buyers credit expenditure to the tune of ₹ 36.36 crores was not debited to the account of M/s.SSS during financial year 2008-2009. The Report further reads thus: The Management while admitting the audit observations regarding non debiting the interest on LADs to the customer s accounts and non posting the debit entries towards differential costs in the accounts of M/s.SCL replied (March and November, 2012) that: As M/s. Shiv Sahai & Sons expected that Rupee will appreciate, the forward cover was kept open; Volume of bullion transactions at RO, Chennai were on a large scale and hence it was not possible to settle on transaction basis; Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. 97. At page No.88 of the additional typed set of papers , Tour Report on visit to MMTC Chennai (10.9.08 to 14.09.08) find a place. In paragraph No. 4 of that report it is stated that the fixed deposit receipts are made in the name of MMTC Ltd., and lodged with banks due to lien against Buyers Credit or loan and all the deposits are maintained with ten banks in respect of transactions with Shiv Sahai. Beneath this line, the position in respect of Shiv Sahai as on 12.09.08 is given. The report further says that the transactions involving bullion trade and especially Buyer s credit requires regular maintenance of records with close monitoring and control. In view of huge volume of work and quantum of trade, there is urgent requirement for posting of two officials in Commodity Section and two in Finance at the operational level in Bullion Division. The report further says that due to lien against Buyers Credit or loan, fixed deposits were made in the name of MMTC Ltd., Chennai and that all the deposits were maintained with ten banks in respect of transactions with Shiv Sahai. 98. It is also to be noted that this report has given advice to the management that in view of huge volum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... morandum and Article of Association of the MMTC the learned counsel for the petitioners contended that the administration of the MMTC is vested with the Board and with regard to Loans and deposits it specifically states that, it can be done only by Board resolutions and the Board functions. The Department of Public Enterprises under the Ministry of Heavy Industries and Public Enterprises, Government of India Guidelines issued on Corporate Governance for Public Sector Enterprises, which MMTC Board of Directors in its meeting adopted the said guidelines as Board Charter. Even under the same as per clause 3.2 the power to invest funds and take loans can be exercised only by the Board through its meetings. The power to borrow money and invest funds and to make loans to other functionaries can only be by means of resolutions at Board Meeting. No such resolution has been produced by the prosecution to show that all through the period it was only Mr. V. Gurumurthy was empowered by the Resolutions of the MMTC Board to Invest funds ie., to make deposits and take loans against it. 104. This Court has also perused the Standing Order on Role of Audit in Relation to Cases of Fraud and Corrupti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial statement auditor and includes responsibility for verification of regularity and performances. Hence, the auditor should be aware of the possibility of fraud not only in the preparation and presentation of financial statements but in other areas covered by regularity (compliance) and performance audits as well Clause 7 envisages respective responsibilities of management and audit. Clause 7.1 says It is the responsibility of those charged with governance of the entity to ensure through oversight of management, that the entity establishes and maintains internal control to provide reasonable assurance with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations. Clause 7.2 reads that in relation to fraud, it is important to recognize that the responsibility for the prevention and detection of fraud and error rests primarily with the management of the audited entity through the implementation and continued operation of accounting and control systems designed to check and fraud. Clause 19.1 says that reports of individual cases of suspected/presumptive fraud/corruption should be addressed con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f his functions as such; Sub Section 3(a) of Section 619 of the Act says that the Comptroller and Auditor- General of India shall have power to give directions to the auditor appointed in pursuance of sub section (2) to do the auditing work in respect of the company s accounts in such a manner 110. Page No.66 of the additional typed sets of papers contains the directions under Section 619(3)(a) of the Companies Act, 1956. Annexure IV deals with system of Accounts & financial control. Clause V deals with fraud/risk. Clause 5 of Annexure V poses the following question: Does the Company have separate Vigilance Department/Wing? To what extent is it effective in its duty and whether the reports are submitted to the Board. ? Clause 11 deals with Internal Audit System 111. Annexure II of the Directions under Section 619(3) (a) of the Companies Act, 1956 is about sub directions to statutory/branch auditors on the accounts of MMTC Limited for the year 2008-2009. Page No.91 of the additional typed set of papers contains the special report submitted by Purushottam and Company, Chartered Accountants. Paragraph 3 of the report says as follows: 3. We further report that In our opinion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not in an expected level. There was lack of follow up action in respect of recovery of old debts, advances and claims by the respective commodity division and therefore it was suggested that these mechanisms need to be strengthened. 115. From the perusal of the records it is manifested that the petitioner, N.P.Agarwal, Proprietor of Shiv Sahai and Sons, Chennai seems to have written three letters to Mr. Oorkavalan of M/s. MMTC Limited, Chennai. In the letters, dated 19.09.2011 and 22.09.2011 he had expressed his anguish with reference to the non-furnishing of break up or particulars of purchases made by M/s. MMTC Ltd., Chennai during the financial year 2008-2009 and in the above said letters, he has stated that despite several requests were made M/s. MMTC Ltd., Chennai had never provided him any break up details for the entire INR fixing, which was done by M/s .MMTC Ltd., itself. In an another letter, dated 22.09.2011 he has stated that it was the practice of M/s. MMTC Ltd., to make outright purchase and to make payments and to take steps (only) of gold/silver bullion. With reference to this , he has stated in the above said letter that with regard to buyer s credit from beginnin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference to the letter, dated 31.12.2011 addressed to MMTC Ltd., Chennai by Shiv Sahai and Sons. In this letter, the petitioner has stated that the entire buyers credit business was solely handled by MMTC and hence they did not have the records with them. Under these circumstances, the petitioners had sought some clarification from MMTC Ltd., Chennai for the purpose of reconciliation of accounts and to check and confirm what M/s MMTC Ltd., have claimed was correct or not. The following clarifications were sought for from MMTC Ltd., by the petitioner in the said letter, dated 31.12.2011: Please provide us details of each and every individual buyer s credit transaction undertaken by you, for the said period along with the details of the deposits made by you from the funds provided by us. In particular, please provide the following: a. The date of the transactions; b. The quantity of the Metal (gold or silver) c. The price fixed with the foreign supplier including Cantango charges, if any ; d. The date of the delivery agreed with the foreign supplier; e. The date on which the payment has to be made to the Banker providing the buyer s credit; f. Our confirmation for the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Debtors/others ParticularsAmount (Rs.) M/s.Shiv Sahai & Sons91,79,79,805 M/s Surana Corporation 18,21,59,354 Claims pending 5,55,79,107 ------------------------ Total 115,57,18,266 ------------------------ b) Note No.33- Non confirmation/non-reconciliation of certain accounts shown under sundry debtors/sundry creditors/loans and advances/claim recoverable; c) Non confirmation of extra ordinary balance in the following accounts: i)Amount payable to M/s. Adani Global Pte Ltd. (Singapore) Rs.440,80,76,107/- credit balance-towards supply of coal from Indonesia; ii)Amount receivable from M/s. Tamil Nadu Generation and Distribution Corporation Ltd. (M/S.TANGEDCO) Debit balance of ₹ 443,12,64,201/- towards purchase of coal from MMTC. iii)M/s. Titan Industries-Credit balance of ₹ 12,23,92,414/- iv)M/s.Shiv Sahai & Sons-Debit balance of ₹ 91,79,79,805/- v) M/s.Surana Corporation-Debit balance of ₹ 18,21,59,354/- vi) M/s.GRT Group-Credit balance of Rs. 19,486/- vii) Code No.12401/- Foreign Currency Loan from bankRs.597,05,13,188/- IN VIEW OF THE NON CONFIRMATION OF BALANCE (CREDIT/DEBIT BALANCES) IN RESPECT OF ABOVE MENTIO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e MOU and a special audit has been directed which is in progress, and the final report is expected shortly. In the last line of the said letter, it is sated that we accordingly also request you to extend the date for filing of the defence statement and counter claim. 126. On perusal of this letter it is revealed that this letter was written to the Registrar of Indian Council of Arbitration , New Delhi with reference to a matter of arbitration between M/s.Shiv Sahai and Sons, Chennai and M/s. MMTC Ltd., Chennai. 127. In this connection, it is imperative on the part of this Court to state that in the Audit report dated 13.6.2012 given by M/s. Vardhaman and Co., Chartered Accountants it is stated that based upon the audit procedure performed and information and explanations given by the management, we report that no fraud on or by the region has been noticed as reported during the course of our audit. When the Chartered Accountants, viz., M/s.Vardhaman and Company themselves were able to say that during the course of their audit, they did not notice any fraud on or by the region, how, could M/s ELP say that in the course of the audit of the transactions with Shiv Sahai it came to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the other party. This ratio has been laid down in Bibhuti Vs Bhusan Datta Vs Samarendra Nath Misra, (2002 (3) CHN 482 (Cal) 132. The strict meaning of the term Onus probandi is this that if no evidence is given by the party on whom the burden is cast, the issue must be found against him.(Per PARKE B, in Barry Vs Butlin,2 Moo PCC 430) That is the reason why in criminal cases, the Courts used to say that the prosecution must prove its case beyond all reasonable doubts. 133. In so far as this case is concerned, the whole edifice is founded on the basis of fraud . When the Chartered Accountants M/s.Vardhaman and Co., has been able to say that during the course of their audit they did not notice any fraud, the allegations made by the prosecuting agency has become pale into insignificance. 134. On perusal of the records, this Court is able to find that the letter, dated 18.02.2013 seems to have been addressed by ELP, signed by one Tarun Gulati, partner, to the Registrar, Indian Council of Arbitration, New Delhi is with reference to the matter of arbitration between M/s.Shiv Sahai and Sons Chennai and M/s.MMTC Ltd., Chennai . Paragraph 2 of this letter is very much relevant, wherei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 233A? , for which it is replied that CAG s Report on the given subject has been laid in Parliament, Central Government takes decision on special audit as per section 233A. Serial No.135 is with reference to the following query: whether MMTC RO has maintained any records to show which party s funds were placed in FDR and LAD taken against which FDR. If not, how the interest Debits and Credits are debited/credited to Customers Account? In such circumstances, the liability fixed or charged on the customers, the interest credits/debits and the customer balances shown in the financial statements are correct and accurate and the Financial Statements show a true and fair view? (i) The sale of Gold by the RO is done under Outright or Loan Schemes. whatever be the scheme, the delivery of Gold to customer is done on receipt of Money or LC/BG. (ii) RO takes 100/110% cash margin/SBLC for the scheme and opens SBLC in favour of the supplier. (iii) MMTC also takes Buyer s Credit from Indian Banks in foreign currency for immediate payment to the Supplier and the same to be liquidated in 90 days. The entire value for the supply is obtained as margin from the customer and placed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... actions and reconciliation of debit balances in the sundry creditors account of Regional Office, Chennai on behalf of MMTC Ltd., Chennai a letter was addressed on 5.1.2012 to M/s.Venkat and Rengaa, Chartered Accountants, signed by one Umesh Sharma, the then Chief General Manager (IA), wherein it is stated that we are pleased to inform you that the competent authority has approved the appointment of your firm as per the terms and conditions thereon. The scope of this work was to analyze and locate the debit balance of ₹ 116.69 crores. 140. From the above context, this Court finds that the appointment of M/s.Venkat and Rengaa, Chartered Accountants was approved by the management of MMTC Ltd., Chennai, but in their reply MMTC Ltd., Chennai has gone to the extent of saying lie that their Office had not made any appointment of Special Auditor viz., appointment of M/s.Venkat and Rengaa , in respect of the transactions of Chennai Regional office of MMTC Ltd.,Chennai. 141. In a communication dated 24.9.2014 addressed to Mr. N.P.Agarwal (the petitioner), as it is seen from page No.241 of the additional typed set of papers, the Indian Audit and Accounts Department, Office of the Prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Charter clearly defining the roles and responsibilities of the Board and individual directors. Accordingly, this Board Charter has been approved by the Board in its 392nd meeting held on 12th December, 2011. Clause 3.0 contemplates the responsibilities and powers of the Board of Directors wherein it is stated that the operations of the company shall be managed under the directions of the Board within the framework set out by the Companies Act, 1956 and the Memorandum and the Articles of Association of the Company. 144. Serial No.3 of Standing Order on Role of Audit in Relation to Cases of Fraud and Corruption distinguishes the characteristics of fraud : 3.1 Fraud should be distinguished from error. The distinguishing factor between fraud and error is whether the underlying action is Intentional or unintentional. For examples, the following actions amount to error and not fraud. A mistake in gathering or processing data from which financial statements are prepared. An incorrect accounting estimate arising from oversight or misinterpretation of acts and A mistake in the application of accounting principles relating to measurement, recognition, classification, presentation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s at each stage of detection, reporting , write off, final disposal, in cases of losses including action against delinquents and remedial measures. All the above seven points are bullet points pertaining to auditors to be followed scrupulously. 146. The Learned counsel for the petitioners points out to Page.No. 419 of the special audit report to contend that even the special audit did not find any cheques having been issued for placement of FD s. It was further contended by the counsel for the petitioners that the investigation to make out a prima facie case did not even set out as to :- 1. What are the powers of the MMTC Ltd, Board ? 2. What are powers of the Directors? 3. What are the departments ? 4. Who are the Heads of the Departments ? 5. What are the respective Roles & Duties ? 6. What are the Resolutions of the Board empowering each person to deal with the money? 7. What are the Resolutions of the Board authorizing investments and taking loans ? 8. Who are the persons, who are authorised to sign the cheques? 9. What are the procedures involved in the same? 10. What are the MMTC regulations, norms, resolutions pertaining to making of deposits? 11. What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign exchange. The revaluation difference has been routed through Purchase and Sales Accounts as detailed below. In our opinion, the same is in contravention of the provisions of AS 11. 150. M/s. Venkat and Rangaa, Chartered Accountants in their Special Report pertaining to Chennai Regional Office for the years 2007-2008 to 2009-2010 have given their observations on verification of purchases and sales as under: (see page 19 of vol.1 of Special Audit Report) 1. Bullion Drill instructions have not been followed in several cases. 2. To satisfy the customers needs to take input credit, invoices have been issued outside the BTS system and also accounted for gold issued on loan basis. 3. Sales and purchases accounting during the year varied from time to time and leads to a lot of confusion. 4. The reporting of turnover and purchase to statutory authorities are also incorrect. 5. VAT Audit was conducted from 15.7.2011 to 29.7.2011 by CTO enforcement and show-cause notice has been issued for various deviations. RO has replied to the show cause notice and we will submit our observations after completion of audit of all years. 6. The quantity of purchases and quantity of sales ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chennai themselves have confessed their mistake stating that the bifurcation of accounts at the instance of the auditors was not done properly and that the differences in loan against deposit was corrected by passing entry for ₹ 40.80 crores. They have also stated that the major part of 2008-09 got mixed up due to operation of single code for FDR as well as loan against deposit in 2007-08. They have also stated that in the absence of complete documentary evidence, the above entries were passed as a whole due to paucity of time and pressure of account closing for the year 2009-10. 154. As it is seen from page No.434 of volume 3, with reference to special audit of bullion transactions of MMTC Ltd., the auditors have stated thus: Our observations on verification of purchases and sales is as under: 1. No documents, given to the bank for obtaining loan against deposits ere produced to us. 2. Confirmations from the customers are not available and it appears that the customers are claiming that they do not have records to verify and confirm the dues. 3. LADS and FDs are not properly matched making it difficult, if not impossible to charge differential interest to customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tated that however, if the value of the subsequent supply is more than the previous one, additional FD would have to be placed. Thus, from both the situations, the necessity for LAD continuance for a long period is not necessary. The value of FD should be equal to the value of gold taken on loan. 159. At page 591 of volume-3 of Report on Special Audit of MMTC Ltd., Regional Office, Chennai for the year ending March, 2011 the auditors have stated that there were many contra entries passed during the year. There were totally 266 contra entries passed throughout the year. Bank receipt entries were reversed by bank payment entries and similarly debit notes were reversed with credit notes. So many entries were passed unnecessarily leading to confusion. 160. At page No.25 of Volume-I under the head Suspense Accounts , the auditors have stated that the RO had operated three suspense accounts during the year through which the transactions amounting to ₹ 8205.01 crores were passed. In respect of 72000, though overall suspense account shows a ZERO balance, entries passed through three cost centers have not been matched. RO is yet to identify the difference. 161. At page No.33 of Vol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... difference in vendor account. 7. No confirmation of balances have been obtained either from Vendors or from Customers. 8. There is no maker checker concept and some irrelevant codes have been used. 163. As it is seen from page No.1 of the second additional typed set of papers, MMTC Ltd., Chennai have issued a debit note dated 08.09.2011 for buyers credit expenses for the financial year 2008-09 to M/s.Shiv Sahai and sons and thereby they have claimed ₹ 36,36,15,997/-. For the above said Debit Note M/s Shiv Sahai and Sons have given a reply dated 19.9.2011 to M/s. MMTC Ltd., Regional Office Chennai, wherein they have stated that to the best of our knowledge we state that no payments are due on account of buyer s credit expenses or on any other account for the financial year 2008-09 since we always had the practice of making payments and taking delivery from MMTC. They have also stated that despite several requests your office never provided us any break up or particulars of the said purchases. MMTC Ltd., was requested to provide them the records in respect of purchase of INR fully for the financial year 2008-09. 164. A very same reply has been given by M/s. Shiv Sahai a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st Information Report . 167. He further points out that when the FIR had the following names :- S.Gurusamy, former Chief General Manager, South Zone, MMTC Limited, Chennai Regional Office, Chennai. V.Gurumurthy, formet General Manager (Finance and Accounts), MMTC Limited, Chennai Regional Office, Chennai. N.P.Agarwal, Proprietor, M/s. Shiv Sahai & Sons and many other unknown officials as being involved in the conspiracy belonging to MMTC and Union Bank of India, the MMTC was able to pre-empt the names in the charge sheet and filed the civil suit deleting the name of Mr. Gurusamy (as found deleted in the charge sheet) and not naming any other person in MMTC or the bank, as liable for the loss. Pointing out the same the learned counsel for the petitioners contends that the criminal prosecution has been initiated only to divert the entire issue, as the arbitration proceedings initiated by the petitioners would lead to demonstration of the lapses on the part of MMTC higher officials. 168. In the letter dated 7.1.2013 addressed to Mr. N.P.Agarwal, MMTC Ltd., has stated that already M/s.Shiv Sahai and Sons through RFA, dated 14.12.2012 had made a revised claim in ICA to the exten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out of or in relation to the construction meaning, scope operation or effect under the said MOU, dated 02.04.2008 or otherwise for the period 2007-08 to 2011-2012 be referred to arbitration under the ICA Rules. The number of arbitrator shall be three. The seat of arbitration shall be Chennai. The language shall be English. 171. For this letter, M/s Surana and Surana International Attorneys on behalf of M/s.Shiv and Sahai and sons had issued a reply on 29.01.2013 through which M/s.Shiv and Sahai and sons had expressed their willingness to refer all disputes, differences and claims of whatsoever nature arising between the parties i.e. (a) M/s.Shiv and Sahai and sons and (b) M/s.Shiv and Sahai and Sons (India) Ltd., on the one hand and MMTC Ltd., on the other hand to arbitration under the ICA Rules. They had also accepted that the number of arbitrators shall be three to be appointed as per the ICA Rules. They had also accepted that Chennai shall be the sitting of arbitration and the language of the arbitration shall be English. With reference to the complaint lodged by M/s/MMTC Ltd., with CBI M/s.Shiv Sahai and Sons through their Law firm M/s. Surana and Surana have stated as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he suit in C.S.No.249 of 2013, filed by M/s.MMTC Ltd., as against the petitioners and the first accused Mr. V.Gurumurthy , M/s. MMTC Ltd. has made a reference to the criminal complaint lodged by them before the CBI against M/s.Shiv Sahai and Sons and others to investigate the alleged fraud. M/s. MMTC Ltd., Chennai being the plaintiff has stated that there was no arbitration agreement between the parties and that the dispute could not be sorted out before the arbitral proceedings. The specific averments made by the plaintiff in paragraph 37 of the plaint clearly shows that M/s. MMTC Ltd., has been playing a duel role. On one occasion, as could be seen from the letters, which are referred to in the earlier paragraphs ,they have admitted that on account of clause 11 of MOU, the disputes could be referred to arbitration for sorting out their differences. On the other occasion, MMTC Ltd., Chennai initiated criminal proceedings against M/s.Shiv Shai and Sons, alleging that they have committed the offence of cheating by falsification of records with the connivance of Mr. Gurumoorthy, the then General Manager of MMTC Ltd., Chennai The act of MMTC Ltd., Chennai seems to be absolutely absurd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed the offence of breach of trust. The appeal preferred before the Apex Court was allowed. While allowing the Appeal Hon ble Mr Justice S.B.Sinha has spoken on behalf of the Division Bench as follows: The allegations made in the complaint petition, even if given face value and taken to the correct in its entirety, do not disclose an offence. No allegation whatsoever was made against the appellants in the notice. What was contended was negligence and/or breach of contract on the part of the carriers and their agent. Breach of contract simpliciter does not constitute an offence. For the said purpose, allegations in the complaint petition must disclose the necessary ingredients therefor. Where a civil suit is pending and the complaint petition has been filed one year after filing of the civil suit, the court can for the purpose of finding out as to whether the said allegations are prima facie correct, take into consideration the correspondences exchanged by the parties and other admitted documents. It is one thing to say that the Court at this juncture would not consider the defence of the accused but it is another thing to say that for exercising the inherent jurisdiction of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction to another customer), it was concluded that all cost of LAD has to be recovered from the customer. In this manner, we found a total amount of ₹ 71.97 crores incurred on account of the interest on LAD for M/s.Shiv Sahai and Sons Out of this amount ₹ 26.99 crores was debited to M/s.Shiv and Sahai and sons during the FY 2008-09 itself having a balance of ₹ 44.98 crores un-debited to M/s.Shiv Sahai and Sons. 178. In his statement he had also admitted that the benefit of availing the Buyer s Credit Scheme is higher margin for the MMTC Ltd., and the arbitrage benefit to the customer. The arbitrage benefit is obtained as the difference between the interest earned on the funds placed as FDRs and the LIBOR and other cost incurred for availing the Buyer s Credit cash in foreign currency. According to him, as per the agreement of the MMTC Ltd., the decision to keep the exchange open or covered lies with the customer. 179. Ultimately, he has stated that as per his analysis of accounts the loss incurred during 2008-09 due to the failure to cover the foreign exchange was concealed in the books of accounts of MMTC Ltd., by inflating fixed deposit to the tune of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestigation by the CBI as to whether Mr.Guruswami who is named as an accused in the first information report had committed any offence or not? Secondly, he had contended that if any adequate grounds were available to proceed against him, he (A3) would have been implicated or impleaded in the first information report as one of the accused even at the earliest point of time. Thirdly, he would contend that, when the Superintendent of Police, CBI, who happened to register the FIR, was able to conclude that a prima facie case was made out as against Mr. Guruswami and Mr.Gurumoorthi to proceed against them under Sections 120-B r/w 420 477-A IPC and under Section 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988, the Investigating Officer, who is in the cadre of Inspector of Police had not satisfactorily given any reason for the deletion of Mr.Guruswami at the time of filing the charge sheet and to include his name (3rd accused). Fourthly, he would contend that no charges were made against hom (3rd accused) as alleged by the prosecution to conclude that he had been actively participating in the bullion purchase transactions with the MMTC Ltd., Chennai along with his father Mr. N.P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... LC charges. (g) During the year 2009-2010 and 2010-2011 the petitioner (3rd accused) and his father A2), knowing fully well that they were not eligible for refunds due to the loss caused on account of failure to cover the foreign exchange during the year 2008-2009 applied for refund of R.33,88,72,922/- and the 1st accused by abusing and misusing his official position had recommended and approved the same and the said sum was paid to the petitioner and his father (2nd accused) According to the prosecution, the Special Audit revealed that the total recoverable amount from A- 2 and A- 3 as on 31.3.2011 was ₹ 97.97 crores. (h) the first accused Mr.. Gurumoorthi had obtained pecuniary advantage to the tune of ₹ 41,700/- offered by the petitioner (3rd accused) and his father (2nd accused) (i) The allegations against Mr. Guruswami, who was cited as 1st accused in the first information report could not be proved conclusively, as investigation did not reveal his involvement in the case and hence he is not charge sheeted. (j) The loss on exchange inclusive of forward premium charges left uncovered in buyer s credit amounted to ₹ 109 crores. (k) The petitioner alon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. K.Srinivasan, learned Special Prosecutor (CBI) has drawn the attention of this Court to the statements of the prosecution witnesses viz., L.W.1 Mr. CA. S. Manisekaran, partner M/s.Venkat and Rangaa, Chartered Accountants, Chennai, L.W.17 Mr. William Saidanha, Chief General Manager, (Retd) MMTC Ltd., Mumbai ,L.W.82 Mr. Vithaldas, Manager, M/s.Shiv Sahai and Sons, Chennai, L.W.83, Mr.Prabhat Kumar Jain, Manager, M/s.Shiv Sahai and Sons, Chennai, L.W.85 Mr.Dllip Kumar, Director, Miles and Miles Tours and Travels Pvt., Ltd., Chennai, L.W.86 Mr. P.M.Satish, Collection Staff, Miles and Miles Tours and Travels Pvt., Ltd., Chennai, as well as to the letter, dated 18.06.2008 written on behalf of M/s.Shiv Sahai and Sons to the General Manager, MMTC Ltd., Chnnai ( Document No.404) 189. The statements of the above witnesses do not contain any incriminatory materials as against the petitioners. 190. Mr. K.Srinivasan, learned Special Public Prosecutor for CBI cases has also made reference to the decisions of the Apex Court and made in State of Orissa vs Debendra Nath Padhi ((2005) 1 SCC 568). In this case, while penning down the Judgment on behalf of a three Judges of the Apex Court, Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e accused to lead evidence at the trial to sustain such a plea. The accused would be entitled to produce materials and documents in proof of such a plea at the stage of framing of the charge, in case we accept the contention put forth on behalf of the accused. That has never been the intention of the law well settled for over one hundred years now. It is in this light that the provision about hearing the submissions of the accused as postulated by Section 227 is to be understood. It only means hearing the submissions of the accused on the record of the case as filed by the prosecution and documents submitted therewith and nothing more. The expression 'hearing the submissions of the accused' cannot mean opportunity to file material to be granted to the accused and thereby changing the settled law. At the state of framing of charge hearing the submissions of the accused has to be confined to the material produced by the police. 191. Mr. K.Srinivasan, learned Special Public Prosecutor has invited the attention of this Court to the charge sheet, dated 27.01.2014 filed by the Investigating officer before the learned Special Judge under Sections 173(2) of Criminal Procedure Cod ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12) Another well-accepted norm is that the revisional jurisdiction of the higher court is a very limited one and cannot be exercised in a routine manner. One of the inbuilt restrictions is that it should not be against an interim or interlocutory order. The Court has to keep in mind that the exercise of revisional jurisdiction itself should not lead to injustice ex facie. Where the Court is dealing with the question as to whether the charge has been framed properly and in accordance with law in a given case, it may be reluctant to interfere in exercise of its revisional jurisdiction unless the case substantially falls within the categories aforestated. Even framing of charge is a much advanced stage in the proceedings under the Cr.P.C. (para 13) Framing of a charge is an exercise of jurisdiction by the trial court in terms of Section 228 of the Code, unless the accused is discharged under Section 227 of the Code. Under both these provisions, the court is required to consider the record of the case and documents submitted therewith and, after hearing the parties, may either discharge the accused or where it appears to the court and in its opinion there is ground for presuming that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has also alleged in the first information report that Mr.S.Gurusamy, (1st accused), Mr. V.Gurumurthy (2nd accused) and unknown officials of MMTC Ltd., Chennai Regional Office, Chennai had deliberately concealed the transactions of ₹ 36.6 crores on account of failure to take proper foreign exchange cover and ₹ 53 crores on account of unauthorized Loan Against Deposits, and showed them as a debit balance against the vendor s account in the balance sheet for the year 2010-11. He has also stated that Mr.S. Gurusamy, (1st accused), Mr. V.Gurumurthy (2nd accused) and unknown officials of MMTC Ltd. Chennai Regional office had further failed to safeguard the interests of the MMTC Ltd., Chennai by extending undue favours to Mr. N.P.Agarwal, Proprietor M/s.Shiv Sahai and sons (A3) by the above said transactions, thereby causing a wrongful loss to the tune of ₹ 89.6 crores to MMTC Ltd., Chennai and a corresponding wrongful gain to the accused themselves. 196. Virtually, what the Superintendent of Police CBI, who happened to register the case has stated is, that the above information discloses prima facie commission of offences under Section 120-B,r/w 420 , 477-A IPC and Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer inferior, in rank , who had taken up the case for investigation could say that the allegations made against Mr.S.Gursamy who is cited as first accused in the first information report could not be proved conclusively? Further, the Inspector of Police, who filed the final report has not stated as to whether any investigation in any manner was conducted in respect of the alleged involvement of the unknown officials of MMTC Ltd. Regional office Chennai and the unknown officials of Union Bank of India, Main Branch, Chennai. 200. On perusal of the charge sheet the Investigation Officer has never stated or assigned any reason for his omission or failure to investigate about the involvement of the unknown officials of both MMTC Ltd., Regional Office, Chennai and the Union Bank of India, Main Branch, Chennai. 201. In fact, the charge sheet was filed before the Special Court on 28.01.2014, but the First Information Report was registered on 13.06.2012. The Investigation Officer appears to have taken more than one and half years for the completion of the investigation and filing the final report. 202. Mr.Muralikumaran, learned counsel for the petitioner would contend that the learned S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07. Groundless in other words, means that there is no prima facie case regarding the commission of an offence. If the evidence which the Prosecutor proposes to adduce to prove the guilt of the accused, even if fully accepted before it is challenged in cross-examination or rebutted by the defence evidence (if any), cannot show that the accused committed the offence, then there is no ground for framing a charge. 208. With reference to the distinction between the provisions of Section 227 and Section 482 of Criminal Procedure Code, Mr. Muralikumaran, learned counsel for the petitioner has made reference to the decision of the Apex Court in Rukmini Narvekar Vs Vijaya Satardekar and others ((2008) 14 SCC 1) In this case, while speaking on behalf of a Division Bench of the Supreme Court, Hon ble Mr Justice Altamas Kabir, while concurring with the views of Hon ble Mr Justice Markandey Katju in paragraph nos. 36 & 38 has observed as under: (36). While deciding the questions referred to it, the larger Bench made a conscious distinction between a proceeding under Section 227 Cr.P.C. before the trial court and a proceeding under Section 482 Cr.P.C. and made a reference to the Court's p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... successful in showing some suspicion or doubt, in the allegations levelled by the prosecution/complainant, it would be impermissible to discharge the accused before trial. This is so, because it would result in giving finality to the accusations levelled by the prosecution/complainant, without allowing the prosecution or the complainant to adduce evidence to substantiate the same. The converse is, however, not true, because even if trial is proceeded with, the accused is not subjected to any irreparable consequences. The accused would still be in a position to succeed, by establishing his defences by producing evidence in accordance with law. Where the prosecution/complainant has levelled allegations bringing out all ingredients of the charge(s) levelled, and have placed material before the Court, prima facie evidencing the truthfulness of the allegations levelled, trial must be held. His Lordship has also with reference to the inherent jurisdiction of the High Court under Section 482 of Criminal Procedure Code has further observed as under: The issue being examined in the instant case is the jurisdiction of the High Court underSection 482 Cr.P.C., if it chooses to quash the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not been refuted by the prosecution/complainant; and/or the material is such that it cannot be justifiably refuted by the prosecution/complainant? (iv) Step four: whether proceeding with the trial would result in an abuse of process of the court, and would not serve the ends of justice? If the answer to all the steps is in the affirmative, judicial conscience of the High Court should persuade it to quash such criminal proceedings, in exercise of power vested in it under Section 482 Cr.P.C. Such exercise of power, besides doing justice to the accused, would save precious court time, which would otherwise be wasted in holding such a trial (as well as, proceedings arising therefrom) specially when, it is clear that the same would not conclude in the conviction of the accused. The Counsel for the petitioners point out that there is no role played by the petitioners in the entire mismanagement of MMTC and it was purely a lapse on the part of the Regional Office of the MMTC and to cover up the same only the criminal proceedings has been initiated. In support of his contentions, the learned Counsel for the petitioners refers to the following observations of the Special Audit Report: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce was adjusted in the books of Accounts . At page No.434 Observation 1. No documents given bank for obtaining loan against deposits were produced to us. Observation 2. Confirmations from the customers are not available and it appears that the customers are claiming that they do not have records to verify and confirm the dues. 4. Verification of FD as per books with confirmation from the banks: The maintenance of FD account (24800) and loan against deposit during the year is not proper. More than ₹ 4900 crores was transacted in Fixed Deposit account on behalf of customers with a closing balance of ₹ 1924 crores, the maintenance of the details is totally absent. As already reported from time to time, account opening forms, fixed deposit copies, FD Register, for which the FDs were placed are not available. At page No.435 - RO has not maintained any FD Register as per the instructions given by CO Internal Audit specifying the date, amount, period, rate of Interest, date of maturity, purpose and for which loan / sblc the same was placed. . At page No.442 - 8. This report is issued on the basis of ERP reports furnished to us and the documents and explanations prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Deputy General Manager of MMTC, Chennai Regional Office, Chennai, at that time. There were many higher officials above him and there is no documentary evidence to prove as to how he was responsible and how he is empowered individually to make Crores and Crores of deposits in various accounts and also to take Crores and Crores of loans on the said deposits individually. Moreover, the observations in the Special Audit Report clearly shows the lapses on the part of the administration of the Regional Office of the MMTC in handling the finances and accounts. If it is a case of loss and it is recoverable from the customer, it has to be worked out only as per the provisions of the MoU. The way in which the name of Mr. Gurusawamy, which was found in the FIR being left out in the Civil Suit even before the Charge Sheet is filed by CBI and filing the Civil Suit deleting the name of Mr. Guruswamy and not including other officials of MMTC and Union Bank of India clearly demonstrates the fact of the MMTC s interference in the launching of the prosecution. Therefore, allowing the prosecution to proceed with the case further will be an abuse of process of law, apart from the fact that the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... x Court in Rukmini Narvekar Vs Vijaya Satardekar and others ((2008) 14 SCC 1). 213. The Memorandum of Understanding dated 02.04.2008 and clause 11 thereof would clearly indicate that the entire transaction is civil in nature. It is to be noted that the MMTC Ltd., Chennai had also filed a Civil Suit in C.S.No.249 of 2013, which is still pending on the file of this Court for recovery of certain amounts from the petitioners and the first accused. If a business decision had resulted in loss even as per the prosecution case, (as found in the charge sheet in the middle of page No.5) it would be in the account of the customer. Claiming the same, debit notes were raised by MMTC Ltd Chennai and arbitration proceedings were initiated by M/s. Shiv Sahai and Sons. . All the above facts would clearly indicate and prove that the entire transaction which took place between MMTC Ltd., and M/s. Shiv Sahai and Sons are completely civil in nature. 214. This Court takes the risk of repetition, that in the charge sheet the loss towards foreign exchange was quantified as ₹ 36.02 crores, the interest on Loan against Fixed Deposit which was not passed on the customer was fixed as ₹ 36.18 cro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Audit Report, the entire problem was due to the placing of fixed deposits for a longer period. It could be seen from page no.66 of the Special Audit Report which proceeds to say that the Fixed Deposits as well as LADs were in excess to the extent of ₹ 776 crores/Rs.885crores. 221. The Investigating Officer has miserably failed to find an answer for the question: as to whether the allocation of duties and responsibilities including the delegation of powers at various levels of management is fair/proper/justifiable and the same have been adequately defined by the prosecution? 222. This Court from the related materials is able to find that the Comptroller and Auditor General of India came down heavily on MMTC Ltd., pointing out that there was failure to adhere to the instructions and non-realisation of dues on the avoidable loss towards interest. 223. On perusal of the averments made in the first information report as well as in the charge sheet this Court is of considered view that M/s.Shiv Sahai and Sons had resisted the claim made by M/s. MMTC Ltd., Chennai and ultimately, if, in the arbitration, it is proved that the loss occurred to MMTC Ltd., Chennai was due to the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it would go to show that no prima facie case is made out as against the petitioners to continue the prosecution. Even if the case against the petitioners is allowed to proceed further by way of trial, the chance of conviction would be bleak. 229. It is to be noted that taking into consideration the entire allegations made in the charge sheet, this Court is of firm view that all the allegations are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the petitioners. 230. With reference to Section 120B IPC, it provides punishment of criminal conspiracy. Section 120A IPC defines the term criminal conspiracy . The opening portion of the First Information Report reads that during the period from 2007 to 2010 at Chennai and at other places Mr. S.Gurusamy (A1 as per FIR),former Chief General Manager, South Zone, MMTC Ltd., Chennai Regional Office, Chennai, Mr. V.Gurumurthy (A-2 as per FIR), former General Manager (Finance & Accounts), MMTC Ltd., Chennai Regional Office, Chennai and unknown officials of MMTC Ltd., Regional Office, Chennai had entered into a criminal conspiracy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge sheet, the check period is 2008-2009. When the First Information Report itself says that Mr. S.Gurusamy, former Chief General Manager, South Zone, MMTC Limited Chennai, Regional Office, Chennai along with Mr. V.Gurumurthy, former General Manager (Finance & Accounts), MMTC Ltd. ,Regional Office, Chennai had entered into a criminal conspiracy with Mr. N.P.Agarwal, (A3 as per FIR), Proprietor M/s.Shiv Sahai and Sons, the prosecution, suddenly takes an U turn in the charge sheet by deleting the name of Mr.S.Gurusamy, former Chief General Manager, South Zone, MMTC Ltd., Regional Office, Chennai and included the name of Mr. Ganesh Agarwal in the category of conspirators. 235. The place and the period where and when the alleged criminal conspiracy took place have not been clearly identified. The prosecution has not come forward with a definite case of conspiracy. This Court has thoroughly discussed about this in the earlier paragraph of this Order. Having taken into consideration of all the relevant facts and circumstances with reference to the alleged criminal conspiracy, this Court is of considered view that no concrete and clinching evidence is available to indict the petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine. Simple cheating is punishable under Section 417 IPC, but where there is delivery or destruction of any property or alteration or destruction of any valuable property resulting from the act of a person deceiving this section (420 IPC) comes into operation. For an offence under this Section, it must be proved that the complainant parted with his property acting on a representation which was false to the knowledge of the accused and that the accused had a dishonest intention from the outset. (See Moharik Ali s case (1958 SCR 328: AIR 1957 SC 857) The offence under Section 420 IPC has the following essentials: (i) There must be deception i.e. the accused must have deceived some one: (ii) That by the said deception. The accused must induce a person: (a) to deliver any property; or (b) to make, alter or destroy the whole or part of the valuable Security or anything which is signed or sealed and which is capable of being converted into a valuable property; (ii ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 1988 enacts that a public servant, if said to commit the offence of criminal misconduct, (a) . (b) . (c) . (d) if he, (i) by corrupt or illegal means, obtains for himself or for any other person any valuable thing or pecuniary advantage; or (ii) by abusing his position as a public servant, obtains for himself or for any other person any valuable thing or pecuniary advantage; or (iii) while holding office as a public servant, obtains for any person any valuable thing or pecuniary advantage without any public interest; The offence under Section 13(1)(d) of Prevention of Corruption Act, 1988 certainly cannot be connected with the petitioners because Mr. N.P.Agarwal (A2) being the proprietor of M/s.Shiv Sahai and Sons is one of the parties to the Memorandum of Understanding, dated 02-04-2008. The MMTC Ltd., is also one of the parties. However, the third accused Mr. Ganesh Agarwal is not a party to the contract. Since the petitioners are third parties to the administration of MMTC Ltd., the offences under Sections 477A and Section 13(1)(d) of the Prevention of Corruption Act, 1988 cannot be linked with them. Section 13(2) of the Prevention of Corruption Act, 1988 is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ature, it is permissible in law to consider the stand taken by a party in a pending civil litigation When a stand has been taken in a complaint petition which is contrary to or inconsistent with the stand taken by him in a civil suit, it assumes significance. In paragraph 17 of the above said decision, the apex Court has made reference to Hira Lal Hari Lal Bhagwati v CBI, New Delhi (2003) 5 SCC 257). In this case, the apex Court has opined : It is settled law, by a catena of decisions, 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 making failure to keep promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed. . As there was absence of dishonest and fraudulent intention, the question of committing offence under Section 420 of the Indian Penal Code does not arise. (See also Hira Lal Hari Lal Bhagwati v CBI, New Delhi ((2005) 3 SCC 670) and Indian Oil Corporation V NEPC India Ltd., & Ors. (2006) 6 SCC 736) 248. As held by the apex Court in G.Sagar Suri & ..... X X X X Extracts X X X X X X X X Extracts X X X X
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