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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 ..... garwal, 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 case in C.C.No.3 of 2014 pending on the file of the learned Special Judge, CBI cases ( XII Additional City Civil Court), Chennai. That petition was dismissed on 04.08.2015. Challenging the correctness of the order, Mr.Ganesh Agarwal (A3) has preferred this petition in Crl.R.C.No.1191 of 2015 before this Court after invoking the revisional jurisdiction of this Court under Sections 397 and 401 of the Code of Criminal Procedure. 4. Section 482 of the Code of Criminal Procedure encompasses the following three ingredients: (a) to make such orders as may be necessary to give effect to any Order under this Code; (b) to prevent abuse of process of any Court; & (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and A3) along with the 1st accused have conjointly practiced FRAUD on the MMTC Ltd., Chennai. The allegations made against the petitioners (A2 &.A3) and the 1st accused are: Mr.V.Gurumurthi, the then Deputy General Manager (Finance & Accounts) (Bullion Finance) and the then General Manager (Finance & Accounts), MMTC Limited, Chennai, the second acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 deprecated and discouraged. 16. His Lordship has also made reference to the decision In G. Sagar Suri vs. State of UP [2000 (2) SCC 636] wherein it has observed th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 3.Thiru.N.P.Agarwal, Proprietor, M/s.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 Mahar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0) of the Bengal General Clauses Act and S.4(O) of the Cr.P.C. define offence to mean any act or omission made punishable by any law for the time being in force. It is thus clear that to bring an act within the amplitude of the term offence mens rea is an inevitable constituent part. 25. The crucial question as to whether the 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 Metal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature. 32. As it is revealed from the First Information Report, during the period from 2007-2010 at Chennai and at other places Mr. S.Gurusamy (A1), former Chief General Manager, South Zone, MMTC Limited (Minerals and Metals Trading Corporation of India) Chennai Regional Office, Chennai, Mr. V.Gurumurthy (A-2), former General Manager (Finance & Accounts), MMTC Ltd., Chennai Regional Office, Chennai and unknown officials of MMTC Ltd., Chennai Regional Office, Chennai had entered into a criminal conspiracy with Mr. N.P.Agarwal, (A3) Proprietor M/s.Shiv Sahai and Sons and with unknown officials of Union Bank of India Main Branch, Chennai to cheat the MMTC Ltd., in the matter of bullion 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 Rs. 89.6 crores on MMTC Ltd by intentionally omitting to recover the said amount from the account of Mr. N.P.Agarwal, Proprietor of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongful loss to the tune of Rs. 89.6 crores to MMTC and a corresponding wrongful gain to the accused themselves. 35. After completion of the investigation, the Inspector of Police CBI/ACB Chennai had filed a final report under Section 173(2) of the Code of Criminal Procedure before the Special Court (CBI cases) on 28.1.2014. It appears that it was forwarded by the Superintendent of Police CBI/ACB Chennai on 27.1.2014. 36. This Court would also like to place it on record, that the investigation pertaining to the allegations leveled against the accused persons 1 to 3 as shown in the First Information Report was taken up by one S.Subramanian, Inspector of Police, CBI/ACB/Chennai and it was he, who had filed the final report on 28.1.2014 before the learned Special Judge for CBI cases ( XIII Additional City Civil Court), Chennai. 37. On perusal of the final report, the last 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly cited as the first accused in the First Information Report, but subsequently deleted at the time of filing of the final report) and in the said meeting, they were informed of the uncovered foreign exchange position and instructed to fix the exchange rate as the Indian rupee against US Dollar was getting depreciated. 41. In pursuance of the criminal conspiracy, A-3 Mr.Ganesh Agarwal had falsely informed that his interaction with the major banks revealed that the value of Indian rupee would strengthen in the near future and falsely affirmed that they would honour their commitments fully without any loss to the MMTC Ltd., on the due dates. Subsequently the accused 2 and 3 had informed by their letter dated 18th June, 2008 that they were closely monitoring the exchange rate fluctuations and shall cover it immediately as soon as it reached a comfortable level for them. In the subsequent meeting held by the MMTC officials in August, 2008 also, A2 and A3 had given false assurances that they 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 currenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid to A-2 and A-3. 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 Rs. 97.97 crores. This amount includes an amount of Rs. 96.58 crores recoverable for the financial year 2008-2009. 46. Eventually, the final report filed by the prosecuting agency discloses as follows: By the above said acts, A1 Shri.V.Gurumoorthi, Deputy General Manager (Finance & Accounts) (Bullion Finance) and then General Manager (Finance & Accounts), MMTC Ltd., Chennai, A-2 Shri N.P.Agarwal, Proprietor M/s.Shiv Sahai and Sons and his son A-3 Shri Ganesh Agarwal, entered into criminal conspiracy at Chennai and other places during the year 2008-2009, and cheated the MMTC Ltd., to the tune of Rs. 113.38 crores, by speculating in Indian Rupee-US dollar foreign exchange fluctuation and intentionally omitting to take forward cover for the purchases made under the Buyers Credit Scheme. In pursuance of the criminal conspiracy, A-1 maintained improper accounts and falsified the books of accounts of the MMTC Ltd., by showing inflated fixed deposit amount of Rs. 38,99,01,189/- and deflated Loan-Against-Deposit amount of Rs. 45,4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er developing any information must keep his superior officer informed regarding information being developed by him. The immediate superior officer may also keep the Competent Authority, i.e. DIG/JD/ADCBI/SDCBI/DCBI informed in case the officer against whom information is being developed is of a rank against whom only such officer can order registration of a case . Clause No.8.27 is extracted as under: The source information once developed must be submitted in writing giving all available details with specific acts of omissions and commissions and copies of documents collected discreetly. The internal vigilance enquiries or departmental enquiry reports should normally not be used as basis for submitting the Source Information. The SP concerned after satisfying himself that there is a prima facie material meriting action by CBI and further verification is likely to result in registration of a regular case, would order verification if it falls within his competence. In 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e authorities mentioned in the Annexure 9-A to this chapter. Clause 9.10 says that the Preliminary Enquiries relating to allegations of bribery and corruption should be limited to the scrutiny of records and interrogation of bare minimum persons which may be necessary to judge whether there is any substance in the allegations which are being enquired into and whether the case is worth pursuing further or not. 49. As rightly pointed out by Mr.Muralikumaran, learned counsel appearing for the petitioners no preliminary enquiry registration report is filed in this case. Hence, there is reason to presume that no preliminary enquiry was conducted, in this case. As it is manifested from the FIR, this Court is able to understand that the source of information was received on 13.6.2012 at 06.30 p.m. and the case in Cr.No.R.C.MA1 2012A 0025 was registered on the very same date. The FIR was dispatched to the learned special Judge for CBI Cases, ( XII Additional Judge, City Civil Court) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned Department through a self contain note for such action. For registration of regular case in cases of officer of high rank, orders should be obtained from the Competent Authority. Chapter 8 of CBI Manual clearly states about the above said procedures to be followed. In paragraph Nos.50, it has been observed that: "Before going into the merits of the arguments advanced by the learned senior counsel, we have to see whether the provisions of the CBI Manual is mandatory or directory. In determining the said question, the subject matter, the importance of the provision, the relation of that provision to the general object intended to be served by the Act will decide whether the provision is mandatory or directory. The provisions referred to above would use the words 'shall' and 'must' and as such it can hardly be directory, since the use of such language is per se indicative of the intent that the provision is mandatory. The effect of non compliance with the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to the officer in particular but to the department he belonged to, in general ..... The means adopted no less than the end to be achieved must be impeccable". 57. This Court in R.Subramanium (Crl.O.P No.8438 of 2011, & Green Signal Bio Pharma Private Limited rep. by its Managing Director, Sundaraparipooranan (Crl.O.P.No.9611 of 2011) Vs Union Government of India by Additional Superintendent of Police CBI/ACB/Chennai has held that strict compliance and adherence to the above guidelines are sin quo non for the officials, whenever they happen to register and take up a case for investigation. The clauses, enumerated in the above CBI (Crime) Manual, are the complete shape of track to be followed by the investigating officers, who are responsible to take up the investigation in respect of a cognizable offence. This Court in paragraph 14 of the said Judgment has made a reference to the decision of the Apex Court in Noor Aga Vs State of Punjab and 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 onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares are owned by the Government of India. As per Section 619 of the Companies Act, 1956 the auditor of a government company shall be appointed or re-appointed by the Central Government on the advice of the Comptroller Auditor- General of India to direct the manner in which the company' s accounts shall be audited by the auditor so appointed. Thus it is clear that the MMTC Ltd., is a State owned Corporation of the Union of India and since its shares are all owned by the Central Government, the Memorandum Of Understanding dated 02.04.2008 entered into between the MMTC Ltd., on the one part and M/s.Shiv Sahai and Sons a proprietorship concern owned by Mr. N.P.Agarwal, the petitioner in Crl.O.P.No.21243 of 2014 ,on the other part, can very well be termed as government contract . Since the Memorandum Of Understanding comes under the category of Government contract, Articles 298,299,300 as well as 14 of the Constitution of India come into play. 60. The principle 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... swayed by irrelevant considerations; must not act arbitrarily or capriciously and must not come to a conclusion which is perverse or is such that no reasonable body of persons properly informed could arrive at. The principle of reasonableness would be applicable even in the matter of exercise of executive power without making law. It is settled principle of law that the Court would strike down an administrative action which violates any foregoing conditions. 64. This Court has perused the Memorandum Of Understanding dated 2.4.2008 entered into between the MMTC Limited and the petitioner Mr. N.P.Agarwal, who is the proprietor of M/s.Shiv Sahai and Sons. He has been referred to as customer in the above said Memorandum Of Understanding, whereas the MMTC Ltd., has been referred as the seller . At page No.3, at the tail end of the Memorandum of Understanding it seems that on behalf of the MMTC Ltd., (seller) one P.Ramachandran, General Manager had signed. Apart from him, two witnesses 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State Government is same as that of any individual under the ordinary law of contract. 68. On coming to the instant case on hand, this Court finds that no reference is available to show as to whether P.Ramachandran, the then General Manager of the MMTC Ltd., was specifically authorized to enter into a contract with the petitioner Mr. N.P.Agarwal, Proprietor of M/s .Shiv Sahai and Sons , Chennai as contemplated under Article 229 of the Constitution of India. 69. Here, we are not concerned with the validity of the contract. The petitioners in Crl.O.P.No.21243 of 2014 and in Crl.R.C.No.1191 of 2015 also have not disputed the genesis as well as the existence of the Memorandum Of Understanding, dated 2.4.2008. 69 (a) The prime question is as to whether the petitioners could be prosecuted before a Criminal Court for their alleged failure to make payment to MMTC Ltd., Chennai. 70. As already discussed in the preceding paragraphs, the entire case has been revolving around the center point of Memorandum Of Understanding , dated 2.4.2008. Clause 11 of the Memorandum Of Understanding enables the parties to go for arbitral proceedings, if any dispute or difference whatsoe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e due date of Payment till the filing of the suit; v) directing the defendants to pay the plaintiff interest on the sum of Rs. 170,09,37,775/- at the rate of 18% p.a. from the date of filing of the suit till the date of realization; and vi) directing the defendants 1 and 2 to pay the plaintiff interest on the sum of Rs. 2,51,78,564/- at the rate of 18% p.a. from the date of filing of the suit till the date of realization. 74. On perusal of the records, this Court is able to find that the defendants 1 and 2 viz., Shiv Sahai and Sons, represented by Mr. N.P.Agarwal (Director) seems to have filed an Application in I.A.No.2830 of 2013 in C.S.No.249 of 2013, on the file of this Court as against the plaintiff, MMTC Limited, Chennai and thereby requested the Court to refer them as well as the plaintiff to arbitration, as per the terms and conditions of clause 11 of the Memorandum Of Understanding , dated 02.04.2008, , and as accepted between the parties vide communications exchanged between them dated 23.8.2012, 17.10.2012, 7.1.2013, 10.1.2013, 17.1.2013, 29.1.2013, 31.1.2013, 4.2.2013, 5.2.2013, 6.2.2013 and 26.2.2013, since nothing remains to be decided in the suit except reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e suit. In other words, the allegations of fraud were made only against the third defendant, and except the allegation that the third defendant in connivance and in collusion with the applicants fudged the accounts and caused loss to the respondent/plaintiff, no specific allegations were made against the applicants. Further, the respondent was able to find out the actual loss caused by the third defendant and the wrongful gains made in favour of the applicants. by reason of the fraud committed by the third defendant. Therefore no detailed evidence, accordance to the respondent has to be let in, as everything has been borne out of records. Hence, in my opinion, having regard to the allegations made in the plaint, the Judgment reported in (2010) 1 SCC 72 (supra) cannot be relied upon by the learned senior counsel for the respondent/plaintiff to substantiate their contention that the application is liable to be rejected. (para 29). Considering the allegations made in the case, as quoted above, the Hon ble Supreme Court held that no serious allegations of fraud were made for not referring the dispute to arbitration. According to me, in the case on hand, as stated supra, no serious all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has concluded that the respondent/plaintiff (MMTC Ltd.,) had submitted to the arbitration proceedings initiated by the applicants viz., Shiv Sahai and Sons and M/s.Shiv Sahai and sons (India) Ltd., represented by Mr. N.P.Agarwal (Director). In his order, the learned single Judge has also concluded that when the Suit itself is not maintainable in pursuance of clause 11 of the Memorandum Of Understanding, dated 2.4.2008, criminal prosecution could not be launched against the petitioners. 79. On the other hand, Mr. K.Srinivasan learned Special Public Prosecutor (CBI cases) appearing for the respondent in both the cases has submitted that the order, dated 30.6.2014 passed by the learned single Judge of this Court in I.A.No.2830 of 2013 in C.S.No.249 of 2013 was challenged by the MMTC Limited, Chennai before the Division Bench of this Court in O.S.A.No.244 of 2004. The Division Bench of this Court headed by the Hon ble Chief Justice as he then was, after hearing both sides, had dismissed the Appeal in O.S.A.No.244 of 2014 with a finding that the Appeal is meritless. 80. This Court has also perused the Judgment of the Division Bench, dated 28.10.2014, wherein the Hon ble Chief Justice, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are really serious in nature and the charge sheet having been filed, this is an appropriate case where trial should take place before the Civil Court; (b) the third defendant becomes necessary to the proceedings, who is not a party to the arbitration clause and the allegations of fraud are not only against the third defendant, but also against the first two defendants/respondents. 83. Paragraph 19 of the said Judgment also assumes much importance. It is extracted as under: We find it quit surprising, if not shocking, that a public Sector enterprise should do such U turn and that too, on a simple issue as to the forum before which the disputes ought to be settled. This is the background in which the suit has come to be filed. 84. Mr. K.Srinivasan learned Special Public Prosecutor (CBI cases) appearing for the respondent in both the petitions has canvassed that the Judgment in the above said O.S.A. No.244 of 2014 dated 28.10.2014 was challenged before the Apex Court in a Special Leave Petition No.9678 of 2015. It appears that the Hon ble Supreme Court of India has granted an interim order, but the details of the orders are not available in the typed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Loss has not been recovered, is it due to fudging of account and whether there is any fraud ? c) Why Loss occurred ? d) Who has to conclude Fraud ? e) Why the complaint ? f) Whether the CBI is influenced in this matter ? g) The Legality of the Complaint h) Whether the Criminal Complaint was given to arm-twist, threaten, coerce and harass the customer? i) The Legality of the Special Audit Report. j) The correctness of the Special Audit Report. k) Report of CAG to Ministry. l) When there is no prosecution, under the special enactment / special law, can there be a prosecution under the General Law? 88. He has invited the attention of this Court to the order in Crl.R.C.Nos.1312 and 1337 of 2012 dated 14.02.2013, passed by this Court and the counter Affidavit of MMTC in Application No. 2830 of 2013 in C.S.No. 249 of 2013, and contended that the entire amount for the bullion lifted by the petitioners were paid upfront. 89. Relying on the CAG report, the plaint in C.S.No. 249 of 2013, counter affidavit in Application No. 2830 of 2013 and the charge-sheet, he pointed out that MMTC if the transactions are to be treated as buyer s credit deposits the sale considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation and intentionally omitted to take forward cover for the purchases made under the Buyers Credit Scheme. It is also alleged that in pursuance of the criminal conspiracy, first accused Mr.V.Gurumoorthi had maintained improper accounts and falsified the books of accounts of the MMTC Ltd., by showing inflated fixed deposit amount of Rs. 38,99,01,189/- and deflated Loan-Against-Deposit amount of Rs. 45,43,17,044/- both in the account of the MMTC Ltd., in Union Bank of India, Chennai Main Branch, Chennai . The first accused Mr. V.Gurumoorthi also obtained pecuniary consideration to the tune of Rs. 41,700/- offered by the second accused Mr. N.P.Agarwal and by the third accused Mr.Ganesh Agarwal in the form of air ticket for his visit to Singapore along with his wife, during October, 2010. Therefore, the respondent has levelled charges against the petitioners that they had committed offences of criminal conspiracy, cheating, falsification of accounts, criminal misconduct and corruption after obtaining pecuniary consideration. 93. In this connection, this Court would like to refer to the provisions of Sections 233 and 233A of the Companies Act, 1956. Section 233 says that if any audit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solvency the Central Government may at any time order to conduct a special audit on the company s accounts. 95. As already stated, clause 5.1 of Chapter V of Report 13 of 2013 (page No.218 of the Index to the additional typed set of papers filed by the petitioner) says that there is non recovery of dues due to lapses in bullion transactions and camouflaged accounting. It also says that failure to adhere to the instructions on bullion trading, camouflaged accounting and ineffective internal control in MMTC Limited Chennai resulted in non-realization of dues amounting to Rs. 295.99 crores from customers and avoidable loss of Rs. 53.27 crore (till December 2012) towards interest. The Report (at page No.219) further proceeds to say that in so far as the Chennai Regional Office of the Company is concerned it was noticed in audit that the Chennai Regional Office of the company failed to adhere to the bullion drill, instructions issued by the company from time to time and the internal control measures in day to day operations which resulted in huge loss to the company as discussed in the succeeding paragraphs. 96. The next paragraph of the Report refers to the Memorandum of Understandin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not acceptable as it is contrary to company s own specific instructions dated 18th December, 2006 which required that each transaction be treated as separate and carry forward of balances be avoided. It further stipulated that any release of bullion to any of the customers was to be made only when the party account was fully reconciled and should be upto date The changes effected in Bullion Trading System will be assessed in future only. The fact, however, remains that Company sustained losses due to poor internal controls. The reply was silent on the reasons due to which Corporate Office failed to monitor and implement the norms/principles of accounting. The primary responsibility of ensuring adherence to bullion drill and internal orders and preparation of true and fair financial statements was that of the Management/Corporate Office of the Company. The Company also did not provide any reason for transferring unclassified/unlinked entries from suspense account to vendors account. Thus failure in adherence by RO, Chennai to the instructions on bullion trading, camouflaged accounting and ineffective internal control resulted in non-realization of dues Rs. 99.82 crores and avoid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of time and pressure of account closing for the year 2009-2010. Further with regard to loss due to usance of LC, pointing out to Page.No.516 of the special audit report the counsel for the petitioners contended that the beneficiary bank straight away claimed it from the usance letter credit bank, who in turn debited it in the account of MMTC. 101. Pointing out all the above the Learned Counsel for the petitioners contended that when the entire amount was paid upfront and MMTC mismanaged the said amount which resulted in loss to MMTC, the initiation of criminal proceedings is a case of clear arm-twisting. 102. He has further pointed out that in the reply made to the audit observations of the CAG, fraud was not alleged even by MMTC with regard to the very same issue. The counsel for the petitioner vehemently contends that the very same issues arose with 3 others as found in special audit report in Page. Nos. 14, 24, 61, 106-110, 151,154, 446 and 502, but no prosecution against them were launched. 103. He has further maintained that though there is a vague allegation of the prosecution contending that Mr. V.Gurumoorthy has mismanaged his official position, there is no documentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the adequacy of the systems in place and competence with which the management has discharged its responsibility in relation to prevention, detection, response and follow up/remedial measures in relation to fraud and corruption. 106. Further the Standing Order on Role of Audit in relation to cases of fraud and corruption says about fraud awareness of the audit planning stage and vigilance about fraud at audit execution stage. This Court has also perused the Annexure to the Standing Order on role of audit and corruption. Clause 1.1 of Annexure says that examination of system for detection and prevention of fraud and corruption will be an integral part of all regularity audits and also of performance audit, when it forms one of the audit (sub) objectives. Clause 2 says that fraud examination is a part of the normal auditing procedures and it includes: Being alert for situations, control weakness, inadequacies In record keeping, errors and unusual transactions or Results, which could be indicative of fraud, corruption, Improper expenditure or lack of probity; and Focusing audit strategy on areas and operations prone to fraud and corruption by developing effective high risk indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant information. Auditors need not report information about fraud or an illegal act that is clearly inconsequential. Auditors should also report other noncompliance (for example a violation of a contract provision) that is material to the financial statements. Clause 9.6 of Chapter IV of the Auditing Standards envisages that the management is responsible for taking timely and appropriate steps to remedy fraud or illegal acts that auditors report to it. When fraud or an illegal act involves assistance received directly or indirectly from another government or agency, (for example Central Government Grants received by the State Government or a government agency including the autonomous body received a government grant) auditors may have a duty report it directly (to the other government/agency), if management fails to take remedial steps. 109. Section 619 of the Companies Act, 1956 deals with Application of sections 224 to 233 to Government companies. Sub Section (3) of Section 619 of the Companies Act contemplates that the Comptroller and Auditor- General of India shall have power-- (a) to direct the manner in which the company' s accounts shall be audited by the auditor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In Clause 6 of the report of Purushottam and Company, Chartered Accountants , it is stated that we are informed that Regional Office, Chennai has assigned internal audit to an outside agency. In our opinion, the Region has an internal audit system commensurate with the size and nature of its business. 113. In this connection, Mr. Muralikumaran, learned counsel appearing for the petitioner has raised a question that when the Region has an internal audit system commensurate with the size and nature of its business what necessitated them to assign the internal audit work to an outside agency?. Besides clause 6 clause 7 of the Report says that maintenance of cost records has not been prescribed for Regional Office, Chennai by the Central Government under clause (d) of sub section (1) of Section 209 of the Companies Act, 1956. 114. Purushottam and Company, (Chartered Accountants), Chennai in their report says that However, the internal control mechanism needs to be strengthened in the following areas: a) Active and prompt follow up of old debts, advances and claims by the respective commodity division; and b) Periodic confirmation of outstanding balances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner in their letters as aforestated, Mr. Oorkavalan Deputy General Manager (F & A) of M/s.MMTC Limited, Chennai in his letter, dated 28.12.2011 addressed to M/s.Shiv Sahai & Sons, has stated that MMTC Ltd., had sent three debit notes with debit notes and credit notes towards interest on loan against deposits for the FY 2008-09,2009-10 and 2010-11 and thereby requested the petitioner to pay a sum of Rs. 33,90,15,577/- along with interest at 18% per annum, immediately towards the above debit/credit notes. 118. In this connection, Mr. Muralikumaran, learned counsel for the petitioners has contended that the petitioners had already sent several letters to MMTC Ltd., Chennai requesting them to furnish necessary details about the transactions. In this regard he has raised a question that without furnishing the required details with reference to their purchases, how, MMTC Ltd., Chennai could have claimed a sum of Rs. 33,90,15,577/- towards interest on loan against deposits for the FY 2008-09,2009-10 and 2010-11 along with interest at 18% per annum? He has also stated that the above facts would clearly indicate that the entire transaction was civil in nature and as such the dispu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.69 crores. 121. In an another letter, dated 8.2.2012, addressed to M/s. MMTC Ltd., Chennai, the authorized signatory on behalf of Shiv Sahai & Sons (India) Pvt Ltd., in paragraph 2(e) has stated that we hereby reiterate that for us to reconcile the accounts in the interest of MMTC , it would be mandatory that you please provide us the details as requested by us in our letter, dated 31st January, 2011. In paragraph 3 (c) they have stated that we have never refused any legitimate payments due to MMTC . Actually we would have always paid in excess to MMTC for all our Cash and Carry business. It is a universal fact that MMTC would never deliver any metal to any customer, unless the entire funds for the said metal has already been reached the bank account of MMTC. Hence, you could not have delivered 1000 s of tones of metal to us over the past 4-5 years, without receiving the entire funds from us. 122. On perusal of the report of the Auditors on the Accounts of the Chennai Regional Office of MMTC for the year ending 31st March, 2012, M/s. Vardhaman & Co., Chartered Accountants in their report dated 13.6.2012 have stated thus: Item No.1 &nb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Year 2011- 2012) M/s.Shiv Sahai & Sons Particulars Year Amount Rs. Buyers Credit Exchange difference 2008-09 36.36.15,997.00 FDR maturity wrongly credited to party in books of accounts 2007-08 6,00,00,000.00 Interest on loan against deposit not debited to party 2008-09 33,90,15,577.00 Interest on loan against deposit not debited to party 2008-09 11,10,73,887.00 Interest on loan against deposit not debited to party 2007-08 37,23,756.00 Buyers credit charges 2007-08 60,19,137.00 Buyers credit expenses 2007-08 22,33,001.27 Silver invoices not completed in BTS 2008-09 1,42,44,831.56 FDT interest wrongly credited in the books of accounts 2008-09 97.36,159.00 In paragraph 4 the Chartered Accountants have expressed their opinion with reference to internal audit that in our opinion the Internal Audit carried out by the firm of Chartered Accountants is not effective and also not commensurate with the assets of the company, the nature of business and in the area of clause 2(a) referred to therein. 124 .Ultimately in page No.14 at paragraph 15 of the Report of M/s.Vardhaman and Co., Chartered Accountants, it is stated that based upon the audit procedure performed and informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racy and in pursuance of their conspiracy, they had cheated the MMTC Ltd., and thus caused pecuniary loss equally pecuniary gain to the petitioners 1 and 2. As aforestated, all such allegations are to be proved by the person who is making it and the burden of proof solely rests on the shoulders of the prosecuting agency to bring home the alleged guilt of the petitioners.. 129. In this regard , this Court would like to make reference to the provisions of Sections 101, 102 and 103 of the Indian Evidence Act. Section 101 of the Indian Evidence Act enacts that whoever desires any Court to give judgment as to any legal right or liability dependent on the existence of fats which he asserts, must prove that those fats exist. When a person is bound to prove the existence of any fact, it is said that the burden of proof lies on that person. 130. Per Lord MAUGHAM in Constantine Line Vs. I.S.Corpn. (1941) 2 ALL ER 165,179), the burden of proving a fact rests on the party who substantially asserts the affirmative of the issue and not upon the party who denies it; for a negative is usually incapable of proof. It is an ancient rule founded on consideration of good sense and should not be depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against the claimants and others, and presently, the matter is under investigation. The present case appears to be a counter blast to the proceedings referred above and is not maintainable, especially in view of the decision of the Hon ble Supreme Court in the case of N.Radhakrishnan v Maestro Engineers (2010) I SCC 72). For the above stated reasons the arbitration instituted is not maintainable. 135. With reference to the above context, this Court would like to point out that clause 11 of the MOU, dated 2.4.2008 stipulates that if any dispute arises between the parties to the Agreement, it shall have to be resolved through arbitration. This fact cannot be denied either by MMTC Ltd., Chennai or by Shiv Sahai and Sons, Chennai. When such being the case, how M/s ELP in their letter dated 18.02.2013 which was addressed to the Registrar, Indian Council of Arbitration, New Delhi could say that there was no arbitration agreement between the MMTC Limited Chennai and Shiv Sahai and Sons, Chennai? 136. Page Nos.202 to 216 of the additional typed set of papers contain the replies to the RTI Application of N.P.Agarwal. In Serial No.27 of this reply there is a query; If t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., This letter is with reference to the petitioner s RTI application dated 5.6.2014 addressed to PID, CAG, New Delhi. In this letter, MMTC Ltd., has stated that the replies to the RTI application to the petitioner, dated 5.6.2014 is denied under Section 8(1)(h) of the Right to Information Act, 2005. In an another letter, dated 15.9.2014 addressed to the petitioner, Mr. N.P.Agarwal by one Ashwini Kapoor who had signed on behalf of MMTC Ltd., in her capacity as the then General Manager & PIO it is stated that In this regard it is to inform you that the information sought is under CBI investigation and also under argument in the appropriate legal Court, providing any information to you in the matter at this stage can hamper the CBI investigation and court proceedings as such information sought cannot be provided under Section 8(d) & (h) of the RTI Act, 2005. 138. Page 233 of the additional typed set of papers contains the reply given on behalf of MMTC Ltd to the query made by the proprietor, M/s.Shiv Sahai and sons (India) Ltd. Serial No.5 is the query made by Mr. N.P.Agarwal which reads as follows: Please provide a copy of the communication by which the appoin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Para (para No.5.1) on the subject has been published in on CAG s Audit Report No.13. Union Government (Commercial) of 2013 may be referred to. Please visit the web link www.cag.gov.in. In the remarks column it is stated that This office has not appointed any special auditor for MMTC and the special audit report was not forwarded by MMTC for our perusal. Though, it was obtained while processing the audit para, the audit observation was first brought to the notice of MMTC through Inspection Report issued on 16.1.2012 based on our test audit. Final audit para was published in CAG Audit Report No.13, Union Government (Commercial ) of 2013 and the same was tabled in Parliament. 142. Article 89 of Articles of Association (as amended upto 20.07.2010) confers some powers on the Directors subject to Section 292, 296 and 297 of the Companies Act, 1956. Section 292 of the Companies Act, 1956 says that the Board of Directors of the company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:- (a) the power to make calls on shareholders in respect of money unpaid on their shares; (aa) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntation of facts and/or significant information to obtain undue or illegal financial advantage 145. The following seven bullet points have been enumerated under item No. 15.14 of Standing Order on Role of Audit in Relation to Cases of Fraud and Corruption: (1) reporting losses of shortages of public monies, departmental revenues or receipts , stamps opium, stores or other property held by or on behalf of, Government irrespective of the cause of loss and manner of detection by the subordinate authority concerned to the next higher authority as well as to the Statutory Audit Officer and to the concerned Principal Accounts Officer, even when such loss has been made good by the party responsible for it, except cases which need not be reported under the provisions of GFRs: (2) bringing cases involving serious irregularities to the notice of Financial Adviser or Chief Accounting Authority of the Ministry or Department concerned and the Controller-General of Accounts, Ministry of Finance, redrawal of amounts lost through misappropriation, defalcation, embezzlement etc. bearing of loss to Government on accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for taking Buyer s credit from Banks abroad? 15. What are the documents that proves who were responsible for choosing the bank in which the Deposits are to be made? 147. The Counsel for the petitioner pointing out to page No.418 of the special audit report contends that the schedule files were not there, neither the FD s copies were available for verification. He points out many instances citing the special audit report in page Nos.434, 435, etc. to contend that there was a complete mismanagement of the finance and accounts by MMTC, as a whole and not by any single individual. 148. Article 123 of Articles of Association says about the Annual Report of Directors, while Article 124 deals with particulars of profit and loss account. As envisaged under Article 127 of the Articles of Association audit should be done atleast once in a year. As per Article 128, the auditors of the company shall be appointed or reappointed by the Central Government on the advice of the Comptroller and Auditor General of India and his/their rights and duties shall be regulated by Sections 224 to 233 read with Section 619 of the Act. As per Article 132, the audited accounts shall be conclusive. It fur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 51. Page No.418 of volume 3 in their Special Report M/s. Venkat and Rangaa, the Auditors have given their observations on verification of FDRs, of which clauses 5 and 15 are very much relevant. 5. We also find that no cheque has been issued for placement of FD s. All these are not in line with the established accounting practices. 15. Internal control mechanism is totally absent in the area of placement of FD or loan account. 152. Page No.456 of volume 3 contains the report on special audit of MMTC Limited RO Chennai for the year ending March, 2010, wherein it is stated that Thus there were several carried forward mistakes which sought to be corrected by transferring the net difference of Rs. 56.83 crores from FDR account to Suspense Account. Similarly differences existed in loan against deposits which also corrected by passing entry for Rs. 40.80 crores. Due to operation of single code for FDR as well as Loan against deposit in 2007/08 and major part of 2008/09, both got mixed up and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs have stated that: the maintenance of FD account (24800) and Loan Against Deposit during the year is not proper. More than Rs. 4900 crores was transacted in fixed deposit account on behalf of the customers with a closing balance of Rs. 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 FD s were placed are not available. 156. From the above facts, it can easily be understood that the MMTC Ltd., Chennai had not been maintaining the accounting system properly. 157. Page No.519 of Volume-3 contains the report on Special Audit of MMTC Ltd., Regional Office, Chennai for the year ending March, 2009. Here, it is stated that there was short debit to party till 31.3.2009 (net) Rs. 106,09,25,183/-. It is further stated that the entire problem arose because the FDR s were placed for a longer period and to meet the payment obligations on the loans LAD on FDRs were taken. As an alternative we have calculated the amount due to Shiv Sahai assuming the FDR s were placed for the period of Buyer s Credit/Usance L/c and adopted the relevant rate of the period actu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he stock received and Stock issued without bifurcating into outright and loan 2. Stock issue Vs Invoicing reconciliation was not done 3. At our insistence only the above reconciliation was done 4. In the delivery challan and stock register, type of issue (outright/loan) is mentioned, records for stock received/issued on loan basis the details are available only in work sheets. We were not in a position to match the final purchase/invoice from the ERP 5. Year and stock bifurcated between consignment and loan stock. 6. Despatches for loan/sale report is awaited from EDP department of CO 7. Confirmation for loan stock/ vendor as well as customer not available. 8. Confirmation for stock at MMTC Vault-Copy of stock register given. 9. Register for SBLC received/SBLC issued is maintained in worksheets. 162. In the conclusion of their report the auditor M/s. Venkat and Rangaa, Chartered Accountants , as it is seen from page No.547 of volume 3 have stated as follows: 1. The established systems laid down has been followed during the current year and violations were minimal. 2. The accounts of MMTC Limited has been maintained in an improper manner and several ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.Shiv Sahai and Sons have stated that the name of the bank, the transaction details and other details which are required to verify the transactions are not provided to us and in the above pretext it would not be possible for us to verify transactions after 3-4 years. They have also stated that your good office is never providing us any details of buyers credit as well as any debit/credit note particulars. 165. It is significant to note that the first information report in Crime No. RC MAI 2012A 0025E seems to have been registered on 13.6.2012 at 6.30 p.m. The First Information Report itself reveals that the alleged offence is stated to have been taken place during the period 2007-2008. The averments of the first information report further reveals that from January, 2008 to April, 2008, while purchasing bullion under the Buyer s Credit Scheme, the first accused Mr. S.Gurusamy (as per the FIR), the second accused Mr..S.Gurumoorthy and unknown officials of MMTC Ltd., Chennai Regional Office, Chennai had allowed Mr. N.P.Agarwal, Proprietor, M/s.Shiv Sahai & Sons, Chennai (third accused) to speculate beyond the period of ninety days and deliberately failed to take steps with referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the extent of Rs. 98,24,83,155/- with interest at 18% per annum by way of issuing debit notes. To the letter dated 7.1.2013 written by MMTC, Mr. N.P.Agarwal, Proprietor of M/s.Shiv Sahai and Sons through their Lawyer and International Attorneyes, Surana & Surana, Chennai had replied on 10.1.2013 wherein it is stated that M/s.MMTC Ltd, had requested to change the rules governing the arbitration from ICA to LCIA India Rules, sighting cost effectiveness. It is also stated that their clients (M/s.Shiv Sahai and Sons) felt that even LCIA may be a costly affair. Instead they felt that if MMTC agrees they do not mind in referring the dispute between MMTC and M/s.Shiv Sahai and Sons to a sole arbitrator to be jointly appointed by MMTC and M/s.Shiv Sahai and Sons. The sole arbitrator could be a retired Supreme Court Judge, residing in Chennai. The venue of arbitration shall be at Chennai. They also felt that this could be a better and cost effective solution, than moving from ICA to LCIA. 169. The above letter issued by MMTC Ltd., Chennai dated 7.1.2013 and the other letter dated, 10.1.2013 issued on behalf of M/s.Shiv Sahai & Sons, (India) Ltd., Chennai for and on behalf of Shiv Sahai an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... get into Arbitration to resolve all disputes with our clients. However, the action of your client to have lodged a complaint with Central Bureau of Investigation (CBI) against our clients, is surprising to our clients. b. Due to this complaint, our clients are put to undue hardship and harassment and are sustaining huge loss, since all their stock- in- trade and cash balances as on 20-06-2012 were seized by CBI along with all relevant documents pertaining to transactions with MMTC. This clearly proves that your client being a government entity, is using another government agency, i.e. CBI, and is acting high handedly, in arm twisting our clients. c. For our clients to produce all relevant records pertaining to their bona fide transactions with your client and to prove their claims against your client in the Arbitration proceedings contemplated herein, they would require all the documents seized by CBI (based on your client s complaint). d. Hence our clients require that your client consents to CBI returning all the seized documents, stock -in -trade and cash. e. Our clients have no objection in your filing or continuing the complaint against the ex or present officers of M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y no dispute about the existence of arbitration clause. If one may, say there is a duel plea raised by the appellant (a) that in view of the allegations of fraud, which are really serious in nature and the charge sheet having been filed , this is an appropriate case where trial should take place before the Civil Court. (b) the third defendant becomes necessary party to the proceedings, who is not a party to the arbitration clause and the allegations of fraud are not only against the third defendant, but also against the first two defendants/respondents. 175. In order to support his contentions, Mr.Muralikumaran, learned counsel for the petitioner has placed reliance upon the decision of the Apex Court in ALL CARGOMOVERS (INDIA) PRIVATE LIMITED AND OTHERS Vs DHANESH BADARMAL JAIN AND ANOTHER (2007) 14 SCC 776). In this case, the parties had entered into a contract of carriage. The first respondent had approached the appellant for delivery of six consignments valued at US $ 98,715.29 to the original assignee, M/s. Universal Apparels (EPZ), Mombassa, Kenya. By reason of a fax message the appellants had asked their counter parts in Mombassia, Kenya to confirm delivery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herwise an abuse of the process of the court. Superior Courts while exercising this power should also strive to serve the ends of justice. 176. While advancing his arguments, Mr. Muralikumaran, learned counsel for the petitioner has invited the attention of this Court to page 221 of the second additional typed set of papers ,wherein the statement of LW1 Mr. CA.S.Manisekaran, partner M/s.Venkat & Rangaa, Chartered Accountants is available. He has stated in his statement before the Investigating Officer under Section 161 (3) of the Code of Criminal Procedure that their firm undertook special audit of the accounts of MMTC Ltd., Regional Office, Chennai for the years April, 2007 to March, 2011. He has further stated that on verification of the account for the financial year 2008-09 which was started in March, 2012 and completed in June, 2012 the special audit revealed that a total difference of Rs. 105.92 crores was not debited by MMTC Ltd., to various customers accounts such as M/s.Khazana Jewellery , M/s. GRT Group, M/s.Surana Corporation Ltd., M/s.Shiv Sahai and Sons and MMTC Ltd., and it was found that an amount of Rs. 45.01 crores towards LAD interest, Rs. 36.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or accounts closing of the financial year 2008-09. It is to be highlighted that according to the Chartered Accountant, Manisekaran, during the accounts closing of the year 2009-2010, and 2010-2011, the above amount has been concealed by transfer to the suspense account and then to the vendor s account of M/s.Natexis Commodity Markets Ltd., and thereby during the accounts closing of the year 2010-2011, the excess debit balance of Rs. 116.69 crores was parked in the vendor s account of M/s.Natexis Commodity Markets Ltd., 180. As already stated in the preceding paragraphs, Mr. Ganesh Agarwal (3rd accused) had filed a petition in Crl.M.P.No.3615 of 2014 under Section 239 of the Criminal Procedure Code to discharge him from the criminal case in C.C.No.3 of 2014. This petition was strenuously resisted by the respondent-police (CBI). After hearing both parties, the learned Special Judge for CBI cases (XII Additional Judge, City Civil Court), Chennai while dismissing the said petition had found that the ingredients for constituting the offence against the petitioner (3rd accused) could be culled out from the materials and evidence adduced by the prosecution during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accused) had actually participated in the meeting held by the officials of MMTC Ltd., to discuss upon the foreign exchange position in respect of the bullion transactions. Equally no evidence is available to show that he had assured to cover the foreign exchange position. Eventually he had contended before the trial Court for his discharge from the clutches of the charges under Section 120-B,r/w 420, 477-A IPC and Section 13(2) r/w 13(1)(d) of Prevention of Corruption Act, 1988. 182. On the other hand the respondent-police had contended that (a) the petitioner (3rd accused) had played an active role in the commission of the crime and it is in evidence that it was well within his knowledge that the buyer s credit was availed for the bullion transactions and that forward cover was not taken for such buyer s credit transactions held on behalf of the petitioner; (b) Fixed Deposits were made as per the wishes and instructions of the petitioner; (c) The petitioner (3rd accused) along with two other accused had devised a method by which even if the value of the Indian rupee against US Dollar did not get appreciated they could gain on the forward premium amount by not taking forwa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to the tune of Rs. 38.39 crores and the loan against deposit statements to the tune of Rs. 45.43 crores. 183. The submission placed on behalf of the petitioner Mr. Ganesh Agarwal was not accepted by the trial Court. The contentions put forth on behalf of the petitioner was that in the Memorandum of Understanding, dated 02.04.2008 which was entered into between MMTC Limited, Chennai and M/s. Shiv Sahai & Sons, he (3rd accused) was not a signatory and therefore there was no nexus between him and the transactions. 184. The other contentions placed before the trial Court on behalf of 3rd accused was that due to the fluctuations of international prices of various commodities being dealt with by MMTC Ltd., Chennai it might have incurred huge loss and to cover up its mal- administration and mismanagement, the higher officials of MMTC Ltd., might have fudged the books of accounts and the petitioner (Ganesh Agarwal) was not liable for any maladministration and mismanagement of MMTC Ltd., Chennai. 185. One more contention which was placed before the trial Court, on behalf of the petitioner (Ganesh Agarwal) was that he was not listed as a defendant in the suit in C.S.No.249 of 2013 and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the material filed by the accused ? Prior to find answer for this question the learned counsel who was arguing before the Bench had relied upon a decision of the apex Court made in Satish Mehra V Delhi Administration & another (1996 (9) SC 766) : 1996 SCC Crl. 104). Supporting the views of the apex Court expressed in Satish Mehra s case (cited above) the learned counsel for the accused had contended, that on the ground of justice, equity and fairness and also on the touchstone of Article 21 of the Constitution of India, a reversal of that view would lead to unnecessary harassment to the accused by having to face the trial for years, waste of valuable time of the court, heavy cost, despite the fact that even at the early stage of framing of charge or taking cognizance the accused is in a position to produce unimpeachable material of sterling quality to clinchingly show that there is no prospect of conviction at the conclusion of the trial. Satish Mehra's case was further supported on interpretation of Sections 227 and 239 of the Code. In this regard, Hon ble Mr Justice Y.K. Sabharwal observed as under: We are unable to accept the aforesaid contention. The reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al typed set of papers have already been discussed in the preceding paragraphs and hence they need not either be repeated or reiterated once again. 192. Mr. K.Srinivasan, has also invited the attention of this Court to the impugned order, dated 04.08.2015 made in Crl.M.P.No.3615 of 2014 as well as to paragraphs 28,30, 33 to 42. This Court has also already discussed about those paragraphs. Mr. K.Srinivasan, learned Special Public Prosecutor for CBI cases has also made reference to the decision of the apex Court in Amit Kapoor Vs Ramesh Chander and another (2012) 9 SCC 460), 193. The extent and scope of the powers exercisable by the High Court under Section 397 of Criminal Procedure Code independently or read with Section 482 of the Criminal Procedure Code was considered as a question of law that arose more often than not in criminal case. In this case paragraphs 11 to 13 and 17 are very much relevant and they are extracted as hereunder: (Para 11) Before examining the merits of the present case, we must advert to the discussion as to the ambit and scope of the power which the courts including the High Court can exercise under Section 397 and Section 482 of the Code. Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is ground to proceed against the accused and frame the charge accordingly. This presumption is not a presumption of law as such. The satisfaction of the court in relation to the existence of constituents of an offence and the facts leading to that offence is a sine qua non for exercise of such jurisdiction. (para 17) It may even be weaker than a prima facie case. There is a fine distinction between the language of Sections 227 and 228 of the Code. Section 227 is expression of a definite opinion and judgment of the Court while Section 228 is tentative. Thus, to say that at the stage of framing of charge, the Court should form an opinion that the accused is certainly guilty of committing an offence, is an approach which is impermissible in terms of Section 228 of the Code . 194. Mr. Muralikumaran, learned counsel for the petitioners has contended that neither serious nor any specific allegation was attributed against the petitioners with reference to the commission of alleged crime and that the disputes over the stipulation of Memorandum of Understanding, dated 02.04.2008 did not constitute an offence. He has also contended that where a civil suit was pending and the compla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nai, Mr.V.Gurumurthy, (second accused), former General Manager, (Finance & Accounts),MMTC Limited Chennai Regional Office, Chennai; and Mr.N.P.Agarwal (3rd accused), Proprietor, M/s.Shiv Sahai & Sons and unknown officials of MMTC Ltd., Chennai Regional Office, Chennai and Union Bank of India, Main Branch, Chennai. 197. It is pertinent to note here that no case was registered against any other officials of MMTC Ltd., Chennai Regional office, Chennai excepting Mr.S.Gurusamy , former Chief General Manager, South Zone, MMTC Ltd., Chennai and Mr.V.Gurumurthy, former General manager (Finance & Accounts), MMTC Ltd, Chennai. It is also significant to note here that even though several allegations are leveled against the unknown officials of Union Bank of India, Main Branch, Chennai, no such officer of that bank has been roped into the criminality. 198. The Investigation officer, Mr.S.Subramanian, Inspector of Police, CBI/ACB/Chennai has stated that the allegations against Mr.S.Gurusamy who is cited as first accused in the first information report could not be proved conclusively, as the investigation did not reveal his involvement in the case and hence he is not charge sheeted. Obviously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecution. He would further submit that the petitioner, Mr.Ganesh Agarwal had filed a petition in Crl.M.P.No.3615 of 2014 under Section 239 of the Criminal Procedure Code to discharge him from the clutches of the charges levelled against him. However, the ingredients of the provisions of Sections 227 and 239 of the Criminal Procedure Code were omitted to be considered by the learned Special Judge. 203. What Section 227 of the Criminal Procedure Code says is, that If, upon consideration of the record of the case and the documents submitted therewith, and after hearing the submissions of the accused and the prosecution in this behalf, the Judge considers that there is not sufficient ground for proceeding against the accused, he shall discharge the accused and record his reasons for so doing. 204. This Section empowers the Sessions Judge to discharge the petitioner/accused at an initial stage. Obviously, the Sessions Judge has to (a) examine the record of the case and the documents received; (b) hear the submissions on behalf of the accused and the prosecution on the question whether there is sufficient ground for proceeding against the accused ; (c) If it is in the affirm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t while holding that the decision rendered in Satish Mehra's case (supra) was erroneous, the larger Bench held that if the submission that the accused would be entitled to produce materials and documents in proof of his innocence at the stage of framing of charge, was to be accepted, it would be unsettling a law well settled over a hundred years. It is in that light that the provisions of Section 227 Cr.P.C. would have to be understood and that it only means hearing the submissions of the accused on the records of the case filed by the prosecution and documents submitted therewith and nothing more. The larger Bench arrived at a definite conclusion that the expression "hearing the submissions of the accused" cannot mean an opportunity to file material to be granted to the accused and thereby changing the settled law. At the stage of framing of charge hearing the submissions of the accused has to be confined to the material produced by the police. (38)......However, in a proceeding taken therefrom under Section 482 Cr.P.C. the Court is free to consider material that may be produced on behalf of the accused to arrive at a decision whether the charge as framed could be maintained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of framing of charges. These are all stages before the commencement of the actual trial. To invoke its inherent jurisdiction under Section 482 Cr.P.C. the High Court has to be fully satisfied, that the material produced by the accused is such, that would lead to the conclusion, that his/their defence is based on sound, reasonable, and indubitable facts; the material produced is such, as would rule out and displace the assertions contained in the charges levelled against the accused; and the material produced is such, as would clearly reject and overrule the veracity of the allegations contained in the accusations levelled by the prosecution/complainant. It should be sufficient to rule out, reject and discard the accusations levelled by the prosecution/complainant, without the necessity of recording any evidence. For this the material relied upon by the defence should not have been refuted, or alternatively, cannot be justifiably refuted, being material of sterling and impeccable quality. The material relied upon by the accused should be such, as would persuade a reasonable person to dismiss and condemn the actual basis of the accusations as false. In such a situation, the judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omer and that the Special Audit was not in a position to match the final purchase / invoice from ERP . At page No.47 - Sl. No. 4, Confirmation from the customer are not available and it appears that the customers are claiming that they do not have records to verify and confirm the dues. This is a serious lapse as interest debits towards LAD, balance due as per MMTC records and as per their statements will show huge differences. At page No. 48 ... 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. 66 - No record for either placing FD or reasons for taking LAD have been maintained. At page No. 411 - separate buyer s credit statement not obtained and produced for verification . At page No. 412 The Chennai RO informed that the finalisation file for the above year was lost and hence were not in a position to give us how the final figures were arrived at as per audit. Neither the copies of the FDRs were preserved nor a register was maintained giving detail of FDR number, date of deposit, period, rate of interest, matur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided to us. (9) The entire suspense accounts transactions and purchase accounting has not been matched. We are not in a position to express a view / opinion on the impact of the above on the difference in vendor account. (10) No confirmation of balances have been obtained either from Vendors or from Customers . At page No.443 - 12. No proper supporting/details exist for majority of Debit notes, credit notes, Journal entries. Our verification and findings are consequently hampered to a certain extent and we have drawn our conclusions based on data produced and explanations furnished to us . At page No.503 - 11. The entire suspense accounts transactions and purchase accounting has not been matched. We are not in a position to express a view / opinion on the impact of the above on the difference in vendor account . At page No.46 - The entries for LAD taken and LAD paid were not properly made due to mix up in FD and LAD accounts. For eg. In Indian Bank LAD received Rs. 312.9 crores and LAD repaid Rs. 161.07 Crores were passed in FD account. The LAD of Rs. 52.45 Crores adjusted against FD was not passed . and contends that neither in the Internal Audit n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that the dispute is completely civil in nature and is deliberately given a criminal colour. 210. In Rishipal Singh V State of Uttar Pradesh & another (2014) 7 SCC 215) His Lordship Hon ble Mr Justice N.V.Ramana,J on behalf of a Division Bench of the Supreme Court has observed that when a prosecution at the initial stage is asked to be quashed, the test to be applied by the Court is as to whether the uncontroverted allegations as made in the complaint prima facie establish the case and that the High Court should not convert itself into a trial Court and dwell into disputed questions of fact. The object of Section 482 is to prevent abuse of process of Court and to secure ends of justice. High Courts need to be circumspect and exercise power under Section 482 in exceptional circumstances depending upon facts of each case. If allegations leading to criminal prosecution prima facie doe not disclose or constitute offence then power under Section 482 can be exercised, however, disputed questions of fact cannot be decided like trial Court. Frustrated litigant need not be permitted to vent vindictiveness through abuse of process of law and such proceedings are required to be stopped in e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 crores, and a loss of a sum of Rs. 18.42 crores was fixed towards usance of LC charges. The total amount thus covered under the charge sheet is Rs. 90.52 crores. However, it seems that there are a lot of variations with reference to the quantum of loss shown in the First Information Report as well as in the charge sheet. 215. A cursory reading of the averments of page no.6 of the charge sheet which runs over the next page would go to show that out of 132 bullion consignments eight buyer s credit resulted in gain but, major number of consignments during the relevant period resulted in loss. 216. It could be seen from document No. 51 which is a tour report, that there was an acute man power shortage and the report suggested to engage sufficient man power to complete the task and to reconcile all the imports of bullion. The report of M/s.Purushothaman and Company, Auditors for the year ending 31st March, 2009 would also go to show that the internal mechanism needs to be strengthened and proper utilisation of the BTS Software to account the bullion trading to be done effectively. 217. As rightly argued by Mr. Muralikumaran, learned counsel for the petitioner, the prosecution did n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e negligence on the part of the officials of MMTC Ltd., they would be held liable independently. As discussed in the beginning paragraphs of this Order, there is no legality or genuineness in the complaint. 224. As contemplated under Section 233A of the Companies Act, the Special Audit can be appointed only by the Central Government. This , so called Special Audit was not appointed by the Central Government nor by the Comptroller and Auditor General of India In so far as the case on hand is concerned, as could be seen from the reply given for the RTI, by the Comptroller and Auditor General of India, the so called Special Audit Report was not placed before the Comptroller and Auditor General of India for his comments and observations. 225. It could be seen from the report of the Comptroller and Auditor General of India, that the matter was reported to the Ministry in March 2013 and it is stated that the reply is awaited. The report of the Comptroller and Auditor General of India will be a very crucial issue as to how, the Ministry wanted the matter to be dealt with because under Section 619A read with Section 233A sub clause 6 of the Companies Act, the Central Government is empowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onspiracy with Mr. N.P.Agarwal, (A3 as per FIR) Proprietor M/s.Shiv Sahai and Sons and with unknown officials of Union Bank of India Main Branch, Chennai to cheat the MMTC Ltd.,in the matter of bullion trading through buyers Credit Scheme. 231. Conspiracy in terms of Section 120B of the Code is an independent offence. The ingredients of criminal conspiracy as laid down by the Apex Court in R.Venkatakrishnan V CBI (2009 11 SCC 737):AIR 2010 SC 1812: 2009 (11) SCALE 102: (2009) 13 SCR 762 are: (i) an agreement between two or more persons; (ii) the agreement must relate to doing or causing to be done either (a) an illegal act; (b) an act which is not illegal in itself but is done by illegal means. In Lennart Schussler vs Director of Enforcement, New Delhi (1971 ) 1 SCJ 199): (1971) 1 33 Mad LJ (SC 33), the Apex Court has held that : The gist of the offence under Section 120A is that agreement between two or more persons to do or cause to be done an illegal act or a legal act by illegal means subject to the proviso that the agreement does not except agreement to commit offence, amount to a conspi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l conspiracy, this Court is of considered view that no concrete and clinching evidence is available to indict the petitioners to say that they had committed the offence of conspiracy, because the ingredients for making out a case of conspiracy are not available in this case. 236. In the absence of any clinching and unassailable evidence to charge the petitioners with Section 120B IPC this Court finds that no prosecution under Section 120A IPC could be launched against the petitioners to punish them under Section 120B IPC. 237. As indicated above, in the First Information Report, the prosecution says that Mr. Mr. S.Gurusamy, former Chief General Manager, MMTC Limited Chennai and Mr. V.Gurumurthy, had entered into a criminal conspiracy with Mr. N.P.Agarwal, (A3 as per FIR), Proprietor M/s.Shiv Sahai and Sons to cheat MMTC Ltd., Chennai, whereas in the charge sheet the prosecution says that Mr. V.Gurumurthy had entered into a criminal conspiracy with Mr. N.P.Agarwal and Mr. Ganesh Agarwal to cheat MMTC Ltd., Chennai. 238. In this connection a question that arises for the consideration of this Court is who had actually committed the offence of criminal conspiracy? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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; (iii) That the accused did so dishonestly. 239. For a person to be convicted under Section 420 IPC, it has to be established not only that he has cheated someone but also that by doing so he has dishonestly induced the person who was cheated to deliver any property etc., The alleged deceit when arises out of breach of business contract which was purely civil transaction, it does not create any criminal liability. This principle is laid down in Vinar Ltd., V Chenab Textile, 1989 Crl.L.J. 1858 (J & K) 240. In the given case on hand, as it is seen from the final report, that in pursuance of the conspiracy A1 to A3 had speculated in Indian rupee-US Dollar Foreign Exchange fluctuation and they had intentionally omitted to take forward cover for the purchases made and availed foreign exchange loan under Buyer s Credit Scheme and thereby caused wrongful loss of Rs. 113.38 crores to the MMTC Ltd., Chennai and corresponding wrongful gain to the petitioners. In order to substantiate these allegations no substantial or adequat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the penal provision for the offences under Section 13(1)(a)(b)(c)(d)&(e) of the Prevention of Corruption Act, 1988. Therefore, since they are not connected with the above said charges under Section 13(1)(d) of the Prevention of Corruption Act, 1988 they cannot be punished even if the charge is proved against them under Section 13(2) of the said Act. 242. For the foregoing reasons the charges under Section 477A IPC and Section 13(2),r/w 13(1)(d) of the Prevention of Corruption Act, 1988 would not be attracted as against the petitioners, as no prima facie case is made out against them. 243. One more allegation leveled by the prosecution against the petitioners is that during October, 2010 Mr. N.P.Agarwal (A2) and Mr. Ganesh Agarwal (A3) had offered pecuniary consideration to A1 Mr. V.Gurumurthy by purchasing Air ticket from Chennai to Singapore for Rs. 41,700/- for A1 and his wife Mrs. Kausalya Gurumurthy from M/s.Miles and Miles Tours and Travels Pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 & Anr. V State of U.P & Ors. (2000) 2 SCC 636) (cited supra) the jurisdiction under Section 482 of the Code has to be exercised with great care. In exercise of its jurisdiction, the High Court is not to examine the matter superficially. It is to be seen if a matter, which is essentially of a civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal Court has to exercise a great deal of caution. For the accused it is a serious matter. This Court has laid certain principles on the basis of which the High Court is to exercise its jurisdiction under Section 482 of the Code. Jurisdiction under this Section has to be exercised to prevent abuse of the process of any Court or otherwise to secure the ends of justice. 249. In the light of the observations made by the Hon ble Supreme Court in BINOD KUMAR AND OTHERS ..... X X X X Extracts X X X X X X X X Extracts X X X X
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