{"id":31157,"date":"2006-07-20T00:00:00","date_gmt":"2006-07-19T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/ms-indian-oil-corporation-vs-ms-nepc-india-ltd-ors-on-20-july-2006"},"modified":"2018-12-19T14:43:33","modified_gmt":"2018-12-19T09:13:33","slug":"ms-indian-oil-corporation-vs-ms-nepc-india-ltd-ors-on-20-july-2006","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/ms-indian-oil-corporation-vs-ms-nepc-india-ltd-ors-on-20-july-2006","title":{"rendered":"M\/S Indian Oil Corporation vs M\/S Nepc India Ltd., & Ors on 20 July, 2006"},"content":{"rendered":"
Supreme Court of India<\/div>\n
M\/S Indian Oil Corporation vs M\/S Nepc India Ltd., & Ors on 20 July, 2006<\/div>\n
Author: Raveendran<\/div>\n
Bench: H. K. Sema, R. V. Raveendran<\/div>\n
           CASE NO.:\nAppeal (crl.)  834 of 2002\n\nPETITIONER:\nM\/s Indian Oil Corporation\n\nRESPONDENT:\nM\/s NEPC India Ltd., & Ors.\n\nDATE OF JUDGMENT: 20\/07\/2006\n\nBENCH:\nH. K. Sema & R. V. Raveendran\n\nJUDGMENT:\n<\/pre>\n
JUDGMENT<\/p>\n
With
\nCriminal Appeal No. 833 of 2002<\/p>\n
RAVEENDRAN, J.\n<\/p>\n
\tThese appeals are filed against the common order dated
\n29.3.2001 passed by the Madras High Court allowing Crl.O.P.
\nNos.2418 of 1999 and 1563 of 2000. The  said two petitions were filed
\nby the respondents herein under section 482 of Criminal Procedure
\nCode (‘Code’ for short) for quashing the complaints filed by the
\nappellant against them in C.C. No.299 of 1999 on the file of Judicial
\nMagistrate No.6, Coimbatore and C.C. No. 286 of 1998 on the file of
\nJudicial Magistrate, Alandur (Chennai).\n<\/p>\n
2.\tThe appellant (Indian Oil Corporation, for short ‘IOC’) entered
\ninto two contracts, one with the first respondent (NEPC India Ltd.) and
\nthe other with its sister company Skyline NEPC Limited (‘Skyline’ for
\nshort) agreeing to supply to them aviation turbine fuel and aviation
\nlubricants (together referred to as “aircraft fuel”). According to the
\nappellant, in respect of the aircraft fuel supplied under the said
\ncontracts, the first respondent became due in a sum of
\nRs.5,28,23,501.90 and  Skyline became due in a sum of
\nRs.13,12,76,421.25 as on 29.4.1997.\n<\/p>\n
3.\tThe first respondent hypothecated its two Fokker F27-500
\nAircrafts, bearing Registration No. VT-NEJ (12684) and VT-NEK
\n(10687) to the appellant under Deed of Hypothecation dated 1.5.1997,
\nto secure the outstanding amounts. Clause (2) of the said Deed
\nprovided that the two aircrafts with all parts and accessories stood
\nhypothecated to IOC by way of charge and as security for payment of
\nthe amounts due, with effect from the date of hypothecation. Clause
\n(3) read with the schedule set out the instalments schedule for
\npayment of the amount due. Under clause (6), NEPC India declared
\nthat it would not assign, sell, pledge, charge, underlet or otherwise
\nencumber or part with the possession, custody or beneficial interest in
\nrespect of the two aircrafts without the previous written consent of
\nIOC. It also undertook not to do any act which may diminish the value
\nof the hypothecated property without clearing the entire outstanding
\namount. Clause (9) provided that if NEPC India failed to pay any of the
\ninstalments with interest within the stipulated time, or if any
\nundertaking or assurance given by NEPC India was found to be false,
\nIOC shall have the “right to take possession of the hypothecated
\nproperty” and sell the same by public auction or by private contract
\nand appropriate the sale proceeds towards the outstanding dues
\nwithout recourse to court of law. Clause 12 confirmed that NEPC India
\nhad handed over the title deeds relating to the aircraft to IOC, and
\nagreed to receive them back only after paying the amounts due. It is
\nstated that Skyline also hypothecated its aircraft (VT-ECP) under a
\nseparate Hypothecation Deed dated 14.5.1997. It is further stated that
\na tripartite agreement dated 6.5.1997 was entered among IOC, NEPC
\nIndia and Skyline setting out the mode of payment of the dues and
\nrecovery in the event of default.\n<\/p>\n
4.\tAs NEPC India failed to pay the first two instalments as per
\nschedule, IOC stopped supply of aircraft fuel on 3.6.1997. However,
\nsubsequently, under a fresh agreement dated 20.9.1997, a revised
\npayment schedule was agreed and IOC agreed to re-commence supply
\nof aircraft fuel on ‘cash and carry’ basis. Even this arrangement came
\nto an end as the instalments were not paid.\n<\/p>\n
5.\tApprehending that NEPC India may remove the hypothecated
\naircraft (VT-NEJ) from Coimbatore Airport to a place outside its reach,
\nIOC filed C.S. No.425 of 1997 in the Madras High Court seeking a
\nmandatory injunction to the Airport Authority of India and Director
\nGeneral of Civil Aviation to detain the said aircraft stationed at
\nCoimbatore Airport, under section 8 of the Aircraft Act, 1934, so as to
\nenable it to take possession thereof. The High Court granted an
\ninterim injunction on 16.9.1997 restraining NEPC India from removing
\nthe aircraft (VT-NEJ) from Coimbatore Airport. In regard to the other
\nhypothecated aircraft (VT-NEK) kept at Meenambakkam (Chennai)
\nAirport, IOC filed a suit (OS No.3327\/1998) in the City Civil Court,
\nChennai for a similar mandatory injunction.\n<\/p>\n
6.\tIOC filed the two complaints against NEPC India and its two
\nDirectors (respondents 2 & 3 herein) in July, 1998 under section 200
\nof Code of Criminal Procedure alleging unauthorized removal of the
\nengines and certain other parts from the two hypothecated aircraft.
\nThey are :\n<\/p>\n
(i)  C.C. No. 299 of 1999 before the Judicial Magistrate No.6,
\nCoimbatore, regarding Aircraft bearing No. VT-NEJ.\n<\/p>\n
(ii)   C.C. No. 286 of 1998 before the Judicial Magistrate, Alandur
\n(Chennai) regarding aircraft  bearing No. VT  NEK.\n<\/p>\n
The relevant averments in the complaint in C.C. No.299\/1999
\n(Coimbatore Court) reads as under :-\n<\/p>\n
“The complainant states that on 24.4.98, IOC had come to know
\nthat NEPC India Limited in total disregard to the orders of the
\nHon. High Court, Madras had clandestinely removed both the
\nengines and certain other parts from the Aircraft VT-NEJ Aircraft
\nSl.No. 10684 (Fokker F27-500) stationed at the Coimbatore
\nAirport, Coimbatore <\/p>\n
The complainant states that, besides the above, the act of NEPC
\nIndia Limited in removing the engines and certain other parts
\nfrom the Aircraft VT-NEJ Aircraft Sl. No. 10684 (Fokker F27-\n<\/p>\n
500) stationed at the Coimbatore Airport, Coimbatore is against
\nthe terms of the hypothecation deed dated 01.5.1997 and
\n20.9.1997 will amount to theft, criminal breach of trust, and
\ncheating which are offences punishable under section 378
\n(Theft), 403 (Dishonest Misappropriation of Property), 405
\n(Criminal Breach of Trust), 415 (Cheating), 425 (Mischief) of the
\nIndian Penal Code. No notice was given to IOC in this regard.”\n<\/p>\n
The relevant averments in the complaint in C.C. No.286\/1998 (Alandur
\nCourt) read as under  :-\n<\/p>\n
” With a view to defeat the said right of IOC (that is right to
\ntake possession and sell the aircraft), NEPC India removed the
\nengines of the Aircraft (VT-NEK) stationed at the
\nMeenambakkam Airport <\/p>\n
The complainant states that, the act of NEPC India Limited in
\nremoving the engines and certain other parts from the Aircraft
\nVT-NEK Aircraft Sl. No. 10687 (Fokker F27-500) stationed at the
\nMeenabakkam Airport, Chennai is against the terms of the
\nhypothecation deed dated 1.5.1997 as well as the terms of the
\nagreement dated 20.9.1997 and will amount to offences
\npunishable under section 378 (Theft), 403(Dishonest
\nMisappropriation of Property), 405 (Criminal Breach of Trust),
\n415 (Cheating), 425 (Mischief) of the India Penal Code. No
\nnotice was given to IOC in this regard.”\n<\/p>\n
Both the complaints also contain the following common allegations :
\n“The complainant states that the accused had with fraudulent
\nintention to cheat and defraud IOC had induced IOC to resume
\nsupply of Aircraft fuel on Cash and Carry basis, by undertaking
\nto clear the outstanding amount of Rs.18 crores approximately
\nwithin the time stipulated in the hypothecation agreements.
\nHowever, the accused had failed to clear the said outstanding
\namounts and had breached the terms of the hypothecation
\nagreements. Subsequently on 20.9.2007, an agreement was
\nentered into between IOC and M\/s NEPC India Limited. As per
\nthe terms of the above agreement M\/s NEPC India Limited had
\nagreed to clear the outstanding amount of Rs.18 crores
\napproximately due to IOC from M\/s NEPC India Limited and M\/s
\nSkyline NEPC Limited within a time frame. However, M\/s NEPC
\nIndia Limited had failed to keep up the schedule of payments
\nmentioned in the said agreements.\n<\/p>\n
The facts narrated above will clearly show that IOC has got
\nevery right to take possession of the Aircraft VT-NEK as well as
\nVT-NEJ. Only with a view to defeat the said right of IOC, M\/s
\nNEPC India has removed the engines of the aircraft. ..”\n<\/p>\n
7.\tThe respondents herein filed Crl. O.P. No.1563 of 2000 and
\nCrl.O.P. No.2418 of 1999 respectively under section 482 of Cr.P.C. for
\nquashing the said two complaints on the following two grounds :\n<\/p>\n
(i)\tThe complaints related to purely contractual disputes of a
\ncivil nature in respect of which IOC had already sought
\ninjunctive reliefs and money decrees.\n<\/p>\n
(ii)\tEven if all the allegations in the complaints were taken as
\ntrue, they did not constitute any criminal offence as
\ndefined under sections 378, 403, 405, 415 or 425 IPC.\n<\/p>\n
8.\tThe High Court by common judgment dated 23.3.2001 allowed
\nboth the petitions and quashed the two complaints. It accepted the
\nsecond ground urged by the Respondents herein, but rejected the first
\nground. The said order of the High Court is under challenge in these
\nappeals. On the rival contentions urged, the following points arise for
\nconsideration :\n<\/p>\n
(i)\tWhether existence or availment of civil remedy in respect
\nof disputes arising from breach of contract, bars remedy
\nunder criminal law?\n<\/p>\n
(ii)\tWhether the allegations in the complaint, if accepted on
\nface value, constitute any offence under sections 378, 403,
\n405, 415 or 425 IPC ?\n<\/p>\n
Re : Point No. (i) :\n<\/p>\n
9.\tThe principles relating to exercise of jurisdiction under Section
\n482 of the Code of Criminal Procedure to quash complaints and
\ncriminal proceedings have been stated and reiterated by this Court in
\nseveral decisions. To mention a few – Madhavrao Jiwaji Rao Scindia v.
\nSambhajirao Chandrojirao Angre<\/a> [1988 (1) SCC 692], State of
\nHaryana vs. Bhajanlal [1992 Supp (1) SCC 335], Rupan Deol Bajaj vs.
\nKanwar Pal Singh Gill<\/a> [1995 (6) SCC 194], Central Bureau of
\nInvestigation v. Duncans Agro Industries Ltd.,<\/a> [1996 (5) SCC 591],
\nState of Bihar vs. Rajendra Agrawalla<\/a> [1996 (8) SCC 164], Rajesh
\nBajaj v. State NCT of Delhi,<\/a> [1999 (3) SCC 259], Medchl Chemicals &
\nPharma (P) Ltd. v. Biological E. Ltd.<\/a> [2000 (3) SCC 269], Hridaya
\nRanjan Prasad Verma  v. State of Bihar [2000 (4) SCC 168], M.
\nKrishnan vs Vijay Kumar<\/a> [2001 (8) SCC 645], and Zandu
\nPhamaceutical Works Ltd. v. Mohd. Sharaful Haque<\/a> [2005 (1) SCC
\n122]. The principles, relevant to our purpose are :\n<\/p>\n
(i)\tA complaint can be quashed where the allegations made in
\nthe complaint, even if they are taken at their face value
\nand accepted in their entirety, do not prima facie
\nconstitute any offence or make out the case alleged
\nagainst the accused.\n<\/p>\n
For this purpose, the complaint has to be examined as a
\nwhole, but without examining the merits of the allegations.
\nNeither a detailed inquiry nor a meticulous analysis of the
\nmaterial nor an assessment of the reliability or
\ngenuineness of the allegations in the complaint, is
\nwarranted while examining prayer for quashing of a
\ncomplaint.\n<\/p>\n
(ii)\tA complaint may also be quashed where it is a clear abuse
\nof the process of the court, as when the criminal
\nproceeding is found to have been initiated with
\nmalafides\/malice for wreaking vengeance or to cause
\nharm, or where the allegations are absurd and inherently
\nimprobable.\n<\/p>\n
(iii)\tThe power to quash shall not, however, be used to stifle or
\nscuttle a legitimate prosecution. The power should be used
\nsparingly and with abundant caution.\n<\/p>\n
(iv)\tThe complaint is not required to verbatim reproduce the
\nlegal ingredients of the offence alleged. If the necessary
\nfactual foundation is laid in the complaint, merely on the
\nground that a few ingredients have not been stated in
\ndetail, the proceedings should not be quashed. Quashing
\nof the complaint is warranted only where the complaint is
\nso bereft of even the basic facts which are absolutely
\nnecessary for making out the offence.\n<\/p>\n
(v)\tA given set of facts may make out : (a) purely a civil
\nwrong; or (b) purely a criminal offence; or (c) a civil wrong
\nas also a criminal offence. A commercial transaction or a
\ncontractual dispute, apart from furnishing a cause of action
\nfor seeking remedy in civil law, may also involve a criminal
\noffence. As the nature and scope of a civil proceedings are
\ndifferent from a criminal proceeding, the mere fact that the
\ncomplaint relates to a commercial transaction or breach of
\ncontract, for which a civil remedy is available or has been
\navailed, is not by itself a ground to quash the criminal
\nproceedings. The test is whether the allegations in the
\ncomplaint disclose a criminal offence or not.\n<\/p>\n
10.\tWhile on this issue, it is necessary to take notice of a growing
\ntendency in business circles to convert purely civil disputes into
\ncriminal cases. This is obviously on account of a prevalent impression
\nthat civil law remedies are time consuming and do not adequately
\nprotect the interests of lenders\/creditors. Such a tendency is seen in
\nseveral family disputes also, leading to irretrievable break down of
\nmarriages\/families. There is also an impression that if a person could
\nsomehow be entangled in a criminal prosecution, there is a likelihood
\nof imminent settlement. Any effort to settle civil disputes and claims,
\nwhich do not involve any criminal offence, by applying pressure though
\ncriminal prosecution should be deprecated and discouraged. In G.
\nSagar Suri vs. State of UP [2000 (2) SCC 636], this Court observed :\n<\/p>\n
“It is to be seen if a matter, which is essentially of civil nature,
\nhas been given a cloak of criminal offence. Criminal proceedings
\nare not a short cut of other remedies available in law. Before
\nissuing process a criminal court has to exercise a great deal of
\ncaution. For the accused it is a serious matter. This Court has
\nlaid certain principles on the basis of which High Court is to
\nexercise its jurisdiction under Section 482 of the Code.
\nJurisdiction under this Section has to be exercised to prevent
\nabuse of the process of any court or otherwise to secure the
\nends of justice.”\n<\/p>\n
While no one with a legitimate cause or grievance should be prevented
\nfrom seeking remedies available in criminal law, a complainant who
\ninitiates or persists with a prosecution, being fully aware that the
\ncriminal proceedings are unwarranted and his remedy lies only in civil
\nlaw, should himself be made accountable, at the end of such
\nmisconceived criminal proceedings, in accordance with law. One
\npositive step that can be taken by the courts, to curb unnecessary
\nprosecutions and harassment of innocent parties, is to exercise their
\npower under section 250 Cr.P.C. more frequently, where they discern
\nmalice or frivolousness or ulterior motives on the part of the
\ncomplainant. Be that as it may.\n<\/p>\n
11.\tComing to the facts of this case, it is no doubt true that IOC has
\ninitiated several civil proceedings to safeguard its interests and recover
\nthe amounts due. It has filed C.S. No.425\/1997 in the Madras High
\nCourt and O.S. No.3327\/1998 in the City Civil Court, Chennai seeking
\ninjunctive reliefs to restrain the NEPC India  from removing its aircrafts
\nso that it can exercise its right to possess the Aircrafts. It has also filed
\ntwo more suits for recovery of the amounts due to it for the supplies
\nmade, that is CS No.998\/1999 against NEPC India (for recovery of
\nRs.5,28,23,501\/90) and CS No.11\/2000 against Skyline (for recovery
\nof Rs.13,12,76,421\/25), in the Madras High Court. IOC has also
\ninitiated proceedings for winding up NEPC India and filed a petition
\nseeking initiation of proceedings for contempt for alleged disobedience
\nof the orders of temporary injunction. These acts show that civil
\nremedies were and are available in law and IOC has taken recourse to
\nsuch remedies. But it does not follow therefrom that criminal law
\nremedy is barred or IOC is estopped from seeking such remedy.\n<\/p>\n
12.\tThe respondents, no doubt, have stated that they had no
\nintention to cheat or dishonestly divert or misappropriate the
\nhypothecated aircraft or any parts thereof. They have taken pains to
\npoint out that the aircrafts are continued to be stationed at Chennai
\nand Coimbatore Airports; that the two engines of VT-NEK though
\nremoved from the aircraft, are still lying at Madras Airport; that the
\ntwo DART 552 TR engines of VT-NEJ were dismantled for the purpose
\nof overhauling\/repairing; that they were fitted to another Aircraft (VT-
\nNEH) which had been taken on lease from ‘M\/s Aircraft Financing and
\nTrading BV’ and that the said Aircraft (VT-NEH) has been detained by
\nthe lessor for its dues; that the two engines which were meant to be
\nfitted to VT-NEJ (in places of the removed engines), when sent for
\noverhauling to M\/s Hunting Aeromotive, U.K., were detained by them
\non account of a dispute relating to their bills; and that in these peculiar
\ncircumstances beyond their control, no dishonest intent could be
\nattributed to them. But these are defences that will have to be put
\nforth and considered during the trial. Defences that may be available,
\nor facts\/aspects when established during the trial, may lead to
\nacquittal, are not grounds for quashing the complaint at the threshold.
\nAt this stage, we are only concerned with the question whether the
\naverments in the complaint spell out the ingredients of a criminal
\noffence or not.\n<\/p>\n
13.\tThe High Court was, therefore, justified in rejecting the
\ncontention of the respondents that the criminal proceedings should be
\nquashed in view of the pendency of several civil proceedings.\n<\/p>\n
Re : Point No.(ii) <\/p>\n
14.\tThis takes us to the question whether the allegations made in
\nthe complaint, when taken on their face value as true and correct,
\nconstitute offences defined under sections 378, 403, 405, 415 and 425
\nIPC ? Learned counsel for the appellant restricted his submissions only
\nto sections 405, 415 and 425, thereby fairly conceding that the
\naverments in the complaint do not contain the averments necessary to
\nmake out the ingredients of the offence of theft (section 378) or
\ndishonest misappropriation of property (section 403).\n<\/p>\n
Section 378<\/p>\n
15.\tSection 378 defines theft. It states : “whoever, intending to take
\ndishonestly any movable property out of the possession of any person
\nwithout that person’s consent, moves that property in order to such
\ntaking, is said to commit theft.” The averments in the complaint clearly
\nshow that neither the aircrafts nor their engines were ever in the
\npossession of IOC. It is admitted that they were in the possession of
\nNEPC India at all relevant times. The question of NEPC committing
\ntheft of something in its own possession does not arise. The appellant
\nhas therefore rightly not pressed the matter with reference to section\n<\/p>\n
378.<\/p>\n
Section 403<\/p>\n
16.\tSection 403 deals with the offence of dishonest misappropriation
\nof property. It provides that “whoever dishonestly misappropriates or
\nconverts to his own use any movable property”, shall be punished with
\nimprisonment of either description for a term which may extend to 2
\nyears or with fine or both. The basic requirement for attracting the
\nsection are : (i) the movable property in question should belong to a
\nperson other than the accused; (ii) the accused should wrongly
\nappropriate or convert such property to his own use; and (iii) there
\nshould be dishonest intention on the part of the accused. Here again
\nthe basic requirement is that the subject matter of dishonest
\nmisappropriation or conversion should be someone else’s movable
\nproperty. When NEPC India owns\/possesses the aircraft, it obviously
\ncannot ‘misappropriate or convert to its own use’ such aircraft or parts
\nthereof. Therefore section 403 is also not attracted.\n<\/p>\n
Section 405<\/p>\n
17.\tWe will next consider whether the allegations in the complaint
\nmake out a case of criminal breach of trust under section 405 which is
\nextracted below :\n<\/p>\n
“405. Criminal breach of trust.  Whoever, being in any
\nmanner entrusted with property, or with any dominion
\nover property, dishonestly misappropriates or converts to
\nhis own use that property, or dishonestly uses or disposes
\nof that property in violation of any direction of law
\nprescribing the mode in which such trust is to be
\ndischarged, or of any legal contract, express or implied,
\nwhich he has made touching the discharge of such trust,
\nor wilfully suffers any other person so to do, commits
\n“criminal breach of trust”.\n<\/p>\n
A careful reading of the section shows that a criminal breach of trust
\ninvolves the following ingredients : (a) a person should have been
\nentrusted with property, or entrusted with dominion over property; (b)
\nthat person should dishonestly misappropriate or convert to his own
\nuse that property, or dishonestly use or dispose of that property or
\nwillfully suffer any other person to do so; (c) that such
\nmisappropriation, conversion, use or disposal should be in violation of
\nany direction of law prescribing the mode in which such trust  is to be
\ndischarged, or of any legal contract which the person has made,
\ntouching the discharge of such trust. The following are examples
\n(which include the illustrations under section 405) where there is
\n‘entrustment’ :\n<\/p>\n
(i)\tAn ‘Executor’ of a will, with reference to the estate of the
\ndeceased bequeathed to legatees.\n<\/p>\n
(ii)\tA ‘Guardian’ with reference to a property of a minor or
\nperson of unsound mind.\n<\/p>\n
(iii)\tA ‘Trustee’ holding a property in trust, with reference to
\nthe beneficiary.\n<\/p>\n
(iv)\tA ‘Warehouse Keeper’ with reference to the goods stored
\nby a depositor.\n<\/p>\n
(v)\tA carrier with reference to goods entrusted for transport
\nbelonging to the consignor\/consignee.\n<\/p>\n
(vi)\tA servant or agent with reference to the property of the
\nmaster or principal.\n<\/p>\n
(vii)\tA pledgee with reference to the goods pledged by the
\nowner\/borrower.\n<\/p>\n
(viii)\tA debtor, with reference to a property held in trust on
\nbehalf of the creditor in whose favour he has executed a
\ndeed of pledge-cum-trust. (Under such a deed, the owner
\npledges his movable property, generally vehicle\/machinery
\nto the creditor, thereby delivering possession of the
\nmovable property to the creditor and the creditor in turn
\ndelivers back the pledged movable property to the debtor,
\nto be held in trust and operated by the debtor).\n<\/p>\n
18.\tIn Chelloor Mankkal Narayan Ittiravi Nambudiri v. State of
\nTravancore, Cochin<\/a> [AIR 1953 SC 478], this Court held :\n<\/p>\n
” to constitute an offence of criminal breach of trust, it is
\nessential that the prosecution must prove first of all that the
\naccused was entrusted with some property or with any dominion
\nor power over it. It has to be established further that in respect
\nof the property so entrusted, there was dishonest
\nmisappropriation or dishonest conversion or dishonest use or
\ndisposal in violation of a direction of law or legal contract, by the
\naccused himself or by someone else which he willingly suffered
\nto do.\n<\/p>\n
It follows almost axiomatically from this definition that the
\nownership or beneficial interest in the property in respect of
\nwhich criminal breach of trust is alleged to have been
\ncommitted, must be in some person other than the accused and
\nthe latter must hold it on account of some person or in some
\nway for his benefit.”\n<\/p>\n
[Emphasis supplied]<\/p>\n
In Jaswantrai Manilal Akhaney v. State of Bombay<\/a> [AIR 1956 SC 575],
\nthis Court reiterated that the first ingredient to be proved in respect of
\na criminal breach of trust is ‘entrustment’. It, however, clarified :\n<\/p>\n
“.. But when S. 405 which defines “criminal breach of trust”
\nspeaks of a person being in any manner entrusted with
\nproperty, it does not contemplate the creation of a trust with all
\nthe technicalities of the law of trust. It contemplates the
\ncreation of a relationship whereby the owner of property makes
\nit over to another person to be retained by him until a certain
\ncontingency arises or to be disposed of by him on the happening
\nof a certain event.”\n<\/p>\n
19.\tThe question is whether there is ‘entrustment’ in an
\nhypothecation? Hypothecation is a mode of creating a security without
\ndelivery of title or possession. Both ownership of the movable property
\nand possession thereof, remain with the debtor. The creditor has an
\nequitable charge over the property and is given a right to take
\npossession and sell the hypothecated movables to recover his dues
\n(note : we are not expressing any opinion on the question whether
\npossession can be taken by the creditor, without or with recourse to a
\ncourt of law). The creditor may also have the right to claim payment
\nfrom the sale proceeds (if such proceeds are identifiable and
\navailable). The following definitions of the term ‘hypothecation’ in P.
\nRamanatha Aiyar’s Advanced Law Lexicon (Third (2005) Edition, Vol.2,
\nPages 2179 and 2180) are relevant :\n<\/p>\n
“Hypothecation : It is the act of pledging an asset as security for
\nborrowing, without parting with its possession or ownership. The
\nborrower enters into an agreement with the lender to hand over
\nthe possession of the hypothecated asset whenever called upon
\nto do so. The charge of hypothecation is then converted into
\nthat of a pledge and the lender enjoys the rights of a pledgee.”\n<\/p>\n
‘Hypothecation’ means a charge in or upon any movable
\nproperty, existing in future, created by a borrower in favour of a
\nsecured creditor, without delivery of possession of the movable
\nproperty to such creditor, as a security for financial assistance
\nand includes floating charge and crystallization of such charge
\ninto fixed charge on movable property. (Borrowed from section
\n2(n) of Securitisation and Reconstruction of Financial Assets &
\nEnforcement of Security Interest Act, 2002)”\n<\/p>\n
But there is no ‘entrustment of the property’ or ‘entrustment of
\ndominion over the property’ by the hypothecatee (creditor) to the
\nhypothecator (debtor) in an hypothecation. When possession has
\nremained with the debtor\/owner and when the creditor has neither
\nownership nor beneficial interest, obviously there cannot be any
\nentrustment by the creditor.\n<\/p>\n
20.\tThe question directly arose for consideration in Central Bureau of
\nInvestigation v. Duncans Agro Industries Ltd., Calcutta<\/a> [1996 (5) SCC
\n591]. It related to a complaint against the accused for offences of
\ncriminal breach of trust. It was alleged that a floating charge was
\ncreated by the accused debtor on the goods by way of security under a
\ndeed of hypothecation, in favour of a bank to cover credit facility and
\nthat the said goods were disposed of by the debtor. It was contended
\nthat the disposal of the goods amounted to criminal breach of trust.
\nNegativing the said contention, this Court after stating the principle as
\nto when a complaint can be quashed at the threshold, held thus :\n<\/p>\n
“.a serious dispute has been raised by the learned
\ncounsel  as to whether on the face of the allegations,
\nan offence of criminal breach of trust is constituted or
\nnot. In our view, the expression ‘entrusted with property’
\nor ‘with any dominion over property’ has been used in a
\nwide sense in Section 405, I.P.C. Such expression
\nincludes all cases in which goods are entrusted, that is,
\nvoluntarily handed over for a specific purpose and
\ndishonestly disposed of in violation of law or in violation
\nof contract. The expression ‘entrusted’ appearing in
\nSection 405, I.P.C. is not necessarily a term of law. It has
\nwide and different implications in different contexts. It is,
\nhowever, necessary that the ownership or beneficial
\ninterest in the ownership of the property entrusted in
\nrespect of which offence is alleged to have been
\ncommitted must be in some person other than the
\naccused and the latter must hold it on account of some
\nperson or in some way for his benefit. The expression
\n‘trust’ in Section 405, I.P.C. is a comprehensive
\nexpression and has been used to denote various kinds of
\nrelationship like the relationship of trustee and
\nbeneficiary, bailor and bailee, master and servant,
\npledger and pledgee. When some goods are
\nhypothecated by a person to another person, the
\nownership of the goods still remains with the
\nperson who has hypothecated such goods. The
\nproperty in respect of which criminal breach of trust
\ncan be committed must necessarily be the property
\nof some person other than the accused or the
\nbeneficial interest in or ownership of it must be in
\nother person and the offender must hold such
\nproperty in trust for such other person or for his
\nbenefit. In a case of pledge, the pledged article belongs
\nto some other person but the same is kept in trust by the
\npledgee. In the instant case, a floating charge was
\nmade on the goods by way of security to cover up
\ncredit facility. In our view, in such case for
\ndisposing of the goods covering the security against
\ncredit facility, the offence of criminal breach of trust
\nis not committed.” (emphasis supplied)<\/p>\n
21.\tThe allegations in the complaints are that aircrafts and the
\nengines fitted therein belong to NEPC India, and that a charge was
\ncreated thereon by NEPC India, in favour of IOC, by way of
\nhypothecation to secure repayment of the amounts due to IOC. The
\nterms of hypothecation extracted in the complaint show that the
\nownership and possession of the aircrafts continued with NEPC India.
\nPossession of the aircraft, neither actual nor symbolic, was delivered to
\nIOC. NEPC India was entitled to use the aircraft and maintain it in
\ngood state of repairs. IOC was given the right to take possession of
\nthe hypothecated aircrafts only in the event of any default as
\nmentioned in the Hypothecation Deed. It is not the case of the IOC
\nthat it took possession of the aircraft in exercise of the right vested in
\nit under the Deed of Hypothecation. Thus, as the possession of the
\naircraft remained all along with NEPC India in its capacity as the owner
\nand the Deed of Hypothecation merely created a charge over the
\naircrafts with a right to take possession in the event of default, it
\ncannot be said that there was either entrustment of the aircrafts or
\nentrustment of the dominion over the aircrafts by IOC to NEPC India.
\nThe very first requirement of section 405, that is the person accused
\nof criminal breach of trust must have been “entrusted with the
\nproperty” or “entrusted with any dominion over property” is, therefore,
\nabsent.\n<\/p>\n
22.\tLearned counsel for the appellant, however, sought to
\ndistinguish the decision in Duncan Agro on two grounds. It was pointed
\nout that Duncan Agro itself recognizes that there can be criminal
\nbreach of trust where a beneficial interest exists in the other person,
\nand the offender holds the property in trust for such person. It is
\nsubmitted that when the deed of hypothecation was executed by NEPC
\nIndia in favour of IOC, the hypothecation created a beneficial interest
\nin the property in favour of IOC, and vis-`-vis such ‘beneficial interest’
\nof IOC, the possession of the property by NEPC India was in ‘trust’. In
\nsupport of this contention, reliance was placed on a decision of the
\nSind Judicial Commissioner in Gobindram C. Motwani v. Emperor :
\n(1938) 39 Cr.L.J. 509. In that case the complaint was that the accused
\nhad hypothecated the goods in their shop as collateral security against
\nan advance and had agreed to hold the goods and proceeds thereof in
\ntrust and to pay the proceeds as and when received by them.
\nHowever, as they did not pay the proceeds, the complaint was that
\nthey committed criminal breach of trust. The Magistrate took the view
\nthat as the hypothecated goods were still the property of the accused,
\nthey could not commit criminal breach of trust in respect of their own
\nproperty. The Judicial Commissioner did not agree. He held :\n<\/p>\n
“The test in this case appears to me to be whether the
\nowner of the goods, the accused, created an equitable
\ncharge over the goods in their possession when they
\nexecuted the trust receipt. If they did so, they held the
\ngoods as trustees, they were “in some manner entrusted”
\nwith the goods, and if they dealt with them in violation of
\nthe terms of the trust, they committed an offence under
\nthis section, provided they had the necessary criminal
\nintent. I can myself see no reason why it should be said
\nthat by this trust receipt the accused did not give a
\nbeneficial interest in the goods to the applicant and did
\nnot hold the goods, with which they were entrusted as
\nlegal owners in trust for the applicant. That being so, I
\nthink the learned Magistrate was wrong in his decision
\nthat the accused could not be guilty of criminal breach of
\ntrust because the goods were their own property.”\n<\/p>\n
It is evident that the said observations were made on the peculiar
\nfacts of that case where the Commissioner concluded that the goods
\nwere held by the accused in trust as trustee in view of execution of a
\n‘Trust Receipt’ by the accused. The facts were somewhat similar to
\nexample (viii) in Para 17 above. Further the Judicial Commissioner
\nfinally observed that there was so much room for an honest difference
\nof opinion as to the rights and liabilities of the parties to the trust
\nreceipt that no useful purpose could be served in interfering with the
\norder of discharge by the Magistrate. The said decision is therefore of
\nno assistance to the appellant.\n<\/p>\n
If the observations relied on by the appellant are to be interpreted as
\nholding that the debtor holds the hypothecated goods, in trust for the
\ncreditor, then they are contrary to the decision of this Court in Duncan
\nAgro (supra) which specifically holds that when goods are
\nhypothecated, the owner  does not hold the goods in trust for the
\ncreditor. A charge over the hypothecated goods in favour of the
\ncreditor, cannot be said to create a beneficial interest in the creditor,
\nuntil and unless the creditor in exercise of his rights under the deed,
\ntakes possession. The term ‘beneficial interest’ has a specific meaning
\nand connotation. When a trust is created vesting a property in the
\ntrustee, the right of the beneficiary against the trustee (who is the
\nowner of the trust property) is known as the ‘beneficial interest’. The
\ntrustee has the power of management and the beneficiary has the
\nright of enjoyment. Whenever there is a breach of any duty imposed
\non the trustee with reference to the trust property or the beneficiary,
\nhe commits a breach of trust. On the other hand, when the owner of a
\ngoods hypothecates a movable property in favour of a creditor, no
\n‘beneficial interest’ is created in favour of the creditor nor does the
\nowner become a trustee in regard to the property hypothecated. The
\nright of the creditor under a deed of hypothecation is the right to
\nenforce the charge created under the deed of hypothecation in the
\nmanner specified in the deed and by no stretch of imagination can
\nsuch right be equated to a beneficial interest of a beneficiary in a
\nproperty held in trust. Therefore, the first contention that a creditor
\nhas a beneficial interest in the hypothecated property and the owner is
\nin the position of a trustee with reference to the creditor is liable to be
\nrejected.\n<\/p>\n
23.\tThe second ground on which learned counsel for the appellant
\nsought to distinguish Duncan Agro is that the said case dealt with a
\nhypothecation deed creating a floating charge, whereas the case on
\nhand related  to a fixed charge and therefore, the principle laid down
\nin Duncan Agro  will not apply. This contention is also without basis.
\nThe principle stated in Duncan Agro will apply in regard to all types of
\nhypothecations. It makes no difference whether the charge created by
\nthe deed of hypothecation is a floating charge or a fixed charge. Where
\na specific existing property is hypothecated what is created is a ‘fixed’
\ncharge. The floating charge refers to a charge created generally
\nagainst the assets held by the debtor at any given point of time during
\nthe subsistence of the deed of hypothecation. For example where a
\nborrower hypothecates his stock-in-trade in favour of the Bank
\ncreating a floating charge, the stock-in-trade, held by the borrower as
\non the date of hypothecation may be sold or disposed of by the debtor
\nwithout reference to the creditor. But as and when new stock-in-trade
\nis manufactured or received, the charge attaches to such future stock-
\nin-trade until it is disposed of. The creditor has the right at any given
\npoint of time to exercise his right by converting the hypothecation into
\na pledge by taking possession of the stock-in-trade held  by the debtor
\nat that point of time. The principle in Duncan Agro  is based on the
\nrequirement of ‘entrustment’ and not with reference to the ‘floating’
\nnature of the charge.  The second contention also has no merit.\n<\/p>\n
24.\tWe accordingly hold that the basic and very first ingredient of
\ncriminal breach of trust, that is entrustment, is missing and therefore,
\neven if all the allegations in the complaint are taken at their face value
\nas true, no case of ‘criminal breach of trust’ as defined under section
\n405 IPC can be made out against NEPC India.\n<\/p>\n
Section 415<\/p>\n
25.\tThe essential ingredients of the offence of ‘cheating’ are : (i)
\ndeception of a person either by making a false or misleading
\nrepresentation or by other action or omission (ii) fraudulent or
\ndishonest inducement of that person to either deliver any property or
\nto consent to the retention thereof by any person or to intentionally
\ninduce that person to do or omit to do anything which he would not do
\nor omit if he were not so deceived and which act or omission causes or
\nis likely to cause damage or harm to that person in body, mind,
\nreputation or property.\n<\/p>\n
26.\tThe High Court has held that mere breach of a contractual terms
\nwould not amount to cheating unless fraudulent or dishonest intention
\nis shown right at the beginning of the transaction and in the absence
\nof an allegation that the accused had a fraudulent or dishonest
\nintention while making a promise, there is no ‘cheating’. The High
\nCourt has relied on several decisions of this Court wherein this Court
\nhas held that dishonest intent at the time of making the
\npromise\/inducement is necessary, in addition to the subsequent failure
\nto fulfil the promise. Illustrations (f) and (g) to section 415 makes this
\nposition clear :\n<\/p>\n
“(f) A intentionally deceives Z into a belief that A means to
\nrepay any money that Z may lend to him and thereby
\ndishonestly induces Z to lend him money, A not intending to
\nrepay it. A cheats.”\n<\/p>\n
“(g). A intentionally deceives Z into a belief that A means to
\ndeliver to Z a certain quantity of indigo plant which he does not
\nintend to deliver, and thereby dishonestly induces Z to advance
\nmoney upon the faith of such delivery. A cheats; but if A, at the
\ntime of obtaining the money, intends to deliver the indigo plant,
\nand afterwards breaks his contact and does not deliver it, he
\ndoes not cheat, but is liable only to a civil action for breach of
\ncontract.”\n<\/p>\n
27.\tIn Rajesh Bajaj (supra), this Court held :\n<\/p>\n
“It is not necessary that a complainant should verbatim
\nreproduce in the body of his complaint all the ingredients of the
\noffence he is alleging. Nor is it necessary that the complainant
\nshould state in so many words that the intention of the accused
\nwas dishonest or fraudulent. ..\n<\/p>\n
The crux of the postulate is the intention of the person who
\ninduces the victim of his representation and not the nature of
\nthe transaction which would become decisive in discerning
\nwhether there was commission of offence or not. The
\ncomplainant has stated in the body of the complaint that he was
\ninduced to believe that respondent would honour payment on
\nreceipt of invoices, and that the complainant realised later that
\nthe intentions of the respondent were not clear. He also
\nmentioned that respondent after receiving the goods have sold
\nthem to others and still he did not pay the money. Such
\naverments would prima facie make out a case for investigation
\nby the authorities.”\n<\/p>\n
28.\tIn Hridaya Ranjan Prasad Verma (supra), this Court held :
\n“On a reading of the section it is manifest that in the definition
\nthere are set forth two separate classes of acts which the person
\ndeceived may be induced to do. In the first place he may be
\ninduced fraudulently or dishonestly to deliver any property to
\nany person. The second class of acts set forth in the section is
\nthe doing or omitting to do anything which the person deceived
\nwould not do or omit to do if he were not so deceived. In the
\nfirst class of cases the inducing must be fraudulent or dishonest.
\nIn the second class of acts, the inducing must be intentional but
\nnot fraudulent or dishonest.\n<\/p>\n
In determining the question it has to be kept in mind that the
\ndistinction between mere breach of contract and the offence of
\ncheating is a fine one. It depends upon the intention of the
\naccused at the time to inducement which may be judged by his
\nsubsequent conduct but for this subsequent conduct is not the
\nsole test. Mere breach of contract cannot give rise to criminal
\nprosecution for cheating unless fraudulent or dishonest intention
\nis shown right at the beginning of the transaction, that is the
\ntime when the offence is said to have been committed.
\nTherefore it is the intention which is the gist of the offence. To
\nhold a person guilty of cheating it is necessary to show that he
\nhad fraudulent or dishonest intention at the time of making the
\npromise. From his mere failure to keep up promise subsequently
\nsuch a culpable intention right at the beginning, that is, when he
\nmade the promise cannot be presumed.”\n<\/p>\n
29.\tIn this case, the complaints clearly allege that the accused with
\nfraudulent intention to cheat and defraud the IOC, had induced IOC to
\nresume supply of aircraft fuel on cash and carry basis, by entering into
\na further agreement dated 20.9.1997 and undertaking to clear the
\noutstanding amount of Rs.18 crores approximately within the time
\nstipulated in the Hypothecation Agreements. The sum and substance
\nof the said allegation read with other averments extracted above, is
\nthat NEPC India, having committed default in paying the sum of Rs.18
\ncrores, entered into a fresh agreement dated 20.9.1997 agreeing to
\nclear the outstanding as per a fresh schedule, with the dishonest and
\nfraudulent intention of pre-empting and avoiding any action by IOC in
\nterms of the hypothecation deeds to take possession of the aircrafts.
\nThough the supplies after 20.9.1997 were on cash and carry basis, the
\nfraudulent intention is alleged to emanate from the promise under the
\nsaid agreement to make payment, thereby preventing immediate
\nseizure (taking possession) of the aircrafts by IOC. This allegation
\nmade in addition to the allegation relating to removal of engines, has
\nbeen lost sight of by the High Court. All that is to be seen is whether
\nthe necessary allegations exist in the complaint to bring the case
\nwithin section 415. We are clearly of the view that the allegations in
\nthe complaint constitute such an offence. We are not concerned with
\nthe proof of such allegations or ultimate outcome of trial at this stage.\n<\/p>\n
Section 425<\/p>\n
30.\tSection 425 IPC provides : “Whoever, with intent to cause, or
\nknowing that he is likely to cause, wrongful loss or damage to the
\npublic or to any person, causes the destruction of any property, or any
\nsuch change in any property or in the situation thereof as destroys or
\ndiminishes its value or utility, or affects it injuriously, commits
\n“mischief”. The three ingredients of the Section are : (i) intention to
\ncause or knowledge that he is likely to cause wrongful loss or damage
\nto the public or to any person; (ii) causing destruction of some
\nproperty or any change in the property or in the situation thereof; and\n<\/p>\n
(iii) the change so made destroying or diminishing the value or utility
\nor affecting it injuriously. For the purpose of section 425, ownership or
\npossession of the property are not relevant. Even if the property
\nbelongs to the accused himself, if the ingredients are made out,
\nmischief is committed, as is evident from illustrations (d) and (e) to
\nsection 425. The complaints clearly allege that NEPC India removed
\nthe engines thereby making a change in the aircrafts and that such
\nremoval has diminished the value and utility of the aircrafts and
\naffected them injuriously, thereby causing loss and damage to IOC,
\nwhich has the right to possess the entire aircraft. The allegations
\nclearly constitute the offence of ‘mischief’. Here again, we are not
\nconcerned with the proof or ultimate decision.\n<\/p>\n
Conclusion :\n<\/p>\n
31.\tIn view of the above discussion, we find that the High Court was
\nnot justified in quashing the complaints\/criminal proceedings in
\nentirety.  The allegations in the complaint are sufficient to constitute
\noffences under sections 415 and 425 of IPC. We accordingly allow
\nthese appeals in part and set aside the order of the High Court insofar
\nit quashes the complaint under sections 415 and 425. As a
\nconsequence, the Judicial Magistrate, Coimbatore and the Judicial
\nMagistrate, Alandur before whom the matters were pending, shall
\nproceed with the matters in accordance with law in regard to the
\ncomplaints filed by IOC in so far as offences under sections 415 and
\n425 of IPC. Parties to bear their respective costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India M\/S Indian Oil Corporation vs M\/S Nepc India Ltd., & Ors on 20 July, 2006 Author: Raveendran Bench: H. K. Sema, R. V. Raveendran CASE NO.: Appeal (crl.) 834 of 2002 PETITIONER: M\/s Indian Oil Corporation RESPONDENT: M\/s NEPC India Ltd., & Ors. DATE OF JUDGMENT: 20\/07\/2006 BENCH: H. K. Sema […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-31157","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nM\/S Indian Oil Corporation vs M\/S Nepc India Ltd., & Ors on 20 July, 2006 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/ms-indian-oil-corporation-vs-ms-nepc-india-ltd-ors-on-20-july-2006\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"M\/S Indian Oil Corporation vs M\/S Nepc India Ltd., & Ors on 20 July, 2006 - 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