By Dr. Anup P. Shah
Chartered Accountant
I. Introduction
How often
have we seen a commercial deal gone sour, be it, a joint venture, an
investment, a lending transaction, a trading transaction, etc.? In most of the
cases, the dispute is entirely civil in nature, i.e., the remedies for the
parties lies in arbitration or approaching a Civil Court. However, in some
cases, the aggrieved party also moves the Criminal Court on the pretext that it
involves some sort of cheating or forgery or such other economic offences. This
gives the dispute an entirely different twist and could lead to arrest of the
defendant. While a criminal complaint may be justified in certain cases, it is
not so always and sometimes it is used as a bargaining ploy to exert greater
pressure on the other party. The Bombay High Court in the case of Ramesh
Dahyalal Shah vs. State of Maharashtra and Others, Cr. Appln. No. 613/2016,
Order dated 6th December 2017, had an occasion to consider
one such commercial dispute where the plaintiff also sought recourse to
criminal course of action.
II. Facts
2.1 One, Tushar Thakkar, the main respondent in
the suit, entered into negotiations with the applicant in the suit, based on
which he was to invest in a company owned by the applicant on the following
terms:
(a) A Shareholders’ Agreement was executed based
on which the respondent acquired a 45% stake in the company.
(b) The respondent was to be made the
Vice-Chairman of the Board of Directors of the company.
(c) He was to receive a monthly remuneration for
acting as Vice-Chairman.
(d) He and the applicant were to jointly take all
important decisions of the company.
(e) The applicant submitted a Project Report
about setting up a plant at Karnataka. Based on the same, he obtained a bank
loan.
2.2 There were disputes between the respondent
and applicant based on which the respondent filed complaints alleging the
following:
(a) He was not called for General Body meetings.
(b) The Directors and financers of the company
were neglecting and avoiding him.
(c) They also did not keep their promises like
appointing him as the Vice Chairman, paying his monthly remuneration and did
not give him authority to sign all the cheques, nor did they inform the change
in share holding to the bank, nor allow him to jointly take decisions of the
company, etc. He suffered loss of goodwill also since he was not given a
distributorship as promised. Thus, he alleged that the company and the
applicant cheated him.
(d) Further, instead of installing new plant and
machinery at Karnataka, he alleged that second-hand machinery was installed
which was over 18 years old. It was alleged that this was done with the
connivance of the registered valuers and the bank. Moreover, the machinery was
over-invoiced, thereby getting more capital subsidy from the Government and
causing revenue loss.
The
respondent accordingly, claimed a certain amount from the applicant and various
cases for criminal breach of trust were made out against the applicant, the
registered valuers and the Government bank and accordingly, a case was
registered with the Economic Offence Wing, Mumbai.
2.3 Consequently, the accused filed a Writ
Petition before the High Court seeking quashing of the FIR registered with the
EOW on the grounds that a civil dispute has been given the colour of a criminal
complaint.
2.4 Thus, the question, for consideration before
the Bombay High Court was whether the dispute between the parties was of a
predominantly civil nature which was being converted to a criminal nature by
the respondent so as to recover his claims from the applicant?
III. Verdict of
Bombay High Court
3.1 The Court held that it was of the firm view,
that the matter was entirely a civil case and there was not even a prima
facie criminal case under the Indian Penal Code pertaining to cheating,
forgery of security / will, using a genuine document as forged, falsification
of accounts, etc. It held that there clearly was a breach of the terms and
conditions of the shareholders agreement.
3.2 The Court considered the following facts
before delivering its verdict:
(a) The respondent approached the applicant for
investing in his company.
(b) The terms of the Shareholders’ Agreement were
very clear.
3.3 The Court also considered various Supreme
Court decisions which have distinguished between a civil offence and a criminal
complaint. The Court relied on the Supreme Court’s verdict in Hridaya
Ranjan Prasad Verma vs. State of Bihar (2000) 4 SCC 168 wherein it was
held that the distinction between a mere breach of contract and the offence of
cheating is a fine one. It would depend upon the intention of the accused at
the time of inducement, which may be judged by his subsequent conduct. However,
every breach of contract would not give rise to criminal prosecution for
cheating unless fraudulent or dishonest intention was shown right at the
beginning of transaction. Thus, it was necessary to show that he had fraudulent
or dishonest intention at the time of making the promise. Based on that the
Court held that both parties had disputes regarding the Shareholders Agreement
and hence, it was clear that there was no cheating intention from the
beginning.
3.4 The fact that the dispute was first filed
before the Company Law Board showed that it was predominantly a civil dispute.
Accordingly, the High Court held that the main demand and grievance of the
respondent appeared to get back his sum invested. The Company Law Board also
held that there were no circumstances indicating fraud or mismanagement of the affairs
or other misconduct of the company.
3.5 The Court noted that two recovery suits were
also filed by the respondent before the High Court for recovering the amounts
claimed by him.
3.6 The Court also noted that the machinery
imported was verified by a Government empanelled valuer and this valuation was
seconded by a bank appointed valuer when complaints were made by the
respondent. The Court agreed with the Company Law Board’s Order that the banks
would not invite any adverse report to their own project report prepared by
their officers during the time, they decide to advance loans to a company.
However, in absence of any corroborative material, it became difficult to
disbelieve the reports of independent persons merely because they were
favouring the applicant or to infer connivance between them and the applicant
so as to implead them also along with consortium of banks as accused in the
case. The Court noted that the Government bank had specifically noted that,
after inspection and verification of the cost of the project, primary and
secondary research and analysis of the comparative cost estimates of reputed
suppliers (domestic and international) for plant and machinery purchased and
installed by the Company, the costs incurred by the Company were reasonable and
fair and in line with the market norms taking into account the
specification/configuration and suitability for the project.
3.7 The High Court noted that it was apparent
that the respondent had approached every forum available to him to raise his
grievances and after being unsuccessful there, now he was giving the colour of
criminal offence to this civil dispute by filing the complaint and levelling
the same allegations. Once he realised that the Government banks were not
supporting him, he implicated them also in the case along with the two valuers.
The Court
made a very telling observation that the intention of the respondent, therefore,
appeared to be to use the police machinery with malafide intention to recover
the amounts which he was unable to recover by civil mode. Therefore, it was a
sheer abuse of the process of law.
3.8 The Court concluded that a case which was
predominantly of civil nature had been given the robe of criminal offence that
too, after availing civil remedies. It relied on the Supreme Court’s verdict in
State of Haryana vs. Bhajan Lal
,1992 Supp (1) SCC 335, which held that where a criminal proceeding was
manifestly attended with malafide intention and/or the proceeding was
maliciously instituted with object to serve the oblique purpose of recovering
the amount, such proceeding needed to be quashed and set aside.
Again in Chandran
Ratnaswami vs. K.C. Palanisamy (2013) 6 SCC 740, it was held that, when
the disputes were of civil nature and finally adjudicated by the competent
authority, (the CLB in the present case) and the disputes were arising out of
alleged breach of joint venture agreement and when such disputes had been
finally resolved by the Court of competent jurisdiction, then it was apparent
that complainant wanted to manipulate and misuse the process of Court. In this
judgment, it was held that, it would be unfair if the applicants are to be tried
in such criminal proceeding arising out of the alleged breach of a Joint
Venture Agreement. It was further held that the High Court was entitled to
quash a proceeding when it came to the conclusion that allowing the proceeding
to continue would be an abuse of the process of the Court or that the ends of
justice required that the proceedings ought to be quashed. It relied on its
earlier decision in State of Karnataka vs. L. Muniswamy and Others,
(1977) 2 SCC 699 where it was observed that the wholesome power u/s. 482 of the Criminal Procedure Code, entitled the High Court to quash a
proceeding when it came to the conclusion that allowing the proceeding to
continue would be an abuse of the process of the Court or that the ends of
justice required that the proceeding ought to be quashed. The High Courts had
been invested with inherent powers, both in civil and criminal matters, to
achieve a salutary public purpose. A court proceeding ought not to be permitted
to degenerate into a weapon of harassment or persecution. In the case of Inder
Mohan Goswami vs. State of Uttaranchal, (2007) 12 SCC 1, it was held
that the court must ensure that criminal prosecution is not used as an
instrument of harassment or for seeking private vendetta or with an ulterior
motive to pressurise the accused.The issuance of non-bailable warrants involved
interference with personal liberty. Arrest and imprisonment meant deprivation
of the most precious right of an individual. Therefore, the courts had to be
extremely careful before issuing non-bailable warrants. Similarly, in Uma
Shankar Gopalika vs. State of Bihar, (2005) 10 SCC 336, it was held
that the complaint did not disclose any criminal offence at all, much less any
cheating offence and the case was purely a civil dispute between the parties
for which a remedy was available before a civil court by filing a properly
constituted suit. Thus, allowing the police investigation to continue would
amount to an abuse of the process of court and to prevent the same it was just
and expedient for the High Court to quash the same by exercising the powers
u/s. 482 of the Criminal Procedure Code.
In G.
Sagar Suri vs. State of U.P. and Others, (2000) 2 SCC 636 the Apex
Court held that a Court’s Jurisdiction u/s. 482 of the Criminal Procedure Code
had to be exercised with great care. In
exercise of its jurisdiction, the High Court was not to examine the matter
superficially. It was to be seen if a matter, which was essentially of civil
nature, had been given the cloak of a criminal offence. Criminal proceedings
were not a shortcut of other remedies available in law. Before issuing process
a criminal court has to exercise a great deal of caution. For the accused it
was a serious matter. Again in Chandrapal Singh vs. Maharaj Singh, AIR
(1982) SC 1238, the Court held that that chagrined and frustrated
litigants should not be permitted to give vent to their frustration by cheaply
invoking jurisdiction of the criminal court.
Further, in Indian
Oil Corpn vs. NEPC India Ltd, 2006 (3) SCC Cri 736, the Apex Court
cautioned about the growing tendency to convert purely civil disputes into
criminal cases. Also, in V.Y. Jose vs. State of Gujarat, (2009) 3 SCC 78,
it was held that a matter which essentially involved disputes of civil nature,
should not be allowed to be subject matter of a criminal offence, the latter
being a shortcut of executing a decree which was non-existent.
3.9 The High Court distinguished other cases,
such as, Parbatbhai Aahir vs. State of Gujarat, Cr. Appeal No.1723 / 2017
dated 4th October, 2017 where allegations were made in the
FIR of extortion, forgery, fabrication of documents, utilisation of those
documents to effectuate transfers of title before registering authorities and
the deprivation of the complainant of his interest in land on the basis of
fabricated power of attorney. The Supreme Court held that these were serious in
nature and cannot be mere civil in nature and thus, the High Court was
justified in refusing to quash the FIR even though the parties decided to
settle the matter.
4.0 Accordingly, the Bombay High Court allowed
the applications and quashed and set aside the F.I.R.s registered with the,
Police Station, the investigation of which was taken over by Economic Offence
Wing.
IV. Conclusion
Several
civil cases are masquerading as criminal cases in the hope of getting the
accused to pay up. This decision would act as a defence to all such accused.
However, having said that it is unfortunate that one has yet go through the
process of the law and in several cases, it is only after the matter reaches
the High Court that relief is granted.Till then, the process of arrest, bail,
custody, etc., are an unfortunate episode in the life of the accused!
One can only
hope that the Police would frame some directions which would serve as a
reference point to all Police Stations as to how to handle a case which appears
to be of a civil nature. Instead of instantly arresting the accused, the Police
may first carry out a detailed investigation of the matter, hear both parties
and then reach a conclusion as to whether or not to arrest the accused.
