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Judgment
G.M. Akbar Ali, J.—By consent of both sides, the matter has been taken up for final hearing.
The Petitioners, who are the accused in a private complaint initiated by the Respondent before the learned Chief Metropolitan Magistrate,
Egmore, Chennai, have filed the present petition seeking a direction to call for the records in C.C. No. 4311 of 2009 pending on the file of the
above and quash the same.
The Respondent is a Finance Company, having its registered Office at Chennai. The business of the complainant Company is extending hire
purchase, loan and leasing facility on vehicles, machinery, equipment to individuals and Corporate companies. Sri Rajeswari Mills Limited at
Gudiyatham Taluk is a Company incorporated under Companies Act and the Petitioners 1 to 3 are the Directors of the Company and the 4th
Petitioner is the Chartered Accountant. The said Company is having two units, one at Gudiyatham and another at Karaikal.
The sum and substance of the complaint is that the Petitioners offered their machinery in their units to the complainant company for sale and
sought financial assistance under Hire Purchase Scheme. On the basis of such representation, the complainant Company agreed to enter into hire
purchase contract. The resolutions of the Company showed that there is no lien over the machinery and the Chartered Accountant also issued a
certificate that there is no lien on this machinery to be sold to the complainant company. On which, Hire Purchase Agreement was executed.
Accordingly, the complainant company entered into necessary agreement and finance was extended. There were default in payment and therefore,
the complainant company invoked the Arbitration clause in the agreement and a consent award was passed by an Arbitrator.
However, during the course of execution proceedings, an application was filed by the Directors of the Company contending that the said Sree
Rajeswari Mills is a sick Industry and the machinery cannot be brought for sale and it is also submitted that the machinery have been hypothecated
with IDBI (Industrial Development Bank of India) and IDBI filed a suit before this Court claiming that they are having the first charge on the
machinery since 1987.
According to the complainant company, suppressing the hypothecation and a charge with IDBI as early as 1987, the Petitioners 1 to 3, being
the Directors, with the connivance and collusion of the 4th Petitioner/Chartered Accountant, have created false documents, induced and deceived
the complainant company to part with a huge sum. Therefore, the complaint has been filed for the alleged offence u/s 420, 468 and 471 r/w 34
IPC. The same has been taken on file in C.C No. 4311 of 2009 and aggrieved by the same, the Petitioners are before this Court to quash the
proceedings on various grounds.
Mr. G. Rajagopalan, the learned senior counsel, who appeared for Mr. A.S. Balaji, for the Petitioners, would submit that the case of the
complainant that they became aware of the first charge in favour of IDBI only during the course of execution of proceedings, is not true. The
learned senior counsel submitted that under Sections 125 and 126 of the Companies Act, the complainant was presumed to have knowledge of
the earlier charges duly registered with the Registrar of Companies. The learned senior counsel also submitted that the case of the complainant
company can only be non payment of dues and the ingredients of the offence u/s 420 IPC is not attracted.
The learned senior counsel also submitted that the Petitioners have not created any false or fabricated document. He relied on a decision
reported in 2009 1 Com Cases 149 Bom (Bank of Baroda v. Official Liquidator of Alpic Finance Ltd) , wherein the Bombay High Court has held
as follows:
A purchaser is bound to make all reasonable enquiries as to the title of his vendor. Once it is obvious that title to the property vested at some stage
in a company and prudent purchaser must enquire whether the company itself had the authority and power to sell the property. If the company had
created a mortgage in respect of the property in favour of a third party and such mortgage or charge is registered u/s 125 of the Companies Act,
1956, the effect of Section 126 of the Act would operate even on subsequent purchasers
The learned senior counsel also relied on a decision reported in AIR 1999 Mad 82 (Dr. R. Sivaraman and etc., v. The Registrar, Dr. M.G.R.
Medical University, Guindy), wherein this Court held as follows:
If law states that a particular thing must be deemed to be from a particular date or on the happening of an event, to say it should not be so deemed
amounts to saying something contrary to law and nullifying the very effect of deeming provision
The learned senior counsel further relied on a decision reported in Rochiram and Sons Vs. Union of India (UOI) and Others, , the Apex Court
has held as follows:
While deciding the questions referred to it, the larger Bench made a conscious distinction between a preceding u/s 227 Code of Criminal
Procedure before the trial court and a proceeding u/s 482 Code of Criminal Procedure and made a reference to the court''s power to consider
material other than those produced by the prosecution in a proceeding u/s 482 Code of Criminal Procedure It is in that context that while holding
that the decision rendered in Satish Mehra case 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 provision of Section 227 Code of Criminal Procedure 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.
The learned Counsel further relied on a decision reported in Sardar Trilok Singh and Others Vs. Satya Deo Tripathi, , wherein the Apex Court
has held
The dispute raised by the Respondent was purely of civil nature even assuming the facts stated by him to be substantially correct.
In Moosa Ahmed v. The Inspector of Police, reported in 2010 (2) CTC 153, , the learned Single Judge of this Court had quashed the
proceedings on the ground that when a complaint is driven by malafides and matter in issue is civil in nature the court can exercise its power u/s
482 Code of Criminal Procedure.
On the contrary, Mr. Ramesh, the learned senior counsel who appeared for Mr. S. Suresh, for Respondent learned Counsel would submit that
the complainant company was made to part with huge sum of Rs. 1,04,35,000/- on the false representation and deception of the Petitioners on the
basis of the false documents produced by them in the form of No Lien Certificate. The dishonest intention is from the inception which attracts the
offence u/s 420 IPC.
The learned senior counsel submitted that a roving enquiry cannot be conducted at this stage since the conduct of the Petitioners would show
that that they have committed the alleged offences. Therefore, the trial should be allowed to be continued and should not be interfered with at this
stage.
Heard and perused the materials available on record.
The Respondent is the complainant company who had extended financial assistance by way of hire purchase agreement. The machinery of
Sree Rajeswari Mills were sold to the complainant company in order to create a hire purchase contract . As per the system prevailing the
complainant company becomes the owner of the machinery and the said Sree Rajeswari Mills is the hirer.
It is alleged that there was default in payment of hire charges and the complainant company invoked the arbitration clause and obtained
Arbitration award. But while executing the award, they found that the machinery was hypothecated with IDBI which had the first charge over the
machinery. The allegation is that the Petitioners 1 to 3 have fraudulently represented and deceived the company that there was no charge over the
machinery and the fourth Petitioner issued a no lien certificate.
It is well settled that one of the ingredients of cheating as defined in Section 415 of the Penal Code is existence of an fraudulent or dishonest
intention of making a initial promise or existence thereof from the very beginning of formation of contract.
The Petitioner would state that production of no lien certificate is only a formality, but the fact remains that when they have produced such
certificate there was already a lien in the property. It is submitted that under Sections 125 and 126 of the Companies Act the charges were already
notified and the complainant is deemed to have noticed such charges. The decision relied on by the learned senior counsel by the Petitioner relates
to a suit filed by a bank for recovery of amount secured by mortgage of property. In that context, the Bombay High Court held that a purchaser is
bound to make all reasonable enquiries as to the title of his vendor and if the company had created a mortgage and such mortgage of charge is
registered u/s 125 of Companies Act 1956, the effect of Section 126 of the Act would operate even on subsequent purchaser. Therefore, the
deemed provision is not applicable for the case before us.
The another line of argument is that the dispute raised is purely of civil nature and criminal proceedings initiated is an abuse of process of the
court. The complainant has raised a criminality and fraudulent intention of the Petitioners to deceive the complainant to part with huge amount.
I am not persuaded with the above line of argument. Whether the complainant had knowledge of the previous charge and whether the
Petitioner had fraudulent intention for cheating are the matters for trial. In such view of the matter, this Court finds no reason, much less valid
reason to interfere with the proceedings at this stage.
In the result, the criminal original petition is dismissed. Consequently, connected Mps are closed.