N. Duraisamy and Bhoopathy vs State

M. Jeyapaul, J.—The fourth accused and the fifth accused in C.C. No. 18 of 2003 on the file of the learned II Additional Sessions Judge

(CBI Cases), Coimbatore have respectively preferred the aforesaid criminal original petitions.

The common contention of the petitioners is that they were carrying on partnership business by name M/s. Banu Knitters in exporting garments.

N. Muthusamy was the Managing Director and he was in incharge of the business, managing the export of garments and regulating the financial

aspects. The petitioner in Crl.O.P. No. 992 of 2007 was looking after the factory and the petitioner in Crl.O.P. No. 993 of 2007 was a sleeping

partner. A loan was raised from Syndicate Bank with the consent of Canara Bank by the partnership firm M/s. Banu Knitters. The Syndicate Bank

filed suit in O.A. No. 8 of 1997 against the firm before the Debt Recovery Tribunal, Chennai for recovery of a sum of Rs. 2,13,46,834/- from the

firm. The money dispute was settled under a one time settlement scheme and thereupon, the suit was withdrawn by the bank. The Special Director

of Enforcement conducted an enquiry u/s 18(2) of the Foreign Exchange Regulations Act wherein he had found that the said Muthusamy looked

after all the export activities and was responsible for realisation of the proceeds. The petitioner in Crl.O.P. No. 992 of 2007 was just looking after

the factory and the manufacturing activities. The liability of the bank was also discharged. There is no prima facie material to implicate the

petitioners and therefore, the complaint lodged as against the petitioners are liable to be quashed, it is contended.

The points that arise for determination are

i) Whether the discharge of the debt owed by the firm M/s. Banu Knitters to the Syndicate Bank would absolve all the criminal liabilities including

the charge u/s 420 of the Indian Penal Code.

ii) Whether the petitioners were in charge of the affairs of M/s. Banu Knitters.

Based on the source information, a complaint was lodged as against M/s. Banu Knitters and its partners including the petitioners herein. After

investigation, charge sheet was laid by the CBI as against the Branch Manager, Syndicate Bank, Thiruppur Branch, M/s. Banu Knitters and its

partners including the petitioners for offences under Sections 120B read with 420 of the Indian Penal Code and Section 13(2) read with Section

13(1)(d) of the Prevention of Corruption Act, 1988. The major charge is that the petitioners herein dishonestly induced Syndicate Bank to part

with funds and thereby they cheated the bank and caused a wrongful pecuniary loss to the extent of Rs. 5.99 crores to Syndicate Bank, Thiruppur

Branch and acquired correspondingly wrongful gain to themselves, having hatched a conspiracy.

Learned Senior Counsel appearing for the petitioners would submit that inasmuch as the entire debt owed by M/s. Banu Knitters was already

discharged and the bank which lent loan to the firm has now no grievance as against the petitioners, the charge u/s 420 of the Indian Penal Code

does not stand scrutiny. It is further submitted that the complaint is bereft of the allegations that the petitioners were responsible for the conduct of

the business of the partnership firm. Therefore, all the charges framed against the petitioners will have to be quashed.

Learned Special Public Prosecutor for CBI Cases would contend that the CBI, having investigated the matter, found, prima facie, that a case

has been made out as against the petitioners and others and thereupon, they have laid charge sheet before the competent court. The enquiry report

of the Enforcement Directorate u/s 18(2) of the Foreign Exchange Regulations Act cannot be looked into for any purpose by the Trial Court while

framing the charges. Independent of the said report, CBI investigated the matter and arrived at a conclusion that a case has been made out as

against these petitioners also. It is his vehement submission that discharge of the debt owed by M/s. Banu Knitters wherein the petitioners were

also partners cannot be a ground for discharge as criminal prosecution was not laid based merely on a loan transaction, but, on the allegation of

cheating in culmination of criminal conspiracy levelled against the petitioners.

It is not in dispute that the entire debt owed by M/s. Banu Knitters to the Syndicate Bank was already discharged by the firm. It is to be noted

that no criminal actin can be taken for the inability of the borrower to pay the debt to the financier or the bank. The point is whether there is any

element of dishonest inducement causing wrongful pecuniary loss to the Syndicate Bank. The respondent has collected furtive information about the

cheating alleged to have been committed by the firm consisting of the partners therein by misleading the bank and thereby they caused heavy

pecuniary loss to the bank. The CBI has collected material, prima facie, to show that a case has been made out for criminal conspiracy and

cheating. Therefore, the discharge of the debt does not absolve the criminal liability of the firm and its partners. The fact that the entire debt was

liquidated amicably by the firm can be putforth before the Trial Court for the purpose of deciding the quantum of sentence to be imposed on the

petitioners after conviction. But, the discharge of the debt cannot be a ground to quash the charge sheet laid after collecting sufficient materials to

show, prima facie, a case against the petitioners.

The CBI has collected information that the fourth accused has signed the initial application seeking the credit facilities submitted to the Syndicate

Bank. The fifth accused, on his part, signed various documents enclosed with the application seeking credit facilities from the bank. It has been

alleged in the charge sheet that all the partners dishonestly induced Syndicate Bank to part with the huge amount. It is not as if there is no specific

allegation as against the petitioners that they were not responsible for the conduct of the business of the firm. The aforesaid version of the

respondent would go to show, prima facie, that they actively involved themselves in obtaining credit facilities from Syndicate Bank. The CBI also

has collected materials to show that the petitioners associated themselves in the process of obtaining loan from Syndicate Bank. Therefore, the

petitioners will have to establish only during the course of trial that they were not responsible for the conduct of business of the partnership firm. As

rightly pointed out by the learned Special Public Prosecutor for CBI, the enquiry report of the Enforcement Directorate u/s 18(2) of the Foreign

Exchange Regulations Act cannot be looked into by the Trial Court while framing the charge. The charges will have to be framed only based on the

materials collected by the investigating agency. The accused cannot thrust upon some document to weigh in the mind of the court at the time of

framing the charge based on the materials collected by the respondent police.

It has been held in the authority reported in State of U.P. Vs. R.K. Srivastava and Another, that if the allegations made in the FIR are taken at

their face value and accepted in their entirety do not constitute an offence, the criminal proceedings instituted on the basis of such FIR should be

quashed. But, in this case, the FIR as well as the charge sheet reflects prima facie the commission of offence.

In the authority reported in Municipal Corporation of Delhi Vs. Ram Kishan Rohtagi and Others, the Supreme Court has held that if there is no

clear allegation against the Directors of the Company that they were responsible for the business of the Company, the proceedings will have to be

quashed against such Directors. In this case, the FIR has culminated in charge sheet after collecting sufficient materials to show that prima face, the

petitioners also participated in the process of obtaining loan from Syndicate Bank and they were in the conduct of business of the firm.

In the case reported in Central Bureau of Investigation, SPE, SIU (X), New Delhi Vs. Duncans Agro Industries Ltd., Calcutta, , investigation

was not completed and charge sheet was not filed for a long time. Compromise decree in a suit for recovery was passed on payment of the entire

amount by the debtor company. The Supreme Court observed that such a development in a criminal case would amount to compounding the

offence of cheating. But, in this case, not only the offence u/s 420 of the Indian Penal Code but the other offences also have been levelled against

the petitioners and others. The materials collected would, prima facie, show that there was a criminal conspiracy, cheating and abetting the public

servant to cause loss to the banking industry. Further, in this case, the FIR has culminated in charge sheet after investigation was completed.

Of course, in T.D. Naidu v. State, represented by Deputy Superintendent of Police and Anr. Criminal Appeal No. 137 of 2007 by order

dated 31.1.2007, the Honourable Supreme Court was pleased to quash the criminal proceedings u/s 120B, 468 and 471 of the Indian Penal

Code as it was found that there was no material on record to support such charges as admitted by the counsel appearing on behalf of the

respondent police. Such a submission was not made by the counsel appearing for CBI in this case. Further prima facie case has been made out in

the instant case. Therefore, the petitioners cannot seek for quashment in the light of the aforesaid ratio.

It has been held in S.D. Ashok kumar Vs. The State, that the court shall exercise its jurisdiction to quash the proceedings once it is satisfied

that the materials collected by the investigating agency do not show any reasonable suspension of commission of any offence. But, in this case, the

materials collected would, prima facie, show that offences charged as against the petitioners were made out.

Inasmuch as the case is ripe for framing charges with the above materials collected by the investigating agency, the petitioners will have to face

the criminal proceedings. Therefore, the court is disinclined to quash the criminal proceedings as sought for by the petitioners on the basis of the

aforesaid grounds.

In view of the above, both the petitions seeking quashment of the criminal proceedings as against them in C.C. No. 18 of 2003 on the file of

the II Additional District/Sessions Judge (CBI Cases), Coimbatore stands dismissed. The connected Miscellaneous Petitions also stand dismissed.