1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU R DATED THIS THE26H DAY OF AUGUST, 2021 BEFORE THE HON'BLE MR. JUSTICE M. NAGAPRASANNA CRIMINAL PETITION No.8029/2017 BETWEEN1 SRI NITESH SHETTY, AGED ABOUT40YEARS, S/O. LATE P.V.SHETTY, CHAIRMAN AND MANAGING DIRECTOR, M/S. NITESH ESTATES LIMITED, NO.8, M.G.ROAD, BANGALORE-560001.
2. SRI. L.S.VAIDYANATHAN, AGED ABOUT56YEARS, S/O. SRI L.A.SAPTHA RISHI, EXECUTIVE DIRECTOR, M/S. NITESH ESTATES LIMITED NO.8, M.G.ROAD, BANGALORE-560001. ... PETITIONERS [BY SRI. C.V.NAGESH, SENIOR COUNSEL FOR SRI. RAGHAVENDRA.K ADVOCATE (VIDEO CONFERENCING)]. AND1 STATE OF KARNATAKA, BY THE STATION HOUSE OFFICER, THALAGHATTAPURA POLICE STATION, REP. BY SPP, HIGH COURT OF KARNATAKA, BANGALORE-560001. 2
2. SRI. B. LOKANANDHA NAIDU, MAJOR IN AGE, S/O. SRI. NARAYANASWAMY NAIDU, RESIDING AT NO.1197/C, 22ND 'A' CROSS, BANASHANKARI2D STAGE, BANGALORE-560070. ... RESPONDENTS [BY SMT. NAMITHA MAHESH B.G, HCGP FOR R1; (PHYSICAL HEARING) SRI. PHANIRAJ KASHYAP, ADVOCATE FOR R2 (PHYSICAL HEARING)]. THIS CRIMINAL PETITION IS FILED UNDER SECTION482OF CR.P.C., PRAYING TO QUASH THE FIR REGISTERED IN CRIME NO.254/2017 OF THALAGHATTAPURA POLICE STATION, BANGALORE CITY FOR THE OFFENCE PUNISHABLE UNDER SECTIONS403 406 AND420OF THE IPC ON THE BASIS OF THE COMPLAINT OF THE SECOND RESPONDENT AND WHICH FIRTS INFORMATION IS SUBMITTED TO THE COURT OF THE ADDITIONAL CHIEF METROPOLITAN MAGISTRATE, BANGALORE RURAL DISTRICT, BANGALORE. THIS CRIMINAL PETITION COMING ON FOR ADMISSION THIS DAY, THE COURT MADE THE FOLLOWING:
ORDERPetitioners, who are accused Nos. 1 and 2 call in question proceedings initiated by respondent No.2 in Crime No.254 of 2017 pending on the file of the Additional Chief Judicial Magistrate, Bangalore Rural District, Bangalore. 3
2. Shorn of unnecessary details, facts in brief, are as follows:- The complainant/2nd respondent owned certain lands and on being interested in getting the lands developed enters into a Joint Development Agreement with petitioners No.1 and 2. In terms of Joint Development Agreement, the property of the complainant was offered for such development subject to conditions stipulated in the said agreement. The Joint Development Agreement was entered into between the parties on 30-05-2013. Certain additional terms and conditions were incorporated by substitution into the said Joint Development Agreement on 18.06.2014.
3. On an allegation that the construction did not move forward in the pace that was expected and there were certain discrepancies in execution of Joint Development Agreement, the complainant caused a 4 legal notice against the petitioners on 03-08-2015 with regard to ineffective and non-timely completion of the project and also indicated that he would be constrained to commence the proceedings, if they failed to comply with the terms set out in the notice. This was replied by the petitioners on 25-11-2015 by payment that was sought for and notwithstanding the said payment, the complainant terminated the Joint Development Agreement and also caused a notice that he would be willing for appointment of a sole Arbitrator to arbitrate upon the issues. The controversy with regard to appointment of an Arbitrator loomed large which necessitated the complainant to approach this Court seeking appointment of a sole Arbitrator in Civil Miscellaneous Petition No.74 of 2017. This Court disposed of the Civil Miscellaneous Petition by appointing former Judge of the Apex Court Hon’ble Mr. Justice Deepak Verma to be the sole Arbitrator to 5 arbitrate upon the issues that arose between the parties.
4. After the complainant seeking arbitration and this Court appointing the Arbitrator to arbitrate upon the dispute between the parties, the said Arbitrator commenced proceedings on 23.03.2017. After participating in arbitration proceedings, the complainant registers a complaint on 08.09.2017 alleging that the acts of petitioners amounted to violation and breach of Joint Development Agreement, which is a criminal breach of trust and cheating for having misappropriated certain funds. The complaint resulted in registration of an FIR against the petitioners for offences punishable under Sections 406 and 420 of the IPC. On issuance of summons, the petitioners, who are accused Nos.1 and 2 in Crime No.254 of 2017 are before this Court in the present criminal petition calling in question initiation of such proceedings. 6
5. Heard Sri C.V.Nagesh, learned senior Counsel for Sri Raghavendra K., learned counsel appearing for the petitioners, Smt. Namitha Mahesh B.G., learned High Court Government Pleader appearing for respondent No.1 and Sri Phaniraj Kashyap, learned counsel appearing for respondent No.2/complainant.
6. The learned senior Counsel, Sri C.V.Nagesh representing the petitioners would submit that the complainant having sought arbitration by issuance of notice and filing a Civil Miscellaneous Petition before this Court and an Arbitrator being appointed to adjudicate the dispute with regard to Joint Development Agreement, could not have resorted to registration of a criminal case on the very same set of facts. The complaint even if it is read in its entirety does not even link to offences under Sections 406 and 420 of the IPC. The claim of the complainant is purely civil in nature and is a cloak of criminal liability with mala fide 7 intention and would submit that the proceedings ought to be quashed.
7. On the other hand, Sri Phaniraj Kashyap, learned counsel appearing for the 2nd respondent/complainant would refute every submission made by the learned Senior counsel and contends that acts of the petitioners have given rise to both civil and criminal liability as the intention of the petitioners right from the beginning of entering into the agreement was to cheat the complainant and they did not have any intention to complete the project; that the complainant has raised loans by mortgaging title deeds of properties belonging to him. Submitting thus, he contends that the complaint does make out offences punishable under Sections 406 and 420 of the IPC and at this stage of the proceedings, this Court should not interfere as it is undoubtedly a matter of trial. 8
8. The learned High Court Government Pleader Smt. Namitha Mahesh would also toe the lines of the learned counsel for the 2nd respondent in contending that this Court should not interfere at this stage of the proceedings as it is a matter for investigation.
9. I have given my anxious consideration to the submissions made by the learned senior Counsel and the respective learned counsel appearing for the parties and have perused the materials on record.
10. In furtherance thereof, the only issue that falls for my consideration at this juncture is whether criminal proceedings instituted by the complainant if permitted to continue would result in miscarriage of justice or would be an abuse of the process of law.
11. It is not in dispute that Joint Development Agreement was entered into between petitioners and the 2nd respondent/complainant. The Joint Development 9 Agreement was finalized between the parties on 18-06-2014. Certain clauses of Joint Development Agreement which are germane for consideration of the lis are extracted hereunder for the purpose of quick reference: “11. Indemnity & Liability:
11. 1 The First Parties shall Indemnify Second Party: The First Parties hereby agree to Indemnify the Second Party against any losses or liabilities, cost/s or claim/s, actions or proceeding/s or third party claim/s that may arise against the Second Party on account of any defect in or want of title on the part of the First Parties. The Second Party, upon coming to know about such defect in title or third party claim/s or any act/s of omission or commission by the First Parties, shall make a written claim to the First Parties, who shall answer and settle or clear such claim/s within reasonable time, which shall be not later than six months, from the date of receipt of such written claim and prevent any delay in the development of the Schedule Property by the Second Party. 11.2. The Second Party shall indemnify First Parties: The Second Party hereby agree to indemnify the First Parties against any loss or liability, cost or claim, action or proceedings, that may arise against or be caused to the First Parties and/or the Schedule Property by reason of any failure on the part of the Second Party to discharge any of their 10 liabilities/obligations under the Agreement or on account of any act of omission or commission in this regard. The Second Party shall also be liable and responsible for third party claims including labour claims and labour dues and claims arising out of contracts.
14. First Parties' Obligations:
14. 1. Original Title Documents and Loans: The parties hereby confirm that they have already deposited the original title deeds of the Schedule Property in a Locker with HDFC Bank, Kasturba Road Branch, Bangalore, operated in the joint names of "M/s Nitesh Estates Limited and Mr. K. Anand Kumar (as representative of the First Parties") to be held in trust for achieving the objectives set out in their agree-ment. The original title documents to the financial institution on the Second Party obtaining the Loan. 14.2. The Second Party shall be entitled to obtain loan facility/facilities from banks or financial institutions as may be required on the mortgage of or on security of the Second Party's Revenue Share. The Second Party shall also be entitled to arrange for any Discounting Facilities in respect of the Second Party's Revenue Share with any bank or financial institution or otherwise assign the same in the manner it deems fit. The repayment of all such borrowings and liabilities shall be the sole responsibility of the Second Party and there will be no liability on the First Parties or any charge on the First Parties' Revenue Share in regard to any such debts, and in the event of default in payment to any bank or financial 11 institution by the Second Party, recovery shall be enforced only against the Second Party.
12. Alleging that the project did not take off in the manner that was indicated in the Joint Development Agreement, the complainant initially caused a notice to be issued for payment of amount which was fulfilled by the petitioners and later seeks termination of the contract and resolution of dispute by way of arbitration in terms of Clause 20 of the Joint Development Agreement, which directed resolution of every dispute arising out of or due to Joint Development Agreement to be resolved by arbitration. Clause 20 deals with arbitration of the agreement and reads as follows:-
"20. Arbitration & Termination: a. Arbitration: Any and every dispute arising out of or due to this Agreement, without any exception whatsoever, including all disputes post paying the First Parties' Revenue Sharing shall be referred to and settled by arbitration by a sole arbitrator, who shall be a retired Judge of the High Court of Karnataka, in accordance with the 12 provisions of the Arbitration and Conciliation Act, 1996. The seat of arbitration shall be Bangalore City. The Courts in Bangalore City alone, to the exclusion of all other courts, shall have jurisdiction in respect of any/all litigation that may arise in respect of the aforesaid arbitration. The termination of this Agreement for any reason as stated herein notwithstanding, the parties would continue to be bound to refer the matter to arbitration as contained herein. The Arbitration shall be conducted in English.
13. When the dispute still persisted in regard to referring of dispute to arbitration, the complainant himself knocked the doors of this Court seeking appointment of a sole Arbitrator and this Court appointed Hon’ble Mr. Justice Deepak Verma as the sole Arbitrator to arbitrate the dispute between the parties. The sole Arbitrator commenced the proceedings on 23.03.2017.
14. The complainant after offering himself for arbitration, registers criminal complaint on 08-09-2017, 13 alleging criminal breach of trust and cheating, on the score that the petitioners have misappropriated certain amounts in terms of Joint Development Agreement. The recitals in the complaint which are germane are extracted hereunder for the purpose of quick reference:
"7. It is only later that we ascertained that Mr. Nitesh Shetty and Mr. L.S. Vaidyanathan, with the intention of cheating us, and making us to believe that they were acting in terms of the agreement, mobilized Rs.17,72,00,000/- [Rupees Seventeen Crores Seventeen Two Lakhs only]. from the sale of built-up area to a corporate entity called M/s BCCL and it is placed on record that we were neither informed about the transaction in favour of M/S BCCL Bennett Coleman nor our signature obtained, and we have definitely not received our share of funds out of this 17,72,00,000/-[Rupees Seventeen Crores Seventy Two lakh only].. Mr. Nitesh Shetty and Mr. L.S. Vaidyanathan, as per their own communication - for the purposes of commencing and continuing with the construction in the Subject Property- have mobilized a total sum of Rs.23,74,11,697/- [Rupees Twenty Three Crore Seventy Four Lakhs Eleven Thousand Six Hundred and Ninety Seven only]. from sale of proposed built up area from the purchasers and also availed financial assistance of Rs.25 Crore from IDBI Trusteeship Service Limited/IDFC for the project. However, Mr. Nitesh Shetty and Mr. L.S. Vaidyanathan, with the fraudulent intention of only showing commencement of construction, commenced work and the work has been at a standstill for a period over 18 months. They have thus conspired to fraudulently mobilise funds and 14 divert them for their uses and cheat us. We have also ascertained that Mr. Nitesh Shetty and Mr. L.S. Vaidyanathan, M/S Nitesh Estates also availed financial assistance from M/S HDFC, but the details are yet to be ascertained.
15. It is now germane to notice the issues that fell for consideration and drawn up by the Arbitral Tribunal for consideration are as follows:- 1. Whether the JDA and GPA dated 18-06-2014 executed between the parties has been legally and validly terminated by the claimants?.
2. Whether claimants are entitled to retain the refundable security deposit of Rs.4,50,00,000/-?.
3. Whether claimants are entitled to damages amounting to Rs.1,50,00,000/-?.
4. Whether the respondent is liable to remove the constructed columns at project site at its own cost and expenses or in the alternative pay an amount of Rs.94,96,910/- to claimants?.
5. Whether claimants are entitled for return of the original documents/title deeds of Schedule Property from respondent?.
6. Whether the liability to settle claims of prospective purchasers/agreement holders rests solely on the respondent?.
7. Whether respondent is entitled to any of its counter claims?. 15 8. What costs?.
16. If the complaint extracted hereinabove is juxtaposed with that of the issues that fell for consideration before the Arbitrator, it would clearly indicate that the complaint is verbatim similar except giving it a colour of crime. The only other factor narrated in the complaint with regard to petitioners is that, they and their cohorts are indulging in conspiracy to cheat the complainant and therefore, would become liable for punishment under Sections 406 and 420 of IPC. Therefore, it was a clear case of the complainant giving a proceeding which is purely civil in nature, a colour of crime more so, in the light of the fact that the complainant himself sought appointment of Arbitrator to resolve the dispute between the parties. The Arbitrator, by his award dated 11.03.2019 resolved the dispute by passing an award which reads as follows:- 16 "AWARD A. JDA dated 18.06.2014 has been validly terminated by Claimants herein vide Legal Notice dated 17.12.2016. B. Claimants are liable to refund the entire Interest free Refundable Security Deposit amounting to Rs.4,50,00,000/- within 30 days of this Award. C. Respondent is liable to pay damages amounting to Rs.1,50,00,000/- to Claimants as damages for breach of JDA within 30 days of this Award. D. Respondent is liable to pay a lump sum amount of Rs.94,96,910/- to Claimants to make the Property reusable within 30 days from the date of the Award. F. Claimants are not liable to settle claims of prospective purchasers and the onus to settle claims of such nature is entirely on the Respondent. G. The onus to settle claims of existing purchasers/ agreement holders is on both the Parties and the liability in this context is joint in nature. H. The Counter Claims of Respondent pertaining to loss of profit and loss of reputation are dismissed and Respondent is not entitled to such a Claim. I. Both Parties to bear their own costs."
With the afore-narrated facts, it is now germane to consider whether a civil liability of the nature as is found 17 in the present proceedings before the Arbitrator could have been made a subject matter of a criminal complaint by the complainant and exercise of jurisdiction by this Court under Section 482 of the Cr.P.C. to efface such proceedings.
18. It is germane to notice the line of law laid down by the Apex Court with regard to exercise of jurisdiction by the Constitutional Courts under Section 482 of the Cr.P.C. The Apex Court in the case of STATE OF HARYANA v. BHAJAN LAL1, has laid down certain postulates with regard to interference by this Court under Section 482 of the Cr.P.C. The postulates delineated at paragraph 102 of the said judgment, reads as follows: “102. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the 1 1992 Supp (1) 335 18 extraordinary power under Article 226 or the inherent powers under Section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any Court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and sufficiently channelized and inflexible guidelines or rigid formulae and to give an exhaustive list of myriad kinds of cases wherein such power should be exercised. (1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. (2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code. 19 (3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. (4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non- cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code. (5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused. (6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings, and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party. 20 (7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.” (emphasis supplied) The aforesaid principles relating to exercise of jurisdiction under Section 482 of the Cr.P.C. to quash the complaint or criminal proceedings have been reiterated in plethora of judgments of the Apex Court, a few of which, germane for consideration of the present lis, are extracted for the purpose of ready reference:
19. The Apex Court in the case of INDIAN OIL CORPORATION v. NEPC INDIA LIMITED2, has held as follows:- “Re: Point (i) 12. The principles relating to exercise of jurisdiction under Section 482 of the Code of Criminal Procedure to quash complaints and 2 (2006) 6 SCC73621 criminal proceedings have been stated and reiterated by this Court in several decisions. To mention a few - Madhavrao Jiwajirao Scindia v. Sambhajirao Chandrojirao Angre [(1988) 1 SCC692 1988 SCC (Cri) 234]., State of Haryana v. Bhajan Lal [1992 Supp (1) SCC335 1992 SCC (Cri) 426]. , Rupan Deol Bajaj v. Kanwar Pal Singh Gill [(1995) 6 SCC194 1995 SCC (Cri) 1059]., Central Bureau of Investigation v. Duncans Agro Industries Ltd. [(1996) 5 SCC591 1996 SCC (Cri) 1045]. , State of Bihar v. Rajendra Agrawalla [(1996) 8 SCC164 1996 SCC (Cri) 628]. , Rajesh Bajaj v. State NCT of Delhi [(1999) 3 SCC259 1999 SCC (Cri) 401]., Medchl Chemicals & Pharma (P) Ltd. v. Biological E. Ltd. [(2000) 3 SCC269 2000 SCC (Cri) 615]., Hridaya Ranjan Prasad Verma v. State of Bihar [(2000) 4 SCC168 2000 SCC (Cri) 786]., M. Krishnan v. Vijay Singh [(2001) 8 SCC645 2002 SCC (Cri) 19]. and Zandu Pharmaceutical Works Ltd. v. Mohd. Sharaful Haque [(2005) 1 SCC122 2005 SCC (Cri) 283].. The principles, relevant to our purpose are: (i) A complaint can be quashed where the allegations made in the complaint, even if they are taken at their face value and accepted in their 22 entirety, do not prima facie constitute any offence or make out the case alleged against the accused. For this purpose, the complaint has to be examined as a whole, but without examining the merits of the allegations. Neither a detailed inquiry nor a meticulous analysis of the material nor an assessment of the reliability or genuineness of the allegations in the complaint, is warranted while examining prayer for quashing of a complaint. (ii) A complaint may also be quashed where it is a clear abuse of the process of the court, as when the criminal proceeding is found to have been initiated with mala fides/malice for wreaking vengeance or to cause harm, or where the allegations are absurd and inherently improbable. (iii) The power to quash shall not, however, be used to stifle or scuttle a legitimate prosecution. The power should be used sparingly and with abundant caution. 23 (iv) The complaint is not required to verbatim reproduce the legal ingredients of the offence alleged. If the necessary factual foundation is laid in the complaint, merely on the ground that a few ingredients have not been stated in detail, the proceedings should not be quashed. Quashing of the complaint is warranted only where the complaint is so bereft of even the basic facts which are absolutely necessary for making out the offence. (v) A given set of facts may make out: (a) purely a civil wrong; or (b) purely a criminal offence; or (c) a civil wrong as also a criminal offence. A commercial transaction or a contractual dispute, apart from furnishing a cause of action for seeking remedy in civil law, may also involve a criminal offence. As the nature and scope of a civil proceeding are different from a criminal proceeding, the mere fact that the complaint relates to a commercial transaction or breach of contract, for which a civil remedy is available or has been availed, is not by itself a ground to quash 24 the criminal proceedings. The test is whether the allegations in the complaint disclose a criminal offence or not.
13. While on this issue, 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 breakdown 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 through criminal prosecution should be deprecated and discouraged. In G. Sagar Suri v. State of U.P. [(2000) 2 SCC636:
2000. SCC (Cri) 513]. this Court observed: (SCC p. 643, para
8) 25 “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.
14. While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, in accordance with law. One positive step that can be taken by the courts, to curb unnecessary prosecutions and harassment of innocent parties, is to exercise their power under Section 250 CrPC26more frequently, where they discern malice or frivolousness or ulterior motives on the part of the complainant. Be that as it may.” (emphasis supplied) This principle is reiterated in the latest judgment of the Apex Court as well in the case of KAPIL AGARWAL v. SANJAY SHARMA3, wherein the Apex Court held as follows:- “18.1. As observed and held by this Court in a catena of decisions, inherent jurisdiction under Section 482 CrPC and/or under Article 226 of the Constitution is designed to achieve salutary purpose that criminal proceedings ought not to be permitted to degenerate into weapon of harassment. When the Court is satisfied that criminal proceedings amount to an abuse of process of law or that it amounts to bringing pressure upon the accused, in exercise of inherent powers, such proceedings can be quashed. 18.2. As held by this Court in Parbatbhai Aahir v. State of Gujarat [Parbatbhai Aahir v. State of Gujarat, (2017) 9 SCC641 3 (2021) 5 SCC52427 (2018) 1 SCC (Cri) 1]., Section 482 CrPC is prefaced with an overriding provision. The statute saves the inherent power of the High Court, as a superior court, to make such orders as are necessary (i) to prevent an abuse of the process of any court; or (ii) otherwise to secure the ends of justice. Same are the powers with the High Court, when it exercises the powers under Article 226 of the Constitution.” (emphasis supplied) In the light of the afore-extracted judgments of the Apex Court what can be unmistakably gathered is that the statute saves inherent power in this Court being a superior court to make such orders to secure ends of justice and to weed out such criminal proceedings which if permitted would generate into a weapon of harassment. The case at hand will have to be considered on the bedrock of the aforesaid principle laid down by the Apex Court and being followed from time to time. 28
20. In the light of the afore-narrated facts and documents, it is clear that the complainant is seeking to give a colour of crime to a purely civil transaction as the dispute arose with regard to Joint Development Agreement, the dispute having been referred to a sole Arbitrator, the Arbitrator having passed an Award (supra), wherein the rights of the complainant is protected and counterclaim of the petitioners is rejected. The rejection of counter-claim of the petitioners challenged by the petitioners is pending adjudication before the competent civil Court and the complainant has not chosen to challenge the award of the Arbitrator even as on date. With all these factors it cannot but be concluded that criminal law is set in motion though the dispute has been purely civil in nature.
21. The offences alleged against the petitioners are the ones that are punishable under Sections 403, 29 406 and 420 of the IPC. Sections 405, 406, 415 and 420 of the IPC, read as follows:-
"405. Criminal breach of trust: Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits "criminal breach of trust”..
406. Punishment for criminal breach of trust: Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.
415. Cheating: Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat". Explanation.—A dishonest concealment of facts is a deception within the meaning of this section. 30 Section 420. Cheating and dishonestly inducing delivery of property: Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.” Section 406 of IPC deals with criminal breach of trust as found in Section 405 of IPC. For an offence for criminal breach of trust, there should be entrustment, there is no such entrustment of any kind made by the complainant into the hands of the petitioners. Both of them are parties to a mutually agreed Joint Development Agreement. Section 420 of IPC deals with cheating as found in Section 415 of IPC, which would mean that the accused should have an intention to cheat at the outset, beginning of any transaction and the victim should be induced into such an act by the accused with an intention to cheat. The Joint 31 Development Agreement cannot be said to be an inducement by the petitioners on the complainant to enter into the said agreement. The lands belonging to the complainant were offered by the complainant himself for a Joint Development Agreement. The agreement was terminated by the complainant himself and the dispute before the Arbitrator was sought by the complainant himself. Therefore, there can be no question of an intention to cheat or inducement of the complainant with such objective of cheating right from the beginning. Noticing the law laid down by the Apex Court interpreting cheating, in the circumstances, becomes apposite. The Apex Court in the case of MOHD. IBRAHIM v. STATE OF BIHAR4, has held what amounts to cheating which reads as follows:- “Section 420 IPC18 Let us now examine whether the ingredients of an offence of cheating are made 4 (2009) 8 SCC75132 out. The essential ingredients of the offence of “cheating” are as follows: (i) deception of a person either by making a false or misleading representation or by dishonest concealment or by any other act or mission; (ii) fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived; and (iii) such act or omission causing or is likely to cause damage or harm to that person in body, mind, reputation or property.
19. To constitute an offence under Section 420, there should not only be cheating, but as a consequence of such cheating, the accused should have dishonestly induced the person deceived (i) to deliver any property to any person, or 33 (ii) to make, alter or destroy wholly or in part a valuable security (or anything signed or sealed and which is capable of being converted into a valuable security).” This is further followed by the Apex Court in the case of R.K. VIJAYASARATHY v. SUDHA SEETHARAM5, which reads as follows: “15. Section 415 of the Penal Code reads thus: “415. Cheating.—Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.” 5 (2019) 16 SCC73934 16. The ingredients to constitute an offence of cheating are as follows:
16. 1. There should be fraudulent or dishonest inducement of a person by deceiving him:
16. 1.1. The person so induced should be intentionally induced to deliver any property to any person or to consent that any person shall retain any property, or 16.1.2. The person so induced should be intentionally induced to do or to omit to do anything which he would not do or omit if he were not so deceived; and 17. A fraudulent or dishonest inducement is an essential ingredient of the offence. A person who dishonestly induces another person to deliver any property is liable for the offence of cheating.
18. Section 420 of the Penal Code reads thus: “420. Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the 35 person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.
19. The ingredients to constitute an offence under Section 420 are as follows:
19. 1. A person must commit the offence of cheating under Section 415; and 19.2. The person cheated must be dishonestly induced to (a) deliver property to any person; or (b) make, alter or destroy valuable security or anything signed or sealed and capable of being converted into valuable security.
20. Cheating is an essential ingredient for an act to constitute an offence under Section 420. 36
21. A court exercising its inherent jurisdiction must examine if on their face, the averments made in the complaint constitute the ingredients necessary for the offence………” Further, the Apex Court in the case of VINOD NATESAN v. STATE OF KERALA6, has held as follows: “10. Having heard the appellant as party in person and the learned advocates appearing on behalf of the original accused as well as the State of Kerala and considering the judgment [Tomy Mathew v. State of Kerala, 2016 SCC OnLine Ker 33330]. and order passed by the High Court, we are of the opinion that the learned High Court has not committed any error in quashing the criminal proceedings initiated by the complainant. Even considering the allegations and averments made in the FIR and the case on behalf of the appellant, it cannot be said that the ingredients of Sections 406 and 420 are at all satisfied. The dispute between the parties at the most can be said to be the civil dispute and it is tried to be converted into a criminal dispute. Therefore, we are also of the opinion that continuing the criminal proceedings 6 (2019) 2 SCC40137 against the accused will be an abuse of process of law and, therefore, the High Court has rightly quashed the criminal proceedings. Merely because the original accused might not have paid the amount due and payable under the agreement or might not have paid the amount in lieu of one month's notice before terminating the agreement by itself cannot be said to be a cheating and/or having committed offence under Sections 406 and 420 IPC as alleged. We are in complete agreement with the view taken by the High Court.
11. Insofar as the submissions made on behalf of the appellant-party in person that initially the learned Judge dismissed the application and, thereafter when the judgment was dictated and pronounced, the learned Judge has allowed the application and, therefore, the impugned judgment [Tomy Mathew v. State of Kerala, 2016 SCC OnLine Ker 33330]. and order passed by High Court is required to be quashed and set aside is concerned, the aforesaid has no substance. What is produced as P-45 is the docket of the file, which does not bear the signature of the learned Judge. Therefore, it cannot be said that initially the learned Judge 38 dismissed the petition and, thereafter, when the judgment was pronounced the order was changed and the application was allowed. Even otherwise, as observed hereinabove, we are more than satisfied that there was no criminality on part of the accused and a civil dispute is tried to be converted into a criminal dispute. Thus to continue the criminal proceedings against the accused would be an abuse of the process of law. Therefore, the High Court has rightly exercised the powers under Section 482 CrPC and has rightly quashed the criminal proceedings. In view of the aforesaid and for the reasons stated above, the present appeal fails and deserves to be dismissed and is accordingly dismissed.” If the facts obtaining in the case at hand, as narrated hereinabove, are considered on the touchstone of the principles laid down by the Apex Court in the aforesaid judgment, it would lead to an unmistakable conclusion that the offence of either criminal breach of trust or cheating is not made out even on a perusal of the complaint. There is no intention by the petitioners to hoodwink the complainant or cheat him as is alleged. 39 It was a plain breach of a Joint Development Agreement which was arbitrable and is arbitrated. The Apex Court in the case of SATISHCHANDRA RATANLAL SHAH v. STATE OF GUJARAT7, has delineated interference by this Court in exercise of its jurisdiction under Section 482 of the Cr.P.C. in cases where there is breach of contract, the Apex Court holds as follows:- “12. In this context, we may note that there is nothing either in the complaint or in any material before us, pointing to the fact that any property was entrusted to the appellant at all which he dishonestly converted for his own use so as to satisfy the ingredients of Section 405 punishable under Section 406 IPC. Hence the learned Magistrate committed a serious error in issuing process against the appellant for the said offence. Unfortunately, the High Court also failed to correct this manifest error.
13. Now coming to the charge under Section 415 punishable under Section 420 IPC. In the context of contracts, the distinction between mere breach of contract 7 (2019) 9 SCC14840 and cheating would depend upon the fraudulent inducement and mens rea. (See Hridaya Ranjan Prasad Verma v. State of Bihar [Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC168:
2000. SCC (Cri) 786]. .) In the case before us, admittedly the appellant was trapped in economic crisis and therefore, he had approached Respondent 2 to ameliorate the situation of crisis. Further, in order to recover the aforesaid amount, Respondent 2 had instituted a summary civil suit seeking recovery of the loan amount which is still pending adjudication. The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.” (emphasis supplied) 41 In the aforesaid judgment the Apex Court holds that in the context of contracts, a distinction between mere breach of contract and cheating would depend upon fraudulent inducement and mens rea, which can be hardly be found in the case at hand.
22. In view of the preceding analysis, this is a classic case, where civil proceedings which are admittedly initiated by the complainant are given a cloak of crime. In the light of what is held by the Apex Court, if criminal proceedings are permitted to continue, it would undoubtedly degenerate into a weapon of harassment and to avoid such abuse of the process of law, which would result in miscarriage of justice, this Court has to exercise its jurisdiction under Section 482 of the Cr.P.C., to quash such proceedings. If the criminal proceedings are not obliterated and are permitted to continue, will amount to, adding one more to the proliferation of such 42 criminal cases arising out of civil liabilities, that are shrouded with a colour of crime.
23. For the predictus reasons, I pass the following:
ORDER(i) This criminal petition is allowed. (ii) Proceedings in FIR registered in Crime No.254/2017 pending before the Additional Chief Judicial Magistrate, Bangalore Rural District, Bangalore stands quashed qua the petitioners in this criminal petition. Sd/- JUDGE SJK