Sanjay And Others v. State Of Haryana And Another
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' It is urged that in case of hypothecation, ownership of movable property and possession thereof remain with debtor and so, offence of criminal breach of trust as defined under section 405 of IPC, is not made out. It is contended further that Page no.3 out of 22 pages
since ownership of the hypothecated vehicles vested in the petitioners, so question of misappropriation of said articles by the petitioners does not arise. It is also argued that there is no averment in the FIR to show that at the time of issuance of hypothecation documents, petitioners had any intention to cheat the complainant Bank and so, the offence of cheating is also not made out. It is further submitted that even if allegations made in the FIR are taken to be true, then also no criminal liability can be made out and at the best, it is a case of civil dispute arising out of breach of contract, which can be resolved by a competent civil court. &
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/ 0. ' + + It is urged that as per hypothecation documents, petitioners being the borrowers, held hypothecated vehicles as exclusive property of the Bank as a trust. Thus, it is not open for the petitioners to say that they are owner of hypothecated assets. Learned counsels submits that acts of petitioners in dismantling and disposing off the hypothecated vehicles, without the consent of Bank amounts to criminal breach of trust and so, offence under section 406 of the IPC is made out.
6.2 Learned counsel further submits that there are allegations in the FIR that petitioners mis-appropriated proceeds of hypothecated assets, and thus, offence under section 403 of the IPC is made out. Learned counsel contends further that the petitioners by making wrong promise had induced the Bank to sanction loan and thereafter, without consent of the Bank dismantled and disposed of the hypothecated vehicles, thus causing loss to the Bank and therefore, offence under section 420 of the IPC is also made out.
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6.4 Learned counsel for complainant bank submits that it is well settled that nature and scope of civil proceeding are different from criminal proceeding and so, merely because the allegations relates to commercial transactions or breach of trust, for which a civil remedy is available, cannot be a reason to quash the criminal proceeding. It is submitted that if the given facts makes out both civil and criminal wrong, then in that case both proceeding can proceed simultaneously. ! +
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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 wilfully suffers any other person so to do, commits "criminal breach of trust".
A careful reading of the section shows that a criminal breach of trust involves the following ingredients: (a) a person should have been entrusted with property, or entrusted with dominion over property; (b) that person should dishonestly misappropriate or convert to his own use that property, or dishonestly use or dispose of that property or willfully suffer any other person to do so; (c) that such misappropriation, conversion, use or disposal should be in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract which the person has made, touching the discharge of such trust.
19. The question is whether there is 'entrustment' in an hypothecation? Hypothecation is a mode of creating a security without delivery of title or possession. Both ownership of the movable property and possession thereof, remain with the debtor. The creditor has an equitable charge over the property and is given a right to take possession and sell the hypothecated movables to recover his dues (note: we are not expressing any opinion on the question whether possession can be taken by the creditor, without or with recourse to a court of law). The creditor may also have the right to claim payment from the sale proceeds (if such proceeds are identifiable and available). The following definitions of the term 'hypothecation' in P. Ramanatha Aiyar's Advanced Law Lexicon (Third (2005) Edition, Vol. 2, Pages 2179 and 2180) are relevant:
"Hypothecation: It is the act of pledging an asset as security for borrowing, without parting with its possession or ownership. The borrower enters into an agreement with the lender to hand over the possession of the hypothecated asset whenever called upon to do so. The charge of hypothecation is then converted into that of a pledge and the lender enjoys the rights of a pledgee."
"Hypothecation' means a charge in or upon any movable property, existing in future, created by a borrower in favour of a secured creditor, Page no.10 out of 22 pages
without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallisation of such charge into fixed charge on movable property. (Borrowed from Section 2(n) of Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002)"
But there is no 'entrustment of the property' or 'entrustment of dominion over the property by the hypothecatee (creditor) to the hypothecator (debtor) in an hypothecation. When possession has remained with the debtor/owner and when the creditor has neither ownership nor beneficial interest, obviously there cannot be any entrustment by the creditor." -B .
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It is clear from the above-mentioned decisions of Hon'ble Supreme Court and that of this court that the word 'entrusted', as used in Section 405 IPC, has to be understood in a wider sense. All that is necessary is that the ownership or beneficial interest in the property, which is subject matter of the offence, should be in some persons other than the accused. In the case of mortgage or hypothecation, the ownership does not pass to the person, in whose favour the mortgage or hypothecation is created, but it does create 'a beneficial interest' in favour of such a person, and in case, such property is disposed of, without his consent and in violation of the terms of the agreement in that regard, prima facie, the offence of criminal breach of trust can be said to be made out. 17.
The purpose of executing a hypothecation deed, in simple terms, is to secure the due repayment of the loan availed from the Bank. The hypothecation means creation of a charge in favor of the Bank that subsists during the tenure of the loan facility. Once the loan amount is repaid to the satisfaction of the Bank, the subject matter under hypothecation stands discharged from the charge of the Bank. However, in the event of default by the borrower and subsequent classification of the loan account as NPA, the Borrower is bound to keep safe the subject matter of hypothecation for the beneficial interest of the Bank i.e., towards the satisfaction of the dues.
18.
In present case, by executing the hypothecation documents Page no.12 out of 22 pages
by the petitioners, beneficial interest was created in favour of the complainant Bank, in respect of three specific and definite vehicles by clearly mentioning their Chassis, Engine & Registration Number, as is evident from Annexure P1 to P3. & '
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( and rather, petitioners dismantled and disposed of the hypothecated vehicles, without the consent of Bank. After the classification of the loan account of the Petitioner no. 1 and 2 as NPA, they were clearly under the contractual obligation to retain the hypothecated vehicles for the satisfaction of the dues of the Complainant bank. Despite the fact that complainant bank issued legal notices to the petitioners to
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After the classification of the loan account of the Petitioner no. 1 and 2 as Non Performing Asset (NPA), the hypothecated vehicles can be construed as substratum of a trust created by them to repay the loan amount borrowed from the Complainant Bank. By executing hypothecation documents in favor of the Bank, the Petitioner no. 1 and 2 had voluntarily undertaken a contractual obligation to keep the hypothecated vehicles secured for the benefit of the Complainant Bank, in case their loan account turned NPA on account of their default. Once Page no.13 out of 22 pages
the hypothecated vehicles go into trust by documentation for the benefit of the complainant bank, the original owner will not have any right unless the hypothecated vehicles are free from the trust. 20.
Thus, prima facie, petitioners committed criminal breach of trust in respect of definite hypothecated property, the beneficial interest of which had been created in favour of the complainant bank, attracting Section 406 IPC.
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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.
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prevent, the distribution of that property according to law among his creditors or the creditors of any other person, shall be punished with imprisonment of either description for a term which may extend to two years, or with fine, or with both.
28.
To make out an offence under Section 421 IPC, following essentials are required:
a) Dishonest or fraudulent removal, concealment or delivery to any person, or transfer or cause to be transferred to any person, b) without adequate consideration, c) any property, d) intending thereby to prevent, or knowing it to be likely that he will thereby prevent, the distribution of that property according to law among his creditors or the creditors of any other person.
29.
Thus, for commission of an offence under Section 421 IPC, there should be dishonest or fraudulent removal, concealment or delivery or transfer of any property, without adequate consideration, to prevent the distribution of that property according to law among his creditors. 30.
In present case, there are allegations of fraudulent dismantling and disposal of trucks, though owned by the accused - borrowers, but which were hypothecated with the complainant bank, i.e., the creditor of the accused-borrower, with clear intention to prevent the bank from recovery of its dues recoverable by the bank by sale of hypothecated vehicles and so, prima facie, offence under Section 421 IPC will be made out.
31.
Coming to Section 425 IPC, it reads as under:
425. Mischief.-Whoever with intent to cause, or knowing that he is likely to cause, wrongful loss or damage to the public or to any person, causes the Page no.17 out of 22 pages
destruction of any property, or any such change in any property or in the situation thereof as destroys or diminishes its value or utility, or affects it injuriously, commits "mischief".
Explanation 1.-It is not essential to the offence of mischief that the offender should intend to cause loss or damage to the owner of the property injured or destroyed. It is sufficient if he intends to cause, or knows that he is likely to cause, wrongful loss or damage to any person by injuring any property, whether it belongs to that person or not.
Explanation 2.-Mischief may be committed by an act affecting property belonging to the person who commits the act, or to that person and others jointly.
Illustrations:
(d) A, knowing that his effects are about to be taken in execution in order to satisfy a debt due from him to Z, destroys those effects, with the intention of thereby preventing Z from obtaining satisfaction of the debt, and of thus causing damage to Z. A has committed mischief. (e) A having insured a ship, voluntarily causes the same to be cast away, with the intention of causing damage to the underwriters. A has committed mischief."
32.
Necessary ingredients of the section are:
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G( +# .> $"&)$&'# %# )*&#$7 @ A ' > "9 . The principles relating to exercise of jurisdiction under Section 482 of the Code of Criminal Procedure to quash complaints and criminal proceedings have been stated and reiterated by this Court in several decisions. To mention a few Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre, Page no.19 out of 22 pages
1988(1) RCR (Criminal) 565: [1988(1) SCC 6921, State of Haryana ν. Bhajanlal. 1991(1) RCR (Criminal) 383: [1992 Supp (1) SCC 3351, Rupan Deol Bajaj v. Kanwar Pal Singh Gill. 1995(3) RCR (Criminal) 700: (1995(6) SCC 1941. Central Bureau of Investigation.v. Duncans Agro Industries Ltd., 1996(3) RCR (Criminal) 60: [1996(5) SCC 5911, State of Bihar v. Rajendra Agrawalla, 1996(1) RCR (Criminal) 530: [1996(8) SCC 1641. Rajesh Bajaj v. State NCT of Delhi. 1999(2) RCR (Criminal) 160: (1999(3) SCC 2591, Medchl Chemicals & Pharma (P) Ltd. v. Biological E. Ltd., 2000(2) RCR (Criminal) 122: [2000(3) SCC 269), Hridaya Ranjan Prasad Verma v. State of Bihar. 2000(2) RCR (Criminal) 484: [2000(4) SCC 1681. M. Krishnan v. Vijay Kumar. 2001(4) RCR (Criminal) 405: [2001(8) SCC 6451, and Zandu Phamaceutical Works Ltd. v. Mohd. Sharaful Haque. 2004(4) RCR (Criminal) 937: 2005(1) Apex Criminal 75: 12005(1) SCC 1221. 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 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 malafides/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.
(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 Page no.20 out of 22 pages
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 proceedings 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 the criminal proceedings. The test is whether the allegations in the complaint disclose a criminal offence or not." 36.
Coming to the contention of learned counsel for the petitioners that since the matter relates to commercial transaction and breach of contract, so a civil remedy was available, which has already been availed by the complaint bank in this case and therefore, the criminal proceeding are liable to be quashed, it has no merit. As noticed by Hon'ble Supreme Court in Indian Oil Corporation case ( supra), a given set of facts may make out:(a) purely a civil wrong; (b) purely a criminal offence:(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 the criminal proceedings. Page no.21 out of 22 pages
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