1. Heard both parties for final disposal of the of the application.
2. The applicants are arrayed as accused in the complaint filed by the respondent in the Court of Judicial Magistrate, First Class, at Aurangabad, which is numbered as Regular Criminal Case No. 1551 of 2014. The applicants have invoked the inherent powers of this Court under Section 482 of the Code of Criminal Procedure to challenge the criminal proceedings arising out of the said complaint.
3. Brief facts, as alleged in the complaint, are as follows:
(a) The complainant is Private Limited Company registered under the provisions Companies Act. The complainant company is also known as ''NAC Group'' being a group of four companies. These companies are in the business of manufacturing Auto Components and supplies the products to Large Scale Automobile Industries, as well as health related services through '' The Apollo Clinic''.
(b) The accused No.1 is a subsidiary of Godrej & Boyce Mfg.Co. Ltd. The accused No.1 is engaged in rendering software services and consulting to various companies. The accused No.2 is the Chairman and Managing Director of Accused No.1. The accused No.3 is the Chief Executive Officer of the accused No.1 Company. Accused No.4 is Head of business activities. The accused No.5 is the project consultant and accused No.6 was Assistant Manager of the accused-Company. The accused No.2 to 6 are looking after the affairs of conducting the business of accused No.1 Company. Therefore, they are responsible for liabilities, if any, incurred on behalf of accused No.1-Company.
(c) In the year 2006, the complainant-company decided to have upgradation in the modes of operations and functioning of the company. The whole intent behind it was to have easy control over the managing operations, transactions and reporting amongst the group of companies. For this, it was essential to connect the database of all group companies by implementing common software such as SAP. Therefore, the complainant was in need of a professional software services company to design and implement the '' SAP system'' as per the requirement and function of the complainant's company.
(d) Coincidentally, A Marketing Officer of the AccusedCompany had visited MIDC area, Waluj, Aurangabad, for business purpose. He learnt that the complainant was interested to upgrade its office administration by implementing SAP system. Hence, he approached the complainant and represented about the competency and capabilities of the accused No.1Company in rendering services for implementation of SAP system.
(e) A meeting was organized at the office of accused No.2 as Mumbai, for discussion about implementation and working of the said project. The accused Nos.2 to 5 persuaded the complainant to place order with the accused Company to purchase and implementation of ERP, SAP B1 at complainant Company. It was also represented that the accused is a SAP Certified Partner and that they have all in-house facility to develop system as per the requirement of the complainant and that they have expertise in SAP implementation methodology. It was also represented that such services were to facilitate rapid work successfully and they would implement SAP B1 as per the requirement of the complainant. The accused No. 2 to 5 gave a rosy picture about credentials of the Company.
(f) Considering the potential ability represented by the accused, the complainant placed work order dated 4th December, 2007. On 30th July, 2008, the accused No.6 visited the Complainant Company and submitted their work plan for implementation of the said project. It was agreed that the accused to receive rupees one lakhs on the date of the purchase order from the complainant and balance of Rs. 21 lakhs will be parted with during the course of the implementation of the project. The accused assured the complainant that the final system test of implementation as well as the working of the system will be completed by the end of October, 2008, and the project would 'GO LIVE ' by the end of 2nd week of November, 2008.
(g) After commencement of actual work for implementation of the project, the accused Nos. 2 to 6 made the complainant to disburse the amount of Rs. 21 Lakhs, time and again under the pretext of showing progress of implementation of the project. The complainant was induced to purchase/invest about Rs. 70 lakhs for hardware and raising infrastructure essential for the project.
(h) Despite the payment of the entire cost of the project by the complainant, accused were found reluctant to complete the project within stipulated period. The complainant also informed accused Nos.5 and 6 about incomplete work and problems in implementation of the SAP system. The complainant accepted that accused No.5 in his capacity as project co-coordinator shall endure to resolve the subsisting problem and complete the remaining work till mid March, 2009. The accused No.5 however, expressed inability and disclosed that his Company is unable to develop requisite addons as per the requirement of the complainant. It was represented that the accused would hire the services from outside consultant for completion of remaining work. The accused hatched the criminal conspiracy and deceived the complainant with malafide intention by giving hopes of completing the project.
(i) The complainant approached the accused time and again to pursue them to complete the project. Despite sufficient opportunities, the accused failed and neglected to comply with the assurance for completion of the project up till September, 2011. The complainant realized that the accused have deceived the complainant. It was revealed that the accused were not capable of completing the project and implementation of the SAP B1 system, in spite of having knowledge that Company was unable to implement the project, the complainant was induced to obtain the purchase order. After about two years and realizing that the implementation of the project has failed, the complainant decided to revoke the purchase order vide letter dated 23rd October, 2011. The accused were informed about revocation of purchase order and requested to release the Debit note for refund of the amount paid by the complainant company.
(j) The accused thereafter, conveyed the meeting with the complainant to discuss the issue. The accused retreated and conceded that SAP B1 system does not support requisite Modules/components as per the requirement of the Complainant. The accused also accepted liability to refund the cost of the implementation. The minutes of the meeting were prepared accordingly and the same were acknowledged by the accused Nos. 3, and 5.
(k) The complainant kept reliance on the assurance given by the accused. The accused then started avoiding the refund of amount to the complainant. However, vide email dated 18th October, 2012, forwarded by the accused No.4, it was informed that, the complainant was itself responsible for the failure of the SAP B1 project. The complainant in its Email dated 18th December, 2012, forwarded detailed information about the fraudulent activities of the accused. However, as a last hope, accused No.2 was requested for amicable settlement of the issue. Initially, accused No.2 gave assurance about completing entire project successfully within time frame. However, subsequently, the said accused also lost interest. The complainant forwarded several reminders to accused.
(l) Accused Nos. 2 to 5, with dishonest intention have willfully induced the complainant to place the purchase order under the pretext that the accused Company is competent and would complete the project. They suppressed the fact that they have no expertise in that regard. The same has resulted into the huge loss to the complainant. They had invested about Rs. 78 lakhs in the said project and the entire amount was disbursed in favour of the accused. The accused thereby committed an offence of cheating and breach of trust. The accused Nos. 2 to 6 hatched criminal conspiracy to cause loss and damage to the complainant. The accused Nos. 2 to 6 had intentionally given false assurance with fraudulent intention to cause loss to the complainant. The complaint was filed on 30th August, 2014 alleging offences punishable under Sections 406, 418, 420 read with 120 B of the Indian penal Code.
4. The learned Magistrate, by order dated 11th November, 2014, issued process against the accused for the offences punishable under Sections 418, 420 read with Section 34 of the Indian Penal Code.
5. The learned Advocate for the applicants submits that the complaint does not make out any offence as, alleged. The learned Magistrate ought not to have issued process for the offences punishable under Sections 418 and 420 of the Indian Penal Code. It is submitted that upon reading complaint as it is no penal offences are made out and, therefore, the trial Court ought not to have taken the cognizance of the complaint. It is submitted that the trial Court ought to have conducted the enquiry as mandated under Section 202 of the Code of Criminal Procedure. The applicants are residing beyond the jurisdiction of the trial Court and, therefore, it was mandatory to hold enquiry under the said provision. It is submitted that applicants/accused are not concerned with alleged offence and they have been implicated being employees of Godrej Infotech Private Limited. It is submitted that from the documents placed on record along with the complaint it is clear that the complainant has failed to perform in accordance with the contract and is attempting to implicate the accused to cover up for its own lapses. The applicants are mere employees of Godrej Infotech Pvt. Ltd and cannot be held responsible for any offence. The dispute, if any, is purely of civil nature and the complainant has tried to give a criminal colour to the said dispute and filed impugned complaint. The learned Magistrate has failed to realize that the complaint was filed belatedly with a view to cause harassment to the accused. Limitation to initiate civil proceedings had expired and, therefore, to cause the accused company to submit to demand of the complainant, criminal prosecution is initiated. But, the averments in the complaint do not make out offence of cheating. The complainant has not placed on record any document which would show any mala fide intention to commit alleged offence. In the absence of concept of 'vicarious liability', the applicants should not have been implicated as accused being officials of the accused No.1 Company. It is submitted that there was contractual relationship between the complainant and the accused and complainant had alleged a breach of the contract. In the circumstances, the remedy (if any), was to initiate the civil proceeding. It is also submitted that there existed clause for arbitration between the parties in the event of dispute, which is suppressed by the complainant. The complainant has tried to give colour of criminal prosecution by picking up the wordings of the penal provision while filing the complaint. Therefore, the proceeding initiated by the respondent deserves to be quashed and set-aside.
6. The learned counsel placed reliance on the decision of the Hon'ble Supreme Court in the case of Thermax Ltd. and Others Vs. K.M. Johny and Others (2012 Cri L J 438).
7. Shri. Pranit Sonvane, the learned counsel for the respondent strongly opposed the relief sought in the present application. It is submitted that the complainant makes out the offences for which the trial Court has issued the process. It is submitted that ground raised by the applicants/accused cannot be considered at this stage and the proceedings may not be quashed at threshold. It is submitted that, averments made in the complaint prima facie make out a case for issuance of process and, therefore, there is no infirmity in the order taking cognizance passed by the trial Court. It is submitted that in the complaint it has been categorically stated that false assurance was given by the accused and the complainant was induced to entered into the project by parting huge amount and in spite of the knowledge that the accused would not be in a position to implement or complete the project, they were induced to do so. The accused have therefore, played deceit. It is submitted that the accused have deliberately committed an act, which has resulted into the loss to the complainant. There was dishonest intention on the part of the accused to deceive the complainant right from inception. At the time of the issuance of process, the Court is required to see whether a prima facie case is made out and on perusal of the order of the process, it is apparent that on the basis of the averments made in the complaint and the submissions of the complainant, the case was made out for issuance of the process. The complainant ought to be given opportunity to lead the evidence in the trial. It is submitted that the complainant has attributed specific overt act to the applicants, who had participated in the subject project, made false representation and had acted in connivance with each other and, therefore, they are liable to be prosecuted for offence. The learned counsel placed reliance on the affidavit in reply filed by the complainant along with the requisite documents. It is submitted that perusal of the allegations made in the complaint, it is clear that the applicants/accused had acted with ulterior motive to deceive the complainant Company and had induced it to place the work order, despite knowledge of the fact that they were not capable to complete the project as per the requirement of the complainant Company. The averments made in the complaint can prima facie satisfy the ingredients of the offence, which are alleged in the complaint and thereby trial Court had issued process against the accused. It is submitted that the annexures to the complaint establish the offences against the accused/applicants. It is submitted that from the complaint and correspondence between the parties, it can be ascertained that the accused had dishonest intention right from the inception since they kept on giving assurance fraudulently without any intention to do work. The complainant had invested huge amount into the project on the basis of representation and the assurance made by the accused Company. The accused also admitted that they are unable to develop the requisite addons (software system) as required by the complainant and that they assured of completing the project by hiring consultant. The accused have deceived the complainant with mala fide intention to extract money. It is further submitted that it is not only a simple money transaction, dishonest intention of the accused is apparent from the documents. The accused kept on giving assurance to the complainant for a period of about two years, although there was commitment of three months. The accused also admitted their liability and agreed to repay the amount. It is further submitted that purchase order was placed vide letter dated 4th December, 2007. Schedule for completing project was also provided, which is evident from the correspondence relied upon by the complainant and which has been annexed to the reply filed in this application. The project was to be completed in November, 2008. The learned counsel pointed out the documents annexed to the reply, which includes the minutes of the meeting held on 9th June, 2011, with regard to completion of the project. The correspondence with regard to the debit note for investment done and purchase made to implement the project as per the minutes of the meeting held on 17th November, 2011, wherein assurance was given by the accused that pending work will be completed by June, 2012. It is submitted that, the documents relied upon by the complainant and the averments made in the complaint clearly establish that prima facie case for issuance of process is made out and, therefore, interference in the said order is not called for. It is also submitted that the trial Court has applied its mind to the complaint, verification statement and after going through all the documents, cognizance of the complaint was taken. Considering the object of Sections 202 of the Code of Criminal Procedure, the same was fulfilled in the present proceedings by application of mind depicted by the trial Court. It is, therefore, submitted that, application preferred by the accused may be dismissed.
8. I have gone through the documents on record. Perused the complaint and the order passed by the Trial Court. The dispute between the parties arises out of contractual obligations. The work order of project was given in the year 2007. The complaint was filed in the year 2014. The parties had executed the agreement, which contains the arbitration clause. As per clause 16 of the said Arbitration, in the event of a dispute or difference of opinion of any nature whatsoever between GITL and customer during the course of the assignment, arising as a result of this proposal, the same will be referred to arbitration in the terms of Arbitration and Reconciliation Act, 1996 and its rules. GITL and Customer will each nominate an Arbitrator to the Board and both these Arbitrators will appoint a third Arbitrator, who will act as the umpire. The agreement also stipulates that, through Mutual Consenteither of the parties can terminate the agreement with 30 days notice on mutual consent. :::
9. From the record it is apparent that there was contract between the complainant and accused No.1 Company and allegedly there was breach of the contract by the accused No.1 Company. Taking into consideration the nature of the transaction, it is apparent that it was civil dispute and the remedy would lie in the civil Court. There existed an agreement between the parties. They did not opt for arbitration. The complainant also did not chose to file a suit for specific performance or for recovery of money. It is true that the commercial dispute may be having facets of criminal prosecution and the complaint for penal offences may lie in a appropriate case. It is also true that merely because there is an arbitration clause, it cannot be said that criminal complaint for offences under IPC is not maintainable, however, I do not find any element of offences under criminal law. To constitute the offence of cheating there has been dishonest intention right from inception which is not existing in the present proceeding. Mere use of words such as cheating, dishonest intention itself would not prevent Court from analyzing the complaint where it is constitute the offence under penal code. The substance of the complaint is required to be seen and merely use expression cheating would be of no consequence. The law relating to the requirement of offence of cheating has been reiterated time and again by the Supreme Court in various decisions. It has been observed by the time and again mere breach of contract cannot be given rise to the criminal prosecution for cheating unless fraudulent or dishonest intention appears right from the beginning. The Supreme Court in the case of Indian Oil Corporation Vs. NEPC India Limited, (AIR 2006 SC 2780) has observed that,
''it is necessary to take notice of a growing tendency in business circles to convert purely civil disputes into criminal case. This is obviously on account of a prevalent impression that civil law remedies are time consuming and do not adequately protect the interest of lenders/creditors. Such a tendency is seen in several family dispute also, leading to irretrievable break down 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 efforts to settle civil disputes and claims, which, do not involve any criminal offence, by applying pressure though criminal prosecution should be deprecated and discouraged.''
10. Similar view was expressed in the case of G. Sagar Suri Vs. State of U.P. (2000 Cri.L.J. 824) In the said decision, it is observed that, '' It is to be seen if a matter, which is essentially of 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.
11. In the decision relied upon by learned Advocate for the applicants in the case of Thermax Ltd and Others Vs. K.M. Johny and Others ( 2011 ALLLMR (Cri) 3603 SC) the Court has dealt with the proceedings relating to the offence of breach of trust and cheating and adjudicated upon the requirement to constitute the said offence. The Supreme Court has considered various decisions rendered by the Court in respect to the proceedings whe
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rein the criminal prosecution was launched in the matter involving civil dispute. It was observed that it is settled law that for proving offence under Section 420 of the I.P.C essential ingredient is that, there has to be dishonest intention to deceive another person. If the dispute pertains to contractual obligation between the parties in the absence of dishonest intention, right from the inception, the prosecution would be untenable. It was also observed that concept of ' vicarious liability' is unknown to criminal law. The Court also considered the fact that proceedings were initiated belatedly. 12. In the present case also, the dispute contains the flavour of civil nature and the complainant has resorted to initiation of the criminal prosecution after a period of seven years. The applicants are being impleaded as persons who were acting as officers of the accused No.1 Company. There is no question of applying' 'vicarious liability' in respect of the provision of Section 418, 420 of the Indian Penal Code. In any case, the correspondence annexed with the complaint and, correspondence relied upon by the complainant do not indicate that involvement of the applicants as persons responsible for commission of penal offence. In the circumstances, assuming that there was nonperformance of the contract, it would at the most give rise to the civil cause of action and not the offence of cheating. In the circumstances, this is a fit case to exercise powers under Section 482 of the Code of Criminal Procedure and to quash said proceedings. 13. Since the proceedings are required to be quashed on the ground that the offence of cheating is not made out against the applicants I do not consider it necessary to adjudicate on the issue of non compliance of the provision of the Sections 202 of the Code of Criminal Procedure on the ground that the applicants were residing beyond the territorial jurisdiction of the trial Court. Hence, I pass the following order. ORDER 1. Criminal Application No. 3610 of 2015 is allowed. 2. The order issuing process dated 11th November, 2014 passed by the learned Judicial Magistrate, First Class, Aurangabad in Regular Criminal Case No. 1551 of 2014 and the proceedings of the said complaint are hereby quashed and set-aside.