When a complainant intends to rope in a Managing Director or any officer of a company, it is essenti

Sushil Sethi and another v The State of Arunachal Pradesh and Others., Criminal Appeal No. 125 of 2020 arising out of SLP(Crl) No. 590 of 2019 – JANUARY 31, 2020

The Bench comprising of the Justice. Ashok Bhushan and M.R. Shah allowed the appeal.

The appellants 1 and 2 are the Managing Director and the Director of the firm M/s SPML Infra Ltd, (public limited company) respectively. A contract was made between the company and the Govt of Arunachal Pradesh for construction, supply, and commissioning of the Nurang Hydel power project in 1993. The appellants issued notice to the respondents due to non-payment for the maintenance over the project in 2000. But the respondents lodged the complaint under section 420 IPC alleging that the appellants supplied the sub-standard quality of turbines which results in frequent damage. The charge sheet was also filed under sections 120 B and 420 IPC against the appellants and others who are found to be involved in this case after investigation was conducted by the investigating officer. The High court refused to quash the criminal proceedings against the appellants who filed the petition under section 482 CrPC.

The issue framed by the bench is Whether a case has been made out to quash the FIR and the charge sheet against the appellants for the offences under section 420 read with section 120-B of the IPC in exercise of the powers under section 482 CrPC?

The contention on the side of the appellants is that the High court has committed a grave error in not exercising the power under section 482 CrPC and not quashing the criminal proceedings. When coming to the facts, it is claimed that the matter pertains to the contract, the complainant has tried to convert a civil dispute into a criminal case and the disputes between the parties are pending before the arbitrators on account of being denied the legitimate due payments.

The complaint has been filed with a mala fide intention and after the company demanded to pay the amount for regular maintenance work.

Also, it is submitted that there are no allegations in the FIR that the appellants acted in dishonest and fraudulent intention from the very inception of the contract with the respondent. So allegations in the FIR cannot be said that ingredients for committing the offence under section 420 of IPC have been made out.

No complaint has been filed against the company and criminal proceedings against the Managing director and the director of the company alone shall not be maintainable as they are vicariously liable for the acts of the company.

If the intention of the company or appellants was to cheat, in that case, they would not have changed /replaced the runner buckets.

The entire contract was not for manufacturing the turbine and the runner bucket, but only to supply the same, the appellants cannot be saddled with criminal liability for any manufacturing defect.

The contentions have been made on relying on the decisions of the cases, State of Haryana v Bhajan Lal and Hira Lal Hari Lal Bhagwati v CBI etc..

The contention on the side of the respondent is that being available of enough material evidence against the appellants and therefore it is a fit case wherein the appellants are liable to pay to be prosecuted for the offences under section 420 and 120-B IPC. So, the High court has rightly refused to quash the criminal proceedings in exercise of powers under Section 482 CrPC.

The court on hearing the contention on both the sides held that the prayer of the appellants to quash the criminal proceedings against the appellants for the offence under section 420 IPC is required to be considered.

The court by relying on the case, Vesa Holdings Pvt. Ltd held that,

Every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception For the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation.  So, no offence under Section 420 IPC can be said to have been made out.

By relying on the Judgment of the case, Hira Lal Hari Lal Bhagwati, it is held that, “To bring home the charge of conspiracy within the ambit of Section 120B of the IPC, it is necessary to establish that there was an agreement between the parties for doing an unlawful act. In this case, the appellant cannot be charged under section 420 IPC.

By referring the decision in Sharad Kumar Sanghi, it is observed and held by this Court that in the absence of specific allegation against the Managing Director of vicarious liability, in the absence of company being arrayed as a party, no proceedings can be initiated against such Managing Director or any officer of a company. So the criminal proceedings cannot be initiated against the appellants.

On referring the case, Joseph Salvaraja A v. State of Gujarat (2011) 7 SCC 59, it is observed and held by this Court that when dispute between the parties constitute only a civil wrong and not a criminal wrong, the courts would not permit a person to be harassed although no case for taking cognizance of the offence has been made out.

By applying the law to the facts of the case, the court is of the opinion that this is a fit case to exercise powers under section 482 CrPC and to quash the impugned criminal proceedings against the appellants for the offence under section 420 read with section 120-B IPC.

The appeal is allowed.

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Prithisha S

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