IN THE HIGH COURT AT CALCUTTA
CRIMINAL REVISIONAL JURISDICTION
APPELLATE SIDE

Present : The Hon’ble Justice Shivakant Prasad

CRR 607 of 2018
With
CRAN 1510 of 2018

Bipin Kumar Vohra Ors.
-Vs.–
The State of West Bengal Ors.

For the Petitioner : Mr. S.N. Mookherjee
Mr. Ayan Bhattacharya
Mr. AnandKeshari
Mr. S.K. Chakraborty
Ms. Shivangi Thard
For the O.P. No. 2 : Mr. Debasish Roy
Mr. Sanjoy Banerjee
Mr. Dipak Dey
Mr. DipanjanDey
For the State : Mr. Sudip Ghosh
Mr. Apurba Kr. Dutta
Mr. Bitasok Banerjee
Heard On : 20.06.2019
C.A.V. On : 20.06.2019
Judgment On : 12.07.2019
SHIVAKANT PRASAD, J.

The petitioners have assailed the proceedings in G.R. Case No. 193 of 2018

in connection with New Township Police Station (NTS), Durgapur, Case No. 16
dated 10th February, 2018 under Sections 420/406 of the Indian Penal Code,

1860 pending before the Court of the learned Additional Chief Judicial

Magistrate at Durgapur inter alia on the grounds that the allegations leveled in

the FIR do not make out any offence against the petitioners as evident from the

recital of the FIR that the instant proceeding is manifestly attended with

malafide and do not make out any cause of action giving rise to initiation of an

investigation in order to harass and humiliate the petitioners for oblique

purpose.

Mr. S.N. Mookherjee learned counsel for the petitioners at the outset

submitted that the instant prosecution has been engineered by the Opposite

Party No. 2 to overreach the orders of an ad-interim order passed by the learned

District Judge, South 24 Parganas at Alipore in Misc. Case No. 783 of 2017

whereby and whereunder MSTC Ltd., its men and agents were restrained from

giving effect to the letters issued by MSTC Ltd. on 31.11.2017 and 12.12.2017.

It is further submitted that allegations leveled in the impugned First

Information Report narrating the grievances of the Opposite Party No. 2 is

predominantly civil in nature which has no criminal outfit and the instant

prosecution has been launched by the Opposite Party No. 2 in clear breach of

the terms of settlement arrived at by and between the parties on 19.07.2014 in

order to expose the petitioners to chilling possibility of arrest, harassment and

prosecution.

For proper appreciation of the instant case, certain facts are germane for

consideration in this revision:

SPS is a reputed company involved in the business of Iron and Steel Goods

including Sponge Iron, Pig Iron, TMT Bar. The annual turnover of SPS was not

less than Rs. 546 Crores. In order to enhance the business potential of SPS and

at the invitation of MSTC, SPS and MSTC had entered into an agreement on 2nd

March, 2010 whereby MSTC agreed to facilitate purchase goods from

international and indigenous sources through the agreement. The agreement

further provided that the goods so purchased through MSTC would be stored in

the stockyard of SPS under the custody of a nominee of MSTC. The agreement

further provided that SPS would be the owner of the goods stored in the

warehouse. However, such goods were to remain pledged by SPS in favor of

MSTC till physical delivery of such goods to SPS by the custodian thereof. The

physical delivery of the goods under the said agreement was to be effected

subject to a tripartite agreement to be entered into by and between SPS, MSTC

and one M/s. Transafe Services Ltd., custodian of the goods, nominated by

MSTC.

Accordingly, a tripartite agreement was entered into amongst SPS Steels

Rolling Mills Ltd., MSTC and M/s. Transafe Services Ltd. on 2nd March, 2010.

Upto 30th September, 2013, there was no grievance of either of the parties

regarding arrangement and lifting of goods. Substantial quantity of pledged

materials had been lifted by SPS after making payments of the value thereof to

MSTC.

On 30th September, 2013 materials valued at approximately Rs.266.17

crores remained pledged with MSTC, in accordance with the principal
agreement, M/s. Transafe Services Ltd. was replaced by another company viz.

M/s. Ferro Scrap Nigam Ltd. (FSNL) as nominated and desired by MSTC. So

another fresh tripartite agreement was entered into by and between MSTC, SPS

and FSNL on 24th May, 2013.

In the meantime, on account of volatile condition in the international

market, SPS suffered huge loss. SPS requested MSTC to pay off its dues by way

of installments but MSTC rejected such proposal of SPS and dispute arose

between MSTC and SPS which compelled SPS to refer the dispute to arbitration

by filing an application under Section 9 of the Arbitration and Conciliation Act,

1996 before the Court of the learned District Judge, South 24 Praganas at

Alipore which was registered as Title Suit No. 51 of 2013 (SPS Steels Rolling

Mills Ltd. Vs. MSTC Ltd.) wherein by an order dated 10.06.2013, the learned

District Judge directed the parties to maintain status quo in respect of the said

goods. Subsequently, the said application was withdrawn by SPS in view of the

arbitration agreement as contained in Clause 21.1 of the agreement dated 2nd

March, 2010 and arbitral proceedings commenced before the Hon’ble Justice

Aloke Chakraborty (Retd.), Sole Arbitrator which disputes were settled during the

pendency of the proceedings.

Mr. Mookherjee learned counsel for the petitioners contended that the

charge under Section 420 of the I.P.C. is not attracted as “cheating and

dishonestly inducing delivery of property” which are the ingredients for bringing

home charge under Section 420 I.P.C. as defined. ‘Mens rea’ to cheat from the

very inception is the most vital ingredient which differentiates cheating
simpliciter from breach of agreement because mere failure of a person to keep

promise subsequently cannot be construed as culpable intention right at the

beginning. A distinction between mere breach of contract and the offence of

cheating is the intention of the accused at the time of inducement. Mere breach

of contract cannot give rise to criminal prosecution for cheating unless

fraudulent and dishonest intention is shown at the beginning of the transaction.

Mere use of the expressions like ‘cheating’, ‘deception’, and ‘inducement’ is of no

consequence.

Accordingly, it is submitted that, the story portrayed by the opposite party

no. 2 in the complaint at the most project non-fulfillment of contractual

obligation on the part of SPS for which the petitioners cannot be entangled.

As regards the charge under Section 406 of I.P.C, it is submitted that the

offence is not attracted in the facts and circumstances of the instant case

because provision of punishment for criminal breach of trust as defined under

Section 405 of the I.P.C. is again misplaced in view of the allegations made in the

FIR and the agreements as the petitioners had not been entrusted with any

property of the opposite party no. 2 which could have been misappropriated by

them in absence of an element of ‘entrustment’ and ‘misappropriation’ thereof

and as such, no offence of criminal breach of trust can at all be said to have

been committed.

It is also argued that the opposite party no. 2 has roped the petitioners in

a criminal case without their specific role or participation in the alleged offence

with the sole purpose of settling the dispute with SPS. The petitioners do not
have any personal role in the allegations and no specific allegation with regard to

their role has been made out in the FIR. In this regard, Mr. Mookherjee argued

that the concept of vicarious liability is unknown to criminal law and relied upon

the observations in the case of Asoke Basak vs. State Of Maharashtra Ors.

2010 (10) SCC 660 on the scope and ambit of the jurisdiction of the High Court

under Section 482 of the Code to the effect that “It needs little emphasis that

although the jurisdiction of the High Court under the said provision is very wide

but it is not unbridled. The High Court is required to exercise its inherent powers

under Section 482 of the Code sparingly, carefully and cautiously, ex debito

justitiae to do real and substantial justice and to prevent abuse of the process of

court. One of the situations when the High Court would be justified in invoking its

powers is where the allegations in the first information report or the complaint, as

the case may be, taken at their face value and accepted in their entirety do not

constitute the offence alleged. (See: R.P. Kapur Vs. State of Punjab16 and

RupanDeol Bajaj Anr. Vs. Kanwar Pal Singh Gill Anr.17.) AIR 1960 SC

866 (1995) 6 SCC 194.”

Section 405, IPC defines “criminal breach of trust” to mean:

“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 wilfully suffers any other person so to do, commits “criminal
breach of trust”.

Explanation 1.–A person, being an employer of an establishment
whether exempted under section 17of the Employees’ Provident
Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or
not who deducts the employee’s contribution from the wages
payable to the employee for credit to a Provident Fund or Family
Pension Fund established by any law for the time being in force,
shall be deemed to have been entrusted with the amount of the
contribution so deducted by him and if he makes default in the
payment of such contribution.

Mr. Mookherjee, by inviting my attention to the petition of complaint and

the formal FIR registered thereupon, argues that the Company has not been

made a party and therefore the allegations are restricted to the Directors as the

allegation made against the petitioners as the Managing Director and Directors of

the company are in their personal capacity which really appears to be vague.He

relies upon the observations made in following paragraphs of decision in Sharad

Kumar Sanghi Vs. Sangita Rane (2015) 12 SCC 781

“2. Bereft of unnecessary details, the facts which are necessary
to be stated are that the appellant who is the Managing Director
of M/s. Sanghi Brothers (Indore) Ltd., Indore which is a
registered company duly incorporated and registered under
the Companies Act, 1956 and is engaged in the business of
automobile sale, finance and shipping, etc. having branches at
various places including the city of Bhopal. The respondent
complainant obtained a quotation from the Bhopal branch for
purchase of a TATA diesel vehicle model SFC 709/38 LB in the
month of April 1998 and the vehicle was delivered to the
respondent on 1-5-1998 on payment of the price deposited at
Bhopal vide bank draft issued from State Bank of India, Sarni,
Betul. The respondent faced difficulty with the vehicle and
eventually he came to know in the month of August 2000 that
there was a discrepancy in the engine number of the invoice
issued to him. On further enquiry, he found that there is a letter
issued by Tata Engineering and Locomotive Company (Telco) on
7-11-2000 that in the course of transit from the company to
Bhopal, the said vehicle had met with an accident as a result of
which the engine was replaced by another engine. Coming to
know of this, the respondent filed a complaint under Section 200
Cr.P.C. alleging that M/s. Sanghi Brothers (Indore) Ltd., Indore
being represented by the Managing Director, Sharad Kumar
Sanghi, had suppressed the information and deliberately
cheated the respondent.

5. Being aggrieved by the aforesaid order, he preferred an
application under Section 482 Cr.P.C. before the High Court. It
was contended before the High Court that the learned Magistrate
had no territorial jurisdiction; that there was no deceit by the
respondent; that the company was not made an accused in the
complaint and, therefore, the complaint was not maintainable;
and that there was no mens rea. The High Court, as is manifest
from the order impugned repelled all the submissions and
dismissed the application for quashment.

9. The allegations which find place against the Managing
Director in his personal capacity seem to be absolutely vague.
When a complainant intends to rope in a Managing Director or
any officer of a company, it is essential to make requisite
allegation to constitute the vicarious liability. In Maksud Saiyed
v. State of Gujarat Maksud Saiyed v. State of Gujarat, 2008 5
SCC 668, it has been held, thus: (SCC p. 674, para 13)

11. In the case at hand as the complainant’s initial statement
would reflect, the allegations are against the Company, the
Company has not been made a party and, therefore, the
allegations are restricted to the Managing Director. As we have
noted earlier, allegations are vague and in fact, principally the
allegations are against the Company. There is no specific
allegation against the Managing Director. When a company has
not been arrayed as a party, no proceeding can be initiated
against it even where vicarious liability is fastened under certain
statutes. It has been so held by a three-Judge Bench in Aneeta
Hada v. Godfather Travels and Tours (P) Ltd. in the context of
the Negotiable Instruments Act, 1881.

13. When the company has not been arraigned as an accused,
such an order could not have been passed. We have said so for
the sake of completeness. In the ultimate analysis, we are of the
considered opinion that the High Court should have been well
advised to quash the criminal proceedings initiated against the
appellant and that having not been done, the order is sensitively
vulnerable and accordingly we set aside the same and quash the
criminal proceedings initiated by the respondent against the
appellant.”

To fortify his arguments, Mr. Mookherjee further relied upon the decision

in case of Sunil Bharti Mittal vs. CBI 2015 (4) SCC 609 with the submission
that there are circumstances when a director or a person in charge of a company

can also be prosecuted when the Company is an accused. But in the given facts

of the case, the Company has not been arrayed as an accused. It is settled law

that a corporate entity is an artificial person which acts through its officers,

directors, managing director, chairman etc. If such a company commits an

offence involving mens rea, it would normally be the intent and action of that

individual who would act on behalf of the company. It would be more so, when

the criminal act is that of conspiracy. However, at the same time, it is the

cardinal principle of criminal jurisprudence that there is no vicarious liability

unless the statute specifically provides so.

It is argued that the proceeding under challenge was initiated on the basis

of a complaint against the petitioners showing them as Managing Director and

Directors of M/s. SPS Steel Rolling Mills Ltd. for unlawful removal,

misappropriation and criminal breach of trust in respect of 19260.42MT of pig

iron amongst other items but without arraying the Company as an accused.

Mr. Mookherjee has relied on a decision in case of M/s. Thermax Ltd.

Ors. vs. K.M.Johny Ors. (2011) 13 SCC 412 to argue that there are certain

situations where the wrong may be predominantly a civil wrong and may or may

not amount to criminal offence and that in the instant case there is no criminal

intention which can be gathered on perusal of the FIR. Because case in hand is

essentially and predominantly civil in nature and it would be abuse of process of

court to allow any further proceeding before a criminal court.

It has been observed in the following paragraphs by the Hon’ble Apex Court

in case of Madhavrao Jiwaji Rao Scindia Ors. vs. Sambhajirao

Chandrojirao Ange Ors. (1988) 1 SCC 692, thus-

“24 this Court, after pointing out the grounds on which the
criminal proceedings be quashed under Section 482 of the Code
at preliminary stage by the High Court highlighted that a case of
breach of trust is both a civil wrong and a criminal offence. While
elaborating the same, this Court further held that there would be
certain situations where it would predominantly be a civil wrong
and may or may not amount to criminal offence. Based on the
materials in that case, the Court concluded that the case is one
of that type where, if at all, the facts may constitute a civil wrong
and the ingredients of the criminal offences are wanting.

42) We have already noted that the offence alleged in the
criminal complaint filed by respondent No.1 is under Sections
405 and 420 IPC whereunder no specific liability is imposed on
the officers of the company, if the alleged offence is by the
Company. In the absence of specific details about the same, no
person other than appellant No.1-Company can be prosecuted
under the alleged complaint.”

(See :Ajai Kumar Jain Ors Vs The State Of West Bengal Anr reported in
2016 SCC Online CAL 903).

Per contra: Mr. Debasish Roy, learned Counsel for Opposite party no. 2 and

Mr Sudip Ghose, learned Counsel for the State Opposite party no. 1 have

contended that the ingredients of offences under section 420/406 of IPC are not

totally absent in the FIR. Whether or not allegations in the complaint are

otherwise correct has to be decided on the basis of the evidence to be led at the

trial in the complaint case but simply because of the fact that there is a remedy

provided for breach of contract that does not by itself cloth the Court to come to a

conclusion that civil remedy is the only remedy available to the petitioners. It is

submitted that both civil as well as the criminal law remedy can be pursued in
diverse situations as they are not mutually exclusive but coextensive and

essentially differ in their content and consequence. The object of criminal law is

to punish an offender who commits an offence against a person, property or the

State for which the accused, on proof of the offence, is deprived of his liberty and

in some cases even his life. This does not, however, affect civil remedies at all for

suing the wrong doer in cases like arson, accidents etc. It is anathema to

suppose that when a civil remedy is available, a criminal prosecution is

completely barred and relied on the following paragraphs of decision in Trisuns

Chemical Industry vs. Rajesh Agarwal And Others AIR 1999SC 3499:

“8. In the last referred case this court also pointed out that
merely because an act has a civil profile is not sufficient to
denude it of its criminal outfit. We quote the following
observations: It may be that the facts narrated in the present
complaint would as well reveal a commercial transaction or
money transaction. But that is hardly a reason for holding
that the offence of cheating would elude from such a
transaction. In fact, many a cheatings were committed in the
course of commercial and also money transactions.

9. We are unable to appreciate the reasoning that the
provision incorporated in the agreement for referring the
disputes to arbitration is an effective substitute for a criminal
prosecution when the disputed act is an offence. Arbitration is
a remedy for affording reliefs to the party affected by breach
of the agreement but the arbitrator cannot conduct a trial of
any act which amounted to an offence albeit the same act may
be connected with the discharge of any function under the
agreement. Hence, those are not good reasons for the High
Court to axe down the complaint at the threshold itself. The
investigating agency should have had the freedom to go into
the whole gamut of the allegations and to reach a conclusion
of its own. Pre-emption of such investigation would be justified
only in very extreme cases as indicated in State of Haryana
vs. Bhajaj Lal (Supra).”

On behalf of the opposite party nos. 1 2 reliance is placed on the

following paragraphs of the decision in M/s. Medchl Chemicals Pharma P

Ltd. vs. M/s. Biological E. Ltd. Ors. AIR 2000 SC 1869 to argue that the

power of the High Court to invoke inherent jurisdiction u/s. 482 of Code of

Criminal Procedure to quash the criminal proceeding, being the FIR or Charge

Sheet, at the initial stage should be exercised in exceptional cases.

“18.On careful reading of the complaint, in our view, it cannot
be said that the complaint does not disclose the commission of
an offence. The ingredients of the offences under Sections
415, 418 and 420 cannot be said to be totally absent on the
basis of the allegations in the complaint. We, however, hasten
to add that whether or not the allegations in the complaint are
otherwise correct has to be decided on the basis of the
evidence to be led at the trial in the complaint case but simply
because of the fact that there is a remedy provided for breach
of contract, that does not by itself clothe the Court to come to a
conclusion that civil remedy is the only remedy available to
the appellant herein. Both criminal law and civil law remedy
can be pursued in divers situations. As a matter of fact they
are not mutually exclusive but clearly co-extensive and
essentially differ in their content and consequence. The object
of criminal law is to punish an offender who commits an
offence against a person, property or the State for which the
accused, on proof of the offence, is deprived of his liberty and
in some cases even his life. This does not, however, affect civil
remedies at all for suing the wrongdoer in cases like arson,
accidents etc. It is anathema to suppose that when a civil
remedy is available, a criminal prosecution is completely
barred. The two types of actions are quite different in content,
scope and impart [vide Pratibha Rani v. Suraj Kumar (supra)].”

Mr. Roy further referred to a case in Lalmuni Devi vs. State Of Bihar

Ors. 2001(2) SCC 17 and relied on the observation in the following paragraphs-

“8. There could be no dispute to the proposition that if the
complaint does not make out an offence it can be quashed.
However, it is also settled law that facts may give rise to a
civil claim and also amount to an offence. Merely because a
civil claim is maintainable does not mean that the criminal
complaint cannot be maintained. In this case, on the facts, it
cannot be stated, at this prima facie stage, that this is a
frivolous complaint. The High Court does not state that on
facts no offence is made out. If that be so, then merely on the
ground that it was a civil wrong the criminal prosecution could
not have been quashed.”

Reliance is also made to a case of Kamaladevi Agarwal vs State of West

Bengal and Ors. AIR 2001 SC 3846 wherein it has been held, “while exercising

powers under Section 482 of the Code, the High Court should be slow in interfering

with the proceedings at the initial stage and that merely because the nature of the

dispute is primarily of a civil nature, the criminal prosecution cannot be quashed

because in cases of forgery and fraud there is always some element of civil nature.

In a case where the accused alleged that the transaction between the parties are of

a civil nature and the criminal court cannot proceed with the complaint because the

factum of document being forged was pending in the civil court, the court observed

“accepting such a general proposition would be against the provision of law

inasmuch as in all cases of cheating and fraud, in the whole transaction, there is

generally some element of civil nature. However, in this case, the allegations were

regarding the forging of the document and acquiring gains on the basis of such

forged documents. The proceedings could not be quashed only because the

respondents had filed a civil suit with respect to the aforesaid documents. In a

criminal court the allegations made in the complaint have to be established

independently, notwithstanding the adjudication by a civil court. Had the

complainant failed to prove the allegations made by him in the complaint, the

respondents were entitled to discharge or acquittal but not otherwise. If mere

pendency of a suit is made a ground for quashing the criminal proceedings, the
unscrupulous litigants, apprehending criminal action against them, would be

encouraged to frustrate the course of justice and law by filing suits with respect to

the documents intended to be used against them after the initiation of criminal

proceedings or in anticipation of such proceedings. Such a course cannot be the

mandate of law. Civil proceedings, as distinguished from the criminal action, have

to be adjudicated and concluded by adopting separate yardsticks. The onus of

proving the allegations beyond reasonable doubt, in criminal case, is not applicable

in the civil proceedings which can be decided merely on the basis of the

probabilities with respect to the acts complained of.”

Bestowing upon the principles of law held in the cited decisions referred to

by the rival parties, I am of the view that there is no straitjacket formula to

consider a proceeding for to be quashed or not to be quashed but it is equally a

principle of law that the facts scenario of the complaint has to be taken note of

while construing as to whether the offences alleged have at all been committed.

Therefore, it is apt to appraise the contents of the allegations made in the FIR

and the circumstances leading to lodgement of the FIR against the Managing

Director and Directors of the Company, as the company has not been arraigned

as an accused in the FIR.

Mr. Mookherjee, learned Senior Counsel for the petitioners has argued by

pressing in service pendency of an application under section 7 of Insolvency and

Bankruptcy Code 2016 (in short I.B.C.) filed by Allahabad Bank. It appears from

the order dated 22nd of December 2017 passed by the National Company Law

Tribunal, Calcutta Bench that the said petition for initiation of corporation
insolvency process under Section 7 of IBC was admitted and Mr. Vijaya kumar

Iyer was appointed an interim resolution professional which reflects that

moratorium under section 14 of IBC was considered by NCLT.

It would appear that the opposite party MSTC Ltd accepted payment of an

aggregate sum of Rs. 1.30 crores on 2nd December, 2017 and further sums of Rs.

20 lakhs and Rs. 30 lakhs and also Rs. 50 lakhs on 12th of December 2017, 22nd

December, 2017 and 26th December, 2017 respectively but did not release any

material as it was obliged in accordance with the terms of the award dated 19th

July, 2017 read with the written terms of settlement dated 3rd of November,

2017. Yet, the opposite party no. 2 MSTC Ltd registered a complaint with the

Officer in charge against the petitioners as the directors of M/s. SPSRM LTD

alleging unlawful removal, misappropriation and criminal breach of trust in

respect of 19,360.42 M.T. pig iron amongst other items.

In this context Mr. Roy and Mr. Ghosh appearing for the opposite parties

argued that the criminal liability of a corporate body for acts committed by it

through its Directors, Agents and Officials is well settled. The company does not

have a mind to think or connive or hands to remove the unpaid pledge materials

belonging to the complainant company MSTC. It is submitted that reference to

the National Company Law Tribunal, Calcutta Bench of the said company is

immaterial and it is irrelevant whether the complainant MSTC had participated

in the proceedings as a creditors of a company pursuant to the Corporate

Insolvency Resolution Process initiated against the company by the financial

creditors of the company.

I am unable to agree with the contention raised by Mr. Roy and Mr. Ghosh

inasmuch as I find in affidavit in opposition to CRAN 1510 of 2018 and its

annexures that the MSTC participated in such Corporate Insolvency Resolution

Process and filed an application before NCLT, inter alia, praying for confirming

the status of the claim of MSTC complainant as a secured creditor in priority to

the claims of the financial creditor and that to declare outstanding claims of

Rs.300.44 crores arising out of transactions with the respondent company SPS

Steel Rolling Mills and further prayed for to remove or utilise any material held

on pledge without prior permission. The contentions made before the NCLT is to

the effect that the MSTC Ltd being the operational creditor should be given

priority in payment over that of the financial creditors as per amendment of the

Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For

Corporate Persons) Regulations 2016 amended vide the Fourth Amendment

dated 5th October, 2018.

Therefore, mere claim for investigation into the matter by Police Agency

should not be allowed as the opposite party no.2 was well aware of the

arbitration award in terms of settlement, the order of injunction in a

Miscellaneous case under Section 9 of Arbitration and Conciliation Act, 1996

before the Court of District Judge, Alipore and the proceeding under IBC before

NCLT. It is settled principle of law that IBC is a complete code providing

jurisdiction of a special Court for inquiry and trial in respect of offences

committed as alleged under the said Code.

Plain reading of the allegation made in the complaint would reveal that

pursuant to the agreements dated 2nd March, 2010 and addendum dated 25th of

August, 2017 between MSTC and SPS steel Rolling Mills Ltd, MSTC agreed to

stock pig iron for the said SPS steel Rolling Mills Ltd under the said agreement.

The essential terms of the said agreements provide that MSTC will finance the

procurement of materials for and on behalf of SPS steel Rolling Mills Ltd and

upon such procurement the same shall be pledged by SPS in favour of MSTC for

being released from time to time from the designated stockyard against retail

authorisations by MSTC.

In pursuance of the terms of the agreement, the pledged materials are to be

kept under custody of third-party custodian i.e. M/s. Ferro Scrap Nigam Ltd

(FSNL in short). It further reveals that on receipt of the payments from SPS steel

Rolling Mills Ltd materials are to be released by MSTC from time to time to SPS

steel Rolling Mills Ltd from custody of such third party custodian. Accordingly a

tripartite agreement dated 24th of May 2013 was executed between MSTC, SPS

Steel Rolling Mills Ltd and FSNL.

It is alleged that in terms of the aforesaid agreement on or about

November, 2017 the SPS Steel Rolling Mills Ltd illegally removed/consumed

19360.42M Pig Iron amounting to more than Rs. 65 crores which were kept

under pledge to MSTC by SPS Steel Rolling Mill Limited by letter dated

27.11.2017. It is further alleged that the said SPS Steel Rolling Mills wrongly

informed regarding shortage of the materials by way of waste or inadvertent

consumption by SPS Steel Rolling Mills Ltd.

Accordingly the complaint was lodged to the effect that the petitioners have

acted in breach of the agreement and trust reposed on them illegally by

consuming the materials or by removal of the same causing wrongful loss to the

MSTC. Mr. Mookherjee, learned senior counsel for the petitioners has invited my

attention to the first agreement dated 02.3.2010 between the petitioners and

opposite party no. 2 containing an arbitration clause 20 that in the event of any

dispute, difference between the parties relating to the interpretation,

construction, fulfilment or otherwise of the agreement, such dispute or difference

shall be settled by the process of arbitration by a sole arbitrator to be appointed

by the Chairman cum Managing Director of MSTC Ltd and further adverted my

attention to a tripartite agreement dated 2nd day of March, 2010 between MSTC ,

SPS Steel Rolling Mills Ltd and Transafe Services Ltd. which relates to receipt,

storage ,custody and issue of pledged materials.

Said tripartite agreements clearly spell out that the SPS Steel Rolling Mills

has to arrange for a warehouse with well-developed open space which is to be

given to MSTC for warehousing of the raw materials and MSTC thereafter shall

become the Licensee for a period of one year from the date of the agreement and

pledged goods are to be fully lifted, and MSTC self-paced sum of Rs.10 per

month as consolidated license fees to FSNL, however, the agreement was to

remain in force with effect from February, 2010 i.e. from the date of arrival of the

stock under custody of Transafe services Ltd. and the developed warehouse has

to be handed over to transit, however, running cost of these facilities was to be

borne by the SSRML. But the complainant opposite party no.2 and its nominated
representative had unfettered access to the warehouse. Clause 5 of tripartite

agreement reflects that on receiving possession of the said warehouse, MSTC will

hand over the warehouse to TRANSAFE for the purpose of inventory and storage

of the materials and any other items brought by MSTC for SSRML. It also reveals

that supervision of unloading, checking, and delivery at and from designated

warehouse has to be done by Transafe and to maintain proper records and

registers for incoming and outgoing materials. Security round-the-clock was also

provided by Transafe.

Clause 9 of the agreement provides that SPSRML shall arrange for transit

insurance of the materials from the dispatch port to the designated Warehouse

as well as Storage Insurance of the materials for theft, burglary, fire and pilferage

etc. Storage Insurance shall be valid till the period the said material is being

lifted by SSRML. Both Transit as well as the Storage Insurance shall mention

MSTC as beneficiary. Original Insurance Policies shall be provided by SSRML to

M/s. TRANSAFE before effecting the movement of goods from the port. M/s.

TRANSAFE shall hand over such policies to MSTC in case of any claim. Clause

11 specifically provides that deliveries of the materials shall be allowed by

TRANSAFE to SSRML only against authorisation letter issued by MSTC to

TRANSAFE. Such delivery shall be made by TRANSAFE to SSRML between 9 AM

to 5 PM weekly restricted holiday is applicable. In the said tripartite

agreement, clause 15 provides for arbitration clause that in case of any dispute

under the agreement the parties to the dispute shall appoint an arbitrator and
appointed arbitrator shall nominate an umpire and they would constitute an

arbitral tribunal to decide the procedure for holding the arbitration.

My attention is also drawn to various clauses 2, 3, 4, 5, 11, 12 and15 of

the third agreement entered on 24th day of month of May 2013 between MSTC

LTD., FERRO SCRAP NIGAM LTD. and SPS STEEL ROLLING MILLS LTD. to

argue that the disputes between the petitioners and opposite party no. 2 is

essentially a civil dispute. It reveals that warehousing area will be 50m X 50m

approximately inside plant premises and in case of increase in area/volume of

material/type of material in future, service charges will be revised after mutual

discussion.

Clause 2 provides that MSTC shall use the said warehouse for one year

from 10/04/2013 or till the pledged goods are fully lifted, whichever is later and

shall pay token sum of Rs.10/- per month as consolidated license fee to SPS.

Clause 5 provides that on receiving the possession of the said

warehouse/stockyard in ready to operate conditions, MSTC shall hand over the

said warehouse/stockyard to FSNL for the purpose of inventory and storage of

the materials bought by MSTC for SPS and pledged by SPS to MSTC. The

unloading/loading and physical handling of the material whether at the time of

receipt or delivery or during any periodic stock verifications shall be done by SPS.

Supervision of unloading, checking and delivery at/from the designated

warehouse/stockyard will be done by FSNL and FSNL shall also maintain proper

records and registers for incoming and outgoing of material.

It is curious to note that FSNL has not been made party to the petition of

complaint whereas clause 11 clearly provides that deliveries of materials shall be

allowed by FSNL to SPS only against authorisation letter issued by MSTC to

FSNL. Further, clause 12 provides that FSNL shall keep and maintain proper

registers and records with regard to nature and quantity of material received,

issued and kept in the warehouse/stockyard and FSNL shall send weekly stock

report to MSTC by FAX/E-mail and in case of any anomaly/variations observed,

it shall be immediately informed and reported to MSTC. This third agreement

also provides for arbitration clause for referring any dispute or differences

between the parties for settlement by process of arbitration of a Sole Arbitrator to

be appointed by the Chairman -cum Managing Director of MSTC.

Mr. Mookherjee adverted my attention to the minutes of the 11th sitting of

the parties held by Sole Arbitrator on July 19, 2014 which reflects that the award

was passed in terms of the settlement arrived by and duly signed by the

representatives of the parties and also by their learned advocates. Terms of

settlement being part of the award reveals that there was balance of Rs. 276.92

crores to be paid. My attention is specifically invited to clause 10 and 11 of the

Terms of Settlement which provides thus:

“10. Material proportionate to the payment received shall be released
through the custodian at the revised issue price calculated as on
30.06.14. Shortages, if any, shall be to the account of respondent only.

11. In addition to the payment as aforesaid, the respondent agrees and
undertakes to pay a sum of Rs.1 lakh only per month to the claimant
toward reimbursement of custodian charges which shall be paid on
demand, till the total material as per books of MSTC Ltd is lifted.
Volumetric assessment of material will be done by the claimant through
an independent inspection agency within the panel of MSTC in
consultation with the respondent herein every year in the month of
February. If any shortage detected beyond the tolerance limit, as may be
mentioned in the relevant Volumetric Assessment report, the value of
such shortage will be paid by the respondent to the claimant herein
immediately and in default the respondent shall pay the value of such
shortage as per issue price within six months, which claimant shall
adjust against the subsequent instalments due from the respondent
company in terms hereof. In any event, the claimant shall not be liable
for such shortage.”

It is submitted that in view of the award in terms of settlement being the

part of the award, the respondent indubitably agreed and undertook to withdraw

the Title Suit No. 51 of 2013 pending in the court of the learned District Judge

Alipore 24- Parganas (s) and to communicate the order of withdrawal to the

claimant or its advocate forthwith which is reflected from the clause 16 of the

terms of settlement and in terms thereof the suit was withdrawn in which the

opposite party no. 2 MSTC and its men and agents were restrained. It would also

reveal from the order dated May 8, 2016 of the sole arbitrator that in view of the

settlement, the application under Section 17 of the Arbitration and Conciliation

Act, 1996, the award dated November 3, 2017 in terms of the terms of

settlement, the petitioners and the opposite party no.2 had mutually agreed to

protect interest of both the parties and the terms of the award dated 19th of July,

2014 was modified providing for the terms and the manner in which the payment

of Rs. 216.92 Crores as on 16 May 2017 was due and payable to MSTC,

however, all other terms of the Award dated 19th July, 2014 remained in full

force and effect.

Accordingly, it is submitted with force that there is no element of cheating

on the part of the petitioner since inception of the agreement entered by and

between the petitioners and the opposite party no. 2 and question of
misappropriation alleged by the complainant does not find place to bring home

the charges under section 420 and 406 of the Indian Penal Code.

It would be apt to reproduce the extracts of the letter Ref.No. SSR

ML/MSTC/11/27/2017/01 dated 27.11.20174 for profitable consideration

which reads thus:

“As you know in terms of award dated July 19, 2014 read with
order dated May 8, 2016 and in terms of settlement taken on record
by the said order as well as the award dated November 3, 2017, we
have been regularly making payments of Rs.2 crores to you against
which you have been releasing players materials. Accordingly, upon
our making payment, you issued release order dated October 26,
2017 for 920.227 MT November 2, 2017 for 922.437MT of pig
iron.

Consequently, at our end, necessary instructions were issued to
obtain release of the said material and utilise the same. However,
we were informed by our representative at Durgapur factory that the
quantity of the pig iron appeared to be far less than the quantity
found on April1, 2017 at the time of verification in presence of
representatives of all concerned.

In view of such report, we caused an enquiry to be made and have
found that there is shortage of approximately 19,500 metric ton of
Pig Iron. Such shortage has occurred by reasons of wastage and/or
inadvertent consumption. We are in process of ascertaining the
circumstances under which such shortage has taken place and
would keep you posted with the developments in respect thereof.
In the meantime, considering the fact that clause 11 of the terms of
the settlement filed on July 19, 2014 provides that ” if any shortage
is detected beyond the tolerance limit, as may be mentioned in the
relevant Volumetric Assessment report, the value of such shortages
will be paid by the respondent to the claimant herein immediately
and in default the respondent shall pay the value of such shortage
as per issue price within six months, which claimant shall adjust
against the subsequent instalments due from the respondent
company in terms hereof. In any event, the claimant shall not be
liable for such shortage”, we deem it our duty to bring the aforesaid
facts to your notice.”

The said communication was made by SPSRML to the Chairman and

Managing Director of MSTC Ltd with a copy to General Manager (Marketing)
MSTC. It clearly exhibits that the petitioners had no criminal intention to cheat

the opposite party no.2 /complainant from very inception of the said tripartite

agreements entered by and between them.

Having gone through the observations of the Hon’ble Supreme Court in the

cited decisions; I fully agree with contentions of Mr. Mookherjee that it is well

settled principle of law that the concept of ‘vicarious liability’ is unknown to

criminal law save and except in certain enactments, such as, Section 141 of the

Negotiable Instruments Act, 1881 which specifically provides that if the person

committing an offence under Section 138 of the Act is a company, every person

who, at the time the offence was committed, was in charge of, and was

responsible to, the company for the conduct of the business of the company, as

well as the company, shall be deemed to be guilty of the offence and shall be

liable to be proceeded against and punished accordingly. Likewise, Section 32 of

the Industrial Disputes Act, 1947 provides that where a person committing an

offence under this Act is a company, or other body corporate, or an association

of persons, every director, manager, secretary, agent or other officer or person

concerned with the management thereof shall, unless he proves that the offence

was committed without his knowledge or consent, be deemed to be guilty of such

offence.

It is argued that the offence alleged in the instant case filed by the opposite

party no. 2 is under Sections 406 and 420 of the I.P.C. where under no specific

liability is imposed even on the officers of SPS, if the alleged offence is committed

by the said company. In the absence of specific details about the same, no
person other than SPS can be prosecuted under the impugned FIR and reference

is made to a decision of the Hon’ble Supreme Court in Vesa Holdings P. Ltd.

Anr. vs. State Kerala Ors. 2015 (8) SCC 293 to the observations in the

following paragraphs –

“12. From the decisions cited by the appellant, the settled
proposition of law is 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. If the intention to
cheat has developed later on, the same cannot amount to
cheating. In other words 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. Even in a case where
allegations are made in regard to failure on the part of the
accused to keep his promise, in the absence of a culpable
intention at the time of making initial promise being absent, no
offence under Section 420 of the Indian Penal Code can be
said to have been made out.

13. It is true that a given set of facts may make out a civil
wrong as also a criminal offence and only because a civil
remedy may be available to the complainant that itself cannot
be a ground to quash a criminal proceeding. The real test is
whether the allegations in the complaint disclose the criminal
offence of cheating or not. In the present case there is nothing
to show that at the very inception there was any intention on
behalf of the accused persons to cheat which is a condition
precedent for an offence under Section 420 IPC. In our view
the complaint does not disclose any criminal offence at all.
Criminal proceedings should not be encouraged when it is
found to be malafide or otherwise an abuse of the process of
the court. Superior courts while exercising this power should
also strive to serve the ends of justice. In our opinion, in view
of these facts allowing the police investigation to continue
would amount to an abuse of the process of court and the
High Court committed an error in refusing to exercise the
power under Section 482 Criminal Procedure Code to quash
the proceedings.”

Pursuant to the terms of the agreement, the pledged materials are to be

kept under the custody of 3rdparty custodian i.e. M/s. Ferro Scrap Nigam Ltd

(FSNL in short). It further reveals that on receipt of the payment from SPS Steel

Rolling Mills Ltd’ materials are to be released by MSTC from time to time to SPS

Steel Rolling Mills Ltd from the custody of such 3rd party custodian. Accordingly,

a tripartite agreement dated 24th of May 2013 was executed between MSTC, SPS

Steel Rolling Mills Ltd and FSNL.

In the context of what has been discussed above and taking cue from the

principle of law laid down by the Hon’ble Apex Court particularly in Medchl

Chemical Pharma (supra), I find that there is no element of cheating on the

part of the petitioner since inception of the agreement entered by and between

the petitioners and the opposite party no. 2 and question of misappropriation

alleged by the complainant does not find place to bring home the charges under

Sections 420 and 406 of the Indian Penal Code. Since ‘mens rea’ to cheat from

the very inception is the most vital ingredient which differentiates cheating

simpliciter from breach of agreement because mere failure of a person to keep

promise subsequently cannot be construed as culpable intention right at the

beginning.

At the conclusion of the argument, Mr. Debasish Roy, learned counsel for

the opposite party no. 2 candidly submitted that in the said insolvency

proceedings before the National Company Law Tribunal, Kolkata, MSTC is

receiving its dues.

I do find that offence under Section 406 IPC is also not evident in the given

facts of the case as the entrustment of any material with the Petitioners, in

particular is missing, rather, this Court finds that as per the tripartite

agreement, at the first instance, M/s. Transafe was the custodian of the material

stored in the warehouse provided by the Petitioners’ Company and thereafter

FSNL was inducted by a second tripartite agreement to hold the stock in the

warehouse provided by the Petitioners’ Company. Therefore it cannot be said that

the materials being pig iron, etc. were stored under the custody of entrusted

with the Petitioners.

This fact cannot be lost sight of that the Petitioners had instituted a Title

Suit in the Court of District Judge, Alipore wherein the Complainant MSTC and

its men and agent were injuncted from giving effect to letter issued by MSTC and

MSTC entered into an agreement with the Petitioners on certain conditions and

the Petitioners had agreed to withdraw the said suit. Accordingly, the suit was

withdrawn at the instance of MSTC.

For the aforesaid reasons discussed in the foregoing paragraphs, I hold

that the complaint against the Petitioners does not disclose allegations of

cheating under Section 420 and misappropriation of any property under Section

406 I.P.C. and the complaint appears to have been lodged to give vent

vindictiveness of the officials of MSTC through a legal process because the

dispute between the parties is essentially Civil dispute which is under the

process of Insolvency proceeding, hence, continuance of the proceeding would

amount to misuse of the process of the Court.

Ergo, the proceeding in G.R. Case No. 193 of 2018 in connection with New

Township Police Station (NTS), Durgapur, Case No. 16 dated 10th February, 2018

under Sections 420/406 of the Indian Penal Code, 1860 pending before the Court

of the learned Additional Chief Judicial Magistrate at Durgapur is hereby

quashed.

Accordingly, revisional application being CRR 607 of 2018 and CRAN 1510

of 2018 are disposed of.

Urgent certified photocopy of this Judgment, if applied for, be supplied to

the parties upon compliance with all requisite formalities.

(SHIVAKANT PRASAD, J.)