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Dr. Mohammed Ahmed Ali Khan And … vs The State Of Telangana Rep. By Its … on 24 July, 2018

THE HONBLE SRI JUSTICE U. DURGA PRASAD RAO

Criminal Petition No.9 of 2018

24.07.2018

Dr. Mohammed Ahmed Ali Khan and another… Petitioners

The State of Telangana Rep. by its Public Prosecutor, High Court of Judicature at Hyderabad, For the State of Telangana and

Counsel for Petitioner : Sri M.S. Srinivasa Iyengar

Counsel for Respondent No.1: Public Prosecutor (TG)
Counsel for Respondent No.2: Sri Nazir Ahmed khan

Gist:

Head Note:

? Cases referred:
1)AIR 1951 (Cal) 69
2)AIR 1965 SC 1433
3)AIR 1996 SC 204
4)AIR 1999 Supreme Court 3499
5)(2009) 1 Supreme Court Cases 69
6)2017 (1) SCJ 650
7)AIR 1992 SC 604

HONBLE SRI JUSTICE U. DURGA PRASAD RAO

Criminal Petition No.9 of 2018

ORDER:

In this petition filed under Section 482 Cr.P.C., the petitioners/A.1
and A.2 seek to quash the proceedings against them in Crime No.116/2017
of Central Crime Station PS, Hyderabad, registered for the offences under
Sections 406 and 420 IPC.

2) The brief allegations of the complaint are that the defacto
complainant along with his friend i.e, Dr.Altaf Naseem and A.1 entered into
a partnership deed on 14.05.2012 to establish Childrens clinic under the
name Candy Children Hospital and subsequently, they entered into
another Partnership Deed on 10.08.2015 to establish pharmacy styled as
Candy Medical General Stores. A.1 used to handle day-to-day
collections/payments and other administrative expenses etc., but during the
year 2016-17, it was noticed that there were lot of discrepancies in the
maintenance of accounts since the year 2014. Initially the amounts were
regularly deposited in bank but the said system was given a go-bye by A.1
for the reasons not known to other partners. The approximate amount which
was not deposited by A.1 was worked out to Rs.68 lakhs, which was the
income of the Hospital supposed to be accrued as profit. A.1 never called
for any meeting with partners to discuss affairs of the Hospital nor did he
conduct any audit of accounts since 2014 onwards through the expert
auditors and thus failed to adhere to terms of partnership. Whenever A.1
was requested for conducting meeting with partners, he misbehaved and
gave evasive replies. A.1 removed the staff, who were appointed with
consensus of all partners at the time of establishment of Hospital and
recruited the staff of his own choice. It is further alleged that when the
accounts of the Hospital were audited, it was noticed that there were huge
discrepancies worth above Rs.1 Crore, which included the income of
Hospital, Pharmacy, lab services and equipments etc, but A.1 handed over a
cash of Rs.60,000/- and A.2, who is the wife of A.1 and incharge of
Pharmacy, handed over Rs.50,000/-. The Balance Sheet prepared by the
auditor showed that the petitioners/A.1 and A.2 embezzled a sum of over
Rs.1 Crore causing huge loss to the hospital. The petitioners have acted
high-handedly and approached the bankers to stop operation of accounts of
the Hospital, which was in violation of partnership deed. Thus the
petitioners were involved in mismanagement, breach of trust, cheating,
coercing besides embezzlement of income to a tune of above Rs.1 crore.
Hence the complaint.

3) Heard arguments of Sri M.S.Srinivasa Iyengar, learned counsel for
petitioners; Sri Nazir Ahmed Khan, learned counsel for 2nd respondent and
learned Additional Public Prosecutor for the State (Telangana).

4) Severely castigating the complaint allegations as false and motivated
due to the bickerings among the partners, learned counsel for petitioners
would argue that even if the FIR allegations are taken to be true on their
face value, still no offences under Sections 406 and 420 IPC, can be
attributed against the petitioners. In expatiation, he would argue that
admittedly the petitioners, who are the husband and wife are themselves
partners in the two partnerships relating to the Candy Children Hospital and
Candy Medical General Stores. Therefore, the question of partners
themselves committing criminal breach of trust in respect of the partnership
properties in which they too have a share does not arise and thereby the
criminal prosecution under Section 406 IPC is not attracted. Taking the
Court through Sections 405 and 406 IPC, learned counsel sought to argue
that unless the partnership properties and monies are specially and
specifically entrusted to a partner for management and he failed in his duty
and dishonestly misappropriated the same for his benefit, the charge under
Section 406 IPC cannot be attributed against a partner. In the instant case,
there is no such special entrustment to the petitioners in respect of the
partnership assets and amounts so as to impute the petitioners of committing
criminal breach of trust. He argued that the 1st petitioner was entrusted with
the duty of hospital administration and maintenance but not with monetary
affairs. On the other hand as per Memorandum of Understanding dated
30.01.2015, Dr. Altaf Naseem, another partner was given responsibilities
for accounts, maintenance, hospital permissions etc., and therefore, it is
preposterous to ascribe that the petitioners have collected monies and
misappropriated funds running into several lakhs over a period of three(3)
years and such wild allegations were made against the petitioners as a
counterblast to the notice issued by the petitioners for dissolution of
partnership firm. He placed reliance on the following decisions:

i) Bhuban Mohan Das v. Surendra Mohan Das

ii) Velji Raghavji Patel v. The State of Maharashtra

iii) Anil Saran v. State of Bihar and another

a) Sofaras the offence under Section 420 IPC is concerned, he argued
that there was no inducement on the part of petitioners to the complainant
and other partners and there was no delivery of property by them to the
petitioners and therefore, the offence of cheating is not attracted. It is
further argued that the complaint allegations would at best reveal the
differences among the partners and as the arbitration clause is already
imposed in the two partnership deeds and as the parties have already
resorted to the arbitration proceedings and as the matter is purely civil in
nature, criminal prosecution would amount to abuse of process of the Court.
He thus prayed to quash the proceedings.

5) Per contra, opposing the petition learned counsel for 2nd respondent
argued that the hospital and pharmacy were established by way of
partnership deeds i.e, Candy Children Hospital was established by way of
partnership business by the petitioner No.1, complainant and one more
senior doctor i.e, Dr. Altaf Naseem. Similarly, pharmacy was established as
a partnership firm by petitioner No.2, Dr. Altaf Naseem and Farah Nishat
(wife of complainant). While the complainant and Dr. Altaf Naseem, are the
holders of MBBS and M.D with specialisation in Paediatrics, petitioner
No.1 was just holding MBBS degree and diploma in Paediatrics. However,
petitioner No.1 entered into the partnership business with an element of
mens rea by drafting the documents of partnership deed. He has taken the
responsibility of looking after the administration and accounts. He was not
offering his best services because he was just holding diploma in Paediatrics
and thereby complaints were received from the patients. Therefore, the
petitioner No.1 himself got inducted into the administration and
management of the hospital and pharmacy including looking after the
accounts. Since the complainant and other partner Dr.Altaf Naseem were
busy in handling the patients, both the petitioners, who are the couple
collusively started taking undue advantage of their busy schedule and
petitioner No.1 started taking entire daily collection from the hospital and
pharmacy by putting his initials with a promise that he would deposit the
said amount into the account of the Hospital and Pharmacy in relevant
banks and mislead them for three(3) years and he did not deposit the
amounts and misappropriated them. When the other partners realised the
misdeeds and questioned, the petitioners, in order to save their skin,
addressed letters in their individual capacity expressing their intention to
dissolve the partnership business both in the hospital and pharmacy. They
also addressed letters to the banks to freeze the accounts of the hospital and
pharmacy. Therefore, the complainant was constrained to lodge the
complaint against the petitioners. It is further argued that merely because
the arbitration clause is there, that has nothing to do with the criminal
offence committed by the petitioners. He placed reliance on the following
decisions to contend that if the accusation of the petitioners also attracts
criminal offences besides civil liability, criminal prosecution is
maintainable.

(i) Trisuns Chemical Industry v. Rajesh Agarwal and others

(ii) Sri Krishna Agencies v. State of Andhra Pradesh and another

(iii) HDFC Securities Ltd. others v. State of Maharashtra and
another
He thus prayed to dismiss the petition.

6) The point for determination is:
Whether there are merits in this petition to allow?
7) POINT: In the decision reported State of Haryana and others v. Ch.

Bhajan Lal and others , the Apex Court has laid down the following
guidelines as to when the High Court can exercise its plenary powers under
Section 482 Cr.P.C. to quash the proceedings. They are:

1. Where the allegations made in the First Information Report or
the complaint, even if they are taken at their face value and accepted
in their entirety do not prima-facie constitute any offence or make
out a case against the accused.

2. Where the allegations in the First Information Report and other
materials, if any, accompanying the F.I.R. do not disclose a
cognizable offence, justifying an investigation by police officers
Under Section 156(1) of the Code except under an order of a
Magistrate within the purview of Section 155(2) of the Code.

3. Where the uncontroverted allegations made in the FIR or
complaint and the evidence collected in support of the same do not
disclose the commission of any offence and make out a case against
the accused.

4. Where, the allegations in the F.I.R. do not constitute a cognizable
offence but constitute only a non-cognizable offence, no
investigation is permitted by a police officer without an order of a
Magistrate as contemplated Under Section 155(2) of the Code.

5. Where the allegations made in the FIR or complaint are so absurd
and inherently improbable on the basis of which no prudent person
can ever reach a just conclusion that there is sufficient ground for
proceeding against the accused.

6. Where there is an express legal bar engrafted in any of the
provisions of the Code or the concerned Act (under which a criminal
proceeding is instituted) to the institution and continuance of the
proceedings and/or where there is a specific provision in the Code
or the concerned Act, providing efficacious redress for the grievance
of the aggrieved party.

7. Where a criminal proceeding is manifestly attended with mala
fide and/or where the proceeding is maliciously instituted with an
ulterior motive for wreaking vengeance on the accused and with a
view to spite him due to private and personal grudge.

It has now to be seen whether a prima facie case is made out from the
complaint for the offences under Sections 406 and 420 IPC to proceed with
the investigation or whether continuation of the criminal prosecution is only
an abuse of process of the Court.

8) As can be seen from the record, the partnership deed dated
14.05.2012 was entered into by petitioner No.1, Dr. Altaf Naseem and 2nd
respondent/complainant to run Candy Childrens Hospital. It is pertinent to
note that petitioner No.2 is not a partner therein. I have gone through the
terms of the contract. Clauses 7, 10, 11 and 12 would depict their status.
They would show that all the partners are managing/working partners of the
firm and they shall be at all time during the partnership devote sufficient
time and attention to the said partnership business and diligently and
faithfully carry on day to day affairs of the business for the greatest
advantage of the partnership. Each partner shall have the access to the
books of accounts and right to inspect and verify the same and take copies
and extract there from. It is further mentioned that partners shall be entitled
to make withdrawals from the firm from time to time such sum or sums as
may be determined mutually by majority of the partners, provided such
drawals shall be debited to the accounts of the respective partners in the
firm. Managing/Working Partners shall be entitled to for the remuneration
@ Rs.20,000/- p.m or as decided mutually amongst the partners. The other
terms are incidental to the partnership business and they are not much
relevant. So from a close scrutiny of the partnership deed, it is pertinent to
note that the maintenance of the accounts, assets, properties and cash are not
specifically entrusted to any particular partner muchless to the petitioner
No.1. However, it appears, the division of the responsibilities among the
three partners was made under a special document styled as Memorandum
of Understanding dated 30.01.2015, a copy of which is filed by the
petitioners. Clause 2 under the heading Division of responsibilities among
3 directors reads thus:

o Dr. Altaf Naseem accounts maintenance, hospital permissions,
renewals, inspections, contacts with police, politician and press,
marketing
o Dr. Tanveer Ahmed Pharmacy maintenance, petty cash
approvals, salary pay slip approval, over time approvals,
marketing (especially NICU marketing)
o Dr. Ahmed Khan hospital administration and maintenance
(includes setting work flow protocols for all hospital
departments, guidelines, software assessment, income
verification, nurses management and training, doctor allotment
and training)
So the petitioner No.1 is concerned, he was mainly assigned with the
hospital administration and its maintenance. Accounts maintenance was
given to Dr. Altaf Naseem, whereas pharmacy maintenance, petty cash
approvals, salary pay slip approval, over time approvals etc., were given to
respondent No.2/complainant.

9) Coming to the pharmacy, under a partnership deed dated 10.08.2015,
Dr.Altaf Naseem, Mrs.Farah Nishat (wife of respondent No.2/complainant),
2nd petitioner and P.Vinod Kumar entered into partnership to run Candy
Medical and General Stores to trade in pharmaceutical and general stores. 1
to 3 parties shall be the partners under whose control, the partnership
business shall be conducted by the 4th party. As per one of the terms, the
accounts of the partnership business shall be maintained by Mrs. Farah
Nishat (wife of the complainant). The terms of the partnership deed do not
show that accounts, amounts, properties etc, of the partnership were
entrusted to the 2nd petitioner. In this backdrop, it has now to be seen
whether offences under Sections 406 and 420 IPC could be attracted.

10) The offence under Section 406 IPC is concerned, the Apex Court in
Anil Sarans case (3 supra), held thus:

Para 7: It is next contended that the appellant, being a partner in the
complainant firm, cannot be said to have committed criminal breach of
trust of his own funds and that, therefore, it is a case of civil liability
only. The contention that one partner cannot commit criminal breach
of trust against other partners, though prima facie alluring, on facts of
this case, it does not appear to be tenable. Partnership firm is not a
legal entity but a legal mode of doing business by all the partners.
Until the firm is dissolved as per law and the accounts settled, all the
partners have dominion in common over the property and funds of the
firm. Only after the settlement of accounts and allotment of respective
share, the partner becomes owner of his share. However, criminal
breach of trust under Section 406 is not in respect of the property
belonging to the partnership firm, but is an offence committed by a
person in respect of the property which has been specially entrusted to
such a person under a special contract and he holds that property in
fiduciary capacity under special contract. If he misappropriates the
same, it is an offence.

In Bhuban Mohan Dass case (1 supra) and Velji Raghavji Patels
case (2 supra) similar view was expressed. In the instant case, as already
noted supra, petitioner nos.1 and 2 were not entrusted with the properties in
their respective partnership firms, rather such responsibilities were entrusted
to different partners. In that view, I find considerable force in the argument
of learned counsel for petitioners that the offence under Section 406 IPC is
not attracted against the petitioners. No doubt, learned counsel for 2nd
respondent/complainant argued that taking advantage of the busy schedule
of the other two partners, 1st petitioner took the hospital administration and
also collected amounts and misappropriated them without depositing in the
bank accounts. However, in the absence of any prima facie material and
particularly when the document speaks non-entrustment of the properties
and monies, such contention cannot be accepted.

11) So also the offence under Section 420 IPC is concerned, as rightly
argued by learned counsel for petitioners, no inducement by the petitioners
and delivery of properties could be emanated from the complaint allegations
to attract the offence of cheating. It appears, the parties have already
resorted to Civil Court and arbitration proceedings before the concerned
Civil Courts. It is true that as per the decisions in Trisuns Chemical
Industrys case (4 supra), Sri Krishna Agenciess case (5 supra) and HDFC
Securities Ltds case (6 supra) relied upon by the 2nd respondent/
complainant, mere pendency of the arbitration proceedings, is not an
obstacle to proceed with the criminal prosecution, provided the acts of the
petitioners prima facie give rise to criminal prosecution. In the instant case,
as already discussed supra, since the petitioners were the partners and there
was no specific entrustment of the properties, accounts and monies to them
and therefore, the offence under Section 406 IPC cannot be imputed and so
also since there was no inducement by the petitioners and delivery of
property within the meaning of Section 420 IPC, the offence under Section
420 IPC is also not made out. Therefore, continuation of investigation for
the aforesaid offences would amount to abuse of process of the Court. 2nd
respondent shall work out his remedies before the Civil Court if it is his
grievance that the petitioners have not accounted for the partnership
amounts.

12) In the result, this Criminal Petition is allowed and the proceedings in
Crime No.116/2017 of Central Crime Station PS, Hyderabad are quashed
against the petitioners/A1 and A2.

As a sequel, miscellaneous petitions pending, if any, shall stand
closed.

U. DURGA PRASAD RAO, J
Date: 24.07.2018

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