IMPORTANT POINTS
1. A criminal complaint can be quashed where the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety, do not prima facie constitute any offence or make out the case alleged against the accused.
2. Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged.
3. When possession has remained with the debtor/owner and when the creditor has neither ownership nor beneficial interest, obviously there cannot be any entrustment by the creditor.

Headnote:(i) Criminal Procedure Code, 1973 — Section 482 — Powers to quash complaints and criminal proceedings — Principles relating to exercise of jurisdiction — Whether existence or availment of civil remedy in respect of disputes arising from breach of contract bars remedy under civil law — (No).
       Held : The principles, relevant to our purpose are :
       (i)A complaint can be quashed where the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety, do not prima facie constitute any offence or make out the case alleged against the accused.
       For this purpose, the complaint has to be examined as a whole, but without examining the merits of the allegations. Neither a detailed inquiry nor a meticulous analysis of the material nor an assessment of the reliability or genuineness of the allegations in the complaint, is warranted while examining prayer for quashing of a complaint.
       (ii)A complaint may also be quashed where it is a clear abuse of the process of the court, as when the criminal proceeding is found to have been initiated with malafides/malice for wreaking vengeance or to cause harm, or where the allegations are absurd and inherently improbable.
       (iii)The power to quash shall not, however, be used to stifle or scuttle a legitimate prosecution. The power should be used sparingly and with abundant caution.
       (iv)The complaint is not required to verbatim reproduce the legal ingredients of the offence alleged. If the necessary factual foundation is laid in the complaint, merely on the ground that a few ingredients have not been stated in detail, the proceedings should not be quashed. Quashing of the complaint is warranted only where the complaint is so bereft of even the basic facts which are absolutely necessary for making out the offence.
       (v)A given set of facts may make out: (a) purely a civil wrong; or (b) purely a criminal offence; or (c) a civil wrong as also a criminal offence. A commercial transaction or a contractual dispute, apart from furnishing a cause of action for seeking remedy in civil law, may also involve a criminal offence. As the nature and scope of a civil proceedings are different from a criminal proceeding, the mere fact that the complaint relates to a commercial transaction or breach of contract, for which a civil remedy is available or has been availed, is not by itself a ground to quash the criminal proceedings. The test is whether the allegations in the complaint disclose a criminal offence or not.
       While on this issue, it is necessary to take notice of a growing tendency in business circles to convert purely civil disputes into criminal cases. This is obviously on account of a prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. Such a tendency is seen in several family disputes 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 effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure though criminal prosecution should be deprecated and discouraged.(Paras 9 and 10)
       While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, in accordance with law. One positive step that can be taken by the courts, to curb unnecessary prosecutions and harassment of innocent parties, is to exercise their power under section 250 Cr.P.C. more frequently, where they discern malice or frivolousness or ulterior motives on the part of the complainant. Be that as it may. (Para 10)
       Coming to the facts of this case, it is no doubt true that IOC has initiated several civil proceedings to safeguard its interests and recover the amounts due........In the Madras High Court. IOC has also initiated proceedings for winding up NEPC India and filed a petition seeking initiation of proceedings for contempt for alleged disobedience of the orders of temporary injunction. These acts show that civil remedies were and are available in law and IOC has taken recourse to such remedies. But it does not follow therefrom that criminal law remedy is barred or IOC is estopped from seeking such remedy.(Para 11)
       Defences that may be available, or facts/aspects when established during the trial, may lead to acquittal, are not grounds for quashing the complaint at the threshold. At this stage, we are only concerned with the question whether the averments in the complaint spell out the ingredients of a criminal offence or not. (Para 12)
       (ii) Indian Penal Code, 1860 — Sections 378, 403, 405, 415 and 425 — Averments necessary to make out ingredients of offences — Appellant, Indian Oil Corporation entered into two contracts for supply of aviation turbine fuel and aviation lubricants — First respondent hypothecated its two Fokker Aircrafts to appellant to secure outstanding dues — As NEPC India failed to pay the first two instalments as per schedule, IOC stopped supply of aircraft fuel — Apprehending that NEPC India may remove the hypothecated aircraft from Coimbatore Airport to a place outside its reach, IOC filed a civil suit seeking mandatory injunction — IOC filed two criminal complaints against NEPC India — Whether allegations in the complaint, if accepted on face value, constitute any offence under Sections 378, 403, 405, 415 or 425 IPC — Held, question of NEPC committing theft of something in its own possession does not arise — Aircrafts and their engines were in possession of NEPC India at all relevant times — Section 403 IPC is not attracted when NEPC India owns/possesses the aircraft — It cannot ‘misappropriate or convert to its own use’ such aircraft or parts thereof — Whether there is ‘entrustment’ in an hypothecation — (No) — Whether allegations in the complaint constitute an offence u/s 415 IPC — (Yes) — Whether allegations constitute offence of ‘mischief’ — (Yes) — High Court was not justified in quashing the complaints/criminal proceedings in entirety.
       Held : Hypothecation is a mode of creating a security without delivery of title or possession. Both ownership of the movable property and possession thereof, remain with the debtor. The creditor has an equitable charge over the property and is given a right to take possession and sell the hypothecated movables to recover his dues (note : we are not expressing any opinion on the question whether possession can be taken by the creditor, without or with recourse to a court of law). The creditor may also have the right to claim payment from the sale proceeds (if such proceeds are identifiable and available).(Para 19)
       The allegations in the complaints are that aircrafts and the engines fitted therein belong to NEPC India, and that a charge was created thereon by NEPC India, in favour of IOC, by way of hypothecation to secure repayment of the amounts due to IOC. The terms of hypothecation extracted in the complaint show that the ownership and possession of the aircrafts continued with NEPC India. Possession of the aircraft, neither actual nor symbolic, was delivered to IOC. NEPC India was entitled to use the aircraft and maintain it in good state of repairs. IOC was given the right to take possession of the hypothecated aircrafts only in the event of any default as mentioned in the Hypothecation Deed. It is not the case of the IOC that it took possession of the aircraft in exercise of the right vested in it under the Deed of Hypothecation. Thus, as the possession of the aircraft remained all along with NEPC India in its capacity as the owner and the Deed of Hypothecation merely created a charge over the aircrafts with a right to take possession in the event of default, it cannot be said that there was either entrustment of the aircrafts or entrustment of the dominion over the aircrafts by IOC to NEPC India. The very first requirement of section 405, that is the person accused of criminal breach of trust must have been "entrusted with the property" or "entrusted with any dominion over property" is, therefore, absent. (Para 21)
       The essential ingredients of the offence of cheating are : (i) deception of a person either by making a false or misleading representation or by other action or omission (ii) fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person to do or omit to do anything which he would not do or omit if he were not so deceived and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property. (Para 25)
       In this case, the complaints clearly allege that the accused with fraudulent intention to cheat and defraud the IOC, had induced IOC to resume supply of aircraft fuel on cash and carry basis, by entering into a further agreement dated 20.9.1997 and undertaking to clear the outstanding amount of Rs.18 crores approximately within the time stipulated in the Hypothecation Agreements. The sum and substance of the said allegation read with other averments extracted above, is that NEPC India, having committed default in paying the sum of Rs.18 crores, entered into a fresh agreement dated 20.9.1997 agreeing to clear the outstanding as per a fresh schedule, with the dishonest and fraudulent intention of pre-empting and avoiding any action by IOC in terms of the hypothecation deeds to take possession of the aircrafts. Though the supplies after 20.9.1997 were on cash and carry basis, the fraudulent intention is alleged to emanate from the promise under the said agreement to make payment, thereby preventing immediate seizure (taking possession) of the aircrafts by IOC. This allegation made in addition to the allegation relating to removal of engines, has been lost sight of by the High Court. All that is to be seen is whether the necessary allegations exist in the complaint to bring the case within section 415. We are clearly of the view that the allegations in the complaint constitute such an offence. We are not concerned with the proof of such allegations or ultimate outcome of trial at this stage.(Para 29)
       For the purpose of section 425, ownership or possession of the property are not relevant. Even if the property belongs to the accused himself, if the ingredients are made out, mischief is committed, as is evident from illustrations (d) and (e) to section 425. The complaints clearly allege that NEPC India removed the engines thereby making a change in the aircrafts and that such removal has diminished the value and utility of the aircrafts and affected them injuriously, thereby causing loss and damage to IOC, which has the right to possess the entire aircraft. The allegations clearly constitute the offence of mischief. Here again, we are not concerned with the proof or ultimate decision. (Para 30)
       In view of the above discussion, we find that the High Court was not justified in quashing the complaints/criminal proceedings in entirety. The allegations in the complaint are sufficient to constitute offences under sections 415 and 425 of IPC.(Para 31)

Judgement Key Points

Certainly. Based on the provided legal document, here are the key points:

A criminal complaint can be quashed if the allegations, even when accepted at face value, do not prima facie constitute an offence or do not establish the case against the accused (!) (!) .
The examination of a complaint for quashing must consider the complaint as a whole, without delving into detailed merits or evidence, and should only proceed if the complaint is devoid of essential facts necessary to establish the offence (!) (!) (!) .
The power to quash should be exercised cautiously and only in cases of clear abuse, such as malice, frivolousness, or inherent improbability of allegations (!) (!) (!) .
Civil remedies and criminal law remedies are not mutually exclusive; the existence or pursuit of civil proceedings does not bar criminal prosecution (!) (!) (!) .
The mere fact that a dispute arises from a contractual or commercial transaction does not automatically exclude the possibility of criminal offences being involved; the allegations must disclose elements of a criminal offence (!) (!) (!) .
The allegations in the complaint must include the necessary ingredients of the specific offence. For example, in cases of criminal breach of trust, there must be evidence of entrustment of property or dominion over it by the accused, which was dishonestly misappropriated or converted (!) (!) (!) .
Hypothecation, which involves creating a charge over movable property without transfer of possession or ownership, does not constitute entrustment within the meaning of criminal breach of trust, as ownership and possession remain with the debtor, and the creditor's rights are limited to a charge or right to take possession upon default (!) (!) (!) (!) .
For offences like theft or dishonest misappropriation, the property must be in the possession of the accused or entrusted to them by another party. If the property remains with the owner, such offences are not made out (!) (!) (!) .
The intention at the time of making promises or entering into agreements is crucial in establishing offences like cheating. A dishonest or fraudulent intent must be present from the outset for the offence to be made out (!) (!) (!) .
The allegations must demonstrate that the accused had the requisite dishonest or fraudulent intent at the time of the transaction; mere failure to perform contractual obligations later does not automatically amount to cheating unless such intent was present initially (!) (!) (!) .
For offences of mischief, the key elements include causing destruction, change, or diminution of value in property, with the intent to cause wrongful loss or damage, regardless of ownership or possession (!) (!) .
The courts should not quash criminal proceedings solely because civil remedies are available or have been pursued, especially if the allegations disclose a criminal offence (!) (!) (!) .
Defences or facts that could lead to acquittal are relevant during trial but are not grounds for dismissing a complaint at the initial stage of proceedings (!) (!) .
The courts have the authority to exercise their discretion to prevent misuse of criminal law for civil disputes and should do so with caution, ensuring that legitimate criminal offences are not overlooked (!) (!) (!) .
In summary, the order quashing the criminal complaints was not justified where the allegations sufficiently disclosed elements of offences under sections related to cheating and mischief, and where civil remedies did not preclude criminal prosecution (!) (!) (!) .

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JUDGMENT

Raveendran, J. — These appeals are filed against the common order dated 29.3.2001 passed by the Madras High Court allowing Crl.O.P. Nos. 2418 of 1999 and 1563 of 2000. The said two petitions were filed by the respondents herein under section 482 of Criminal Procedure Code (Code for short) for quashing the complaints filed by the appellant against them in C.C. No. 299 of 1999 on the file of Judicial Magistrate No. 6, Coimbatore and C.C. No. 286 of 1998 on the file of Judicial Magistrate, Alandur (Chennai).

2. The appellant (Indian Oil Corporation, for short IOC) entered into two contracts, one with the first respondent (NEPC India Ltd.) and the other with its sister company Skyline NEPC Limited (Skyline for short) agreeing to supply to them aviation turbine fuel and aviation lubricants (together referred to as "aircraft fuel"). According to the appellant, in respect of the aircraft fuel supplied under the said contracts, the first respondent became due in a sum of Rs. 5,28,23,501.90 and Skyline became due in a sum of Rs. 13,12,76,421.25 as on 29.4.1997.

3. The first respondent hypothecated its two Fokker F27-500 Aircrafts, bearing Registration No. VT-NEJ (12684) and VT-NEK (10687) to the appellant under Deed of Hypothecation dated 1.5.1997, to secure the outstanding amounts. Clause (2) of the said Deed provided that the two aircrafts with all parts and accessories stood hypothecated to IOC by way of charge and as security for payment of the amounts due, with effect from the date of hypothecation. Clause (3) read with the schedule set out the instalments schedule for payment of the amount due. Under clause (6), NEPC India declared that it would not assign, sell, pledge, charge, underlet or otherwise encumber or part with the possession, custody or beneficial interest in respect of the two aircrafts without the previous written consent of IOC. It also undertook not to do any act which may diminish the value of the hypothecated property without clearing the entire outstanding amount. Clause (9) provided that if NEPC India failed to pay any of the instalments with interest within the stipulated time, or if any undertaking or assurance given by NEPC India was found to be false, IOC shall have the "right to take possession of the hypothecated property" and sell the same by public auction or by private contract and appropriate the sale proceeds towards the outstanding dues without recourse to court of law. Clause 12 confirmed that NEPC India had handed over the title deeds relating to the aircraft to IOC, and agreed to receive them back only after paying the amounts due. It is stated that Skyline also hypothecated its aircraft (VT-ECP) under a separate Hypothecation Deed dated 14.5.1997. It is further stated that a tripartite agreement dated 6.5.1997 was entered among IOC, NEPC India and Skyline setting out the mode of payment of the dues and recovery in the event of default.

4. As NEPC India failed to pay the first two instalments as per schedule, IOC stopped supply of aircraft fuel on 3.6.1997. However, subsequently, under a fresh agreement dated 20.9.1997, a revised payment schedule was agreed and IOC agreed to re-commence supply of aircraft fuel on cash and carry basis. Even this arrangement came to an end as the instalments were not paid.

5. Apprehending that NEPC India may remove the hypothecated aircraft (VT-NEJ) from Coimbatore Airport to a place outside its reach, IOC filed C.S. No.425 of 1997 in the Madras High Court seeking a mandatory injunction to the Airport Authority of India and Director General of Civil Aviation to detain the said aircraft stationed at Coimbatore Airport, under section 8 of the Aircraft Act, 1934, so as to enable it to take possession thereof. The High Court granted an interim injunction on 16.9.1997 restraining NEPC India from removing the aircraft (VT-NEJ) from Coimbatore Airport. In regard to the other hypothecated aircraft (VT-NEK) kept at Meenambakkam (Chennai) Airport, IOC filed a suit

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2006 Supreme(SC) 675

Cases Referred (12)