IMPORTANT POINT
Quashing of FIR - Arbitration clause in the agreement - Criminal breach of trust - Arbitration clause in itself cannot lead to quashing of all the proceedings.

RANJIT SINGH, J.

1. The petitioners, who are partners of rice sheller being run under the name and style of Zimidara Rice Mills, Dhilwan, District Kapurthala (hereinafter referred as “the mill”), seek quashing of FIR No.46 Dated 4.7.2003 registered against them under Sections 420, 408 and 120-B IPC at Police Station Dhilwan, District Kapurthala.

2. The above noted FIR had been registered at the instance of District Manager PUNSUP, District Kapurthala. The allegations made in the FIR reveal that on 8.10.2001 the mill had entered into an agreement with PUNSUP, Kapurthala, a Government Undertaking, for custom milling of paddy crop for the year 2001- 2002. The mill was required to deliver the rice to FCI in the PUNSUP account after milling the paddy crop. The mill was entrusted 96275 bags weighing 4-8137-50-000 of paddy grade-A. Out of this quantity, 29270 bags weighing 14586-44-000 paddy was transferred by the miller to other rice mills for milling purposes. As such, 67005 bags weighing 33551-06-000 paddy grade-A was left with the miller for custom milling as aforementioned. Against this, the miller delivered 22184 bags weighing 16582-27- 000 rice grade-A to FCI in PUNSUP account. The mill had deposited Rs.5,05,000/- in PUNSUP account, which is approximate cost 500 quintals equal to 750 quintals of paddy. Thus, the mill was left with balance of17329 bags weighing 8713-06-000 of paddy grade -A. This should have been physically available with the mill. However, on physical verification conducted by the Field Officer on 12.6.2003, it was found that only 5550 bags weighing 2775-000- 000 of paddy grade-A was lying in the mill. Accordingly, there was a shortage of 11779 bags weighing 5938- 06000 of paddy grade- A with the mill. It was, as such, found that the mill had embezzled/mis-appropriated this paddy, which had been given to it for custom milling and had been entrusted to the mill by the complainant- PUNSUP. On the basis of this complaint, the impugned FIR was registered against the mill and the petitioners, who are partners and thus running the mill.

3. Referring to agreement dated 8.10.2001, the petitioners have admitted that the mill was entrusted paddy by the PUNSUP for shelling. It is also not in dispute that this paddy was for custom milling. The allegations of shortage, however, have been denied. It has been mentioned in the petition that in the month of May, 2002, petitioner No.2 had written to the District Manager, PUNSUP, Kapurthala for shifting the paddy due to space problem but the PUNSUP officials did not take any step in this regard. It is also claimed that Gurcharan Singh and Balwant Singh Inspectors, PUNSUP started unnecessarily harassing and interfering with the shelling work, which was thus badly affected. It is then disclosed that repeated requests and reminders were given to the PUNSUP for shifting of paddy, but no action was taken on any of the requests. It is claimed that unfortunately, the paddy lying in the sheller premises got decayed and the petitioners had to deposit cost of damaged/shortage of paddy. It is in this regard that the mill had deposited Rs.5,05,000/- towards cost of damage/shortage of paddy. In addition, the petitioners-mill had also issued cheques in favour of PUNSUP as security in respect of balance cost of shortage of paddy, if any, found on settlement between the parties. These cheques stated to have been deposited as security, were presented by PUNSUP on 26.6.2003 and were dishonoured on 30.6.2003. As per the petitioners, these cheques were presented without settling the balance cost of shortage of paddy if any. A legal notice under Section 138 of the Negotiable Instruments Act was issued to the petitioners for dishonouring of the cheques as aforementioned and ultimately the complaint was filed by PUNSUP against the petitioners. Copies of FIR dated 4.7.2003 and the complaint have been annexed with the petition. It has also been disclosed in the petition that the PUNSUP has also