Hypothecation does not result in the 'entrustment' of property required for criminal breach of trust under Section 405 IPC, as the debtor retains ownership and possession. Criminal proceedings cannot be used as a pressure tactic to settle civil or commercial disputes.

Rakesh Kainthla, Judge

1. The present petition is directed against the order dated 21.3.2024, passed by learned Chief Judicial Magistrate Shimla (learned Trial Court) vide which the application filed by the petitioner under Section 156 (3) of CrPC was dismissed. (Parties shall hereinafter be referred to in the same manner as they were arrayed before the learned trial Court for convenience).

2. Briefly stated, the facts giving rise to the present petition are that the complainant filed an application under Section 156 (3) of the CrPC for appropriate direction to Station House Officer (SHO), State CID, Shimla to register an FIR for the commission of offences punishable under Section 206, 403, 406, 420, 421 and 425 of the Indian Penal Code (IPC) read with Section 120B of the IPC. It was asserted that the complainant is a corporation established under the Small Industrial Development Bank of India. Accused No. 1 is a partnership firm having its manufacturing unit at Plot Nos. 8 and 9, New Industrial Area, Bain Attarian, P.O. Kanrori, Tehsil Indora, District Kangra, H.P. Accused Nos. 2 and 3 are active partners of Accused No. 1. Accused No.1 was engaged in the manufacturing of tablets, capsules and ointments and their marketing. Accused Nos. 2 and 3 approached the complainant, representing that they had set up a unit for pharmaceutical formulation, tablets, capsules, ointment and other allied products. The complainant sanctioned financial assistance of ₹270.00 lacs. An amount of ₹143.00 lacs was sanctioned under the Direct Credit Scheme for the purchase/acquisition of additional plant and machinery. A sub-debt of ₹127.00 lacs was sanctioned under the Growth, Capital, and Equity Assistance for MSME (GEMS) Scheme. The loan under the direct credit scheme was secured by way of hypothecation of the plant, machinery, equipment, tools, spares, accessories and all other assets acquired/proposed to be acquired under the project. Subservient charge was extended on the Sub Debt Loan. Accused Nos. 1 to 3 created the first charge by way of hypothecation vide Deed of Hypothecation dated 30.8.2013 and the subservient charge by Deed of Hypothecation dated 24.10.2013. The accused informed the complainant about the purchase of various machinery and submitted the bills. The officials of the complainant also visited the factory sites on 19.9.2014 and 27.6.2015. The accused defaulted in the repayment of the loan, and an application was filed before the Debt Recovery Tribunal, Ahmedabad, on 24.1.2017 for the recovery of the dues. A demand notice was issued to the accused on 28.9.2017 under the SARFAESI Act, 2002. The complainant asked the accused to arrange the inspection. The accused represented that they would not be able to depute their representative to the factory on 8th August, 2016 and they requested the complainant to postpone the visit. Subsequent efforts to visit the factory and verification of assets could not materialise as the unit was closed, and the accused did not respond to the demand for a visit. The officials of the complainant visited the factory on 16.5.2018 and found that the premises where the hypothecated assets were to be kept were locked. The accused told the official of the complainant that the machines were placed in the adjoining premises. However, the machines were not available, and only smaller components of some pharma machinery were found in bad condition. These did not match the photographs of the financed machines. The accused had removed the hypothecated machines after the complainant had taken steps to recover the loan. A complain