Full Judgment Text
NON-REPORTABLE
2025 INSC 1001
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 3467 OF 2025
[ARISING OUT OF SLP (Crl.) NO. 1577 OF 2022]
SUNIL SHARMA …APPELLANT
VERSUS
M/S HERO FINCORP LIMITED & ANOTHER …RESPONDENTS
J U D G M E N T
DIPANKAR DATTA, J.
1. Leave granted.
2. The appellant takes exception to the judgment and order dated
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04.01.2022 of the High Court of Delhi, passed on a petition filed by the
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first respondent under Section 482 of Code of Criminal Procedure,
Signature Not Verified
Digitally signed by
NEETU KHAJURIA
Date: 2025.08.19
16:50:31 IST
Reason:
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impugned order
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Hero
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1973 . In the impugned order, the High Court considered the decision of
a Constitution Bench of this Court in Lalita Kumari v. State of Uttar
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Pradesh , more particularly paragraphs 49, 50 and 53 to 56, and held
as follows:
“24. Applying the law to the facts of this case, undisputedly loans
have been taken by the respondent No.2 for purchase of machineries.
The machineries have not been purchased and the money, which had
been taken for purchase of machinery, has been misappropriated for
the use of respondent No.2. The facts on the face of it prima facie
discloses a cognizable offence. The learned CMM and the learned PDJ
have erred in not directing the registration of the FIR as the offence
alleged of directly comes within the four corners of the Constitution
Bench Judgment of Lalita Kumari vs. State of U.P. (supra). The
complaint of the Petitioner discloses a cognizable offence i.e. criminal
breach of trust in respect of the terms of contract that was agreed
upon, which requires to be investigated by the police despite taking
into account the fact that borrowed amounts stand repaid to the
Petitioner or the fact that proceedings before the arbitral tribunal are
ongoing. Therefore, this Court is of the opinion that a cognizable
offence has been alleged against respondent No.2 and the same
should be investigated after the registration of an FIR.
25. This Court directs the Economic Offences Wing to register an FIR
against the respondent No.2 under the appropriate Sections.”
3. Facts are not in dispute.
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a. The appellant happened to be a Director of M/s. Benlon India Ltd. .
Benlon had availed financial assistance for purchasing machineries
from Hero vide three separate loan transactions, viz. Rs.12.25 crore
on 24.10.2014; Rs.10 crore on 06.02.2015 and Rs.15 crore on
10.02.2016, followed by several agreements including execution of
personal guarantees and mortgage of movable and immovable
properties of Benlon and the appellant. Machines were purchased in
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Cr. PC
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(2014) 2 SCC 1
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Benlon
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pursuance of the first two loan agreements; however, an incident of
fire which ravaged the plant of Benlon on 02.03.2016 resulted in
destruction of machinery worth Rs.180 crore. The police were
informed whereupon an FIR was registered. Contrary to the conditions
of the Sanction Letter dated 10.02.2016, the loan of Rs.15 crore,
which was disbursed on 25.02.2016, was converted into unsecured
loan and not for purchase of machineries. No objection was, however,
raised by Hero after disbursement of Rs.15 crore on 25.02.2016 till
May 2018, i.e., when instalments against all the said three loans were
duly paid by Benlon and which was also admitted by Hero (as reflected
in a Status Report of the Investigating Officer dated 28.08.2019).
b. In May 2018, a petition under Section 9 of the Insolvency and
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Bankruptcy Code, 2016 was filed against Benlon by a creditor before
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the National Company Law Tribunal, New Delhi . By that time, Benlon
had paid Rs.26.92 crore against the entire loan amount of Rs.37.25
crore. On 19.12.2018, NCLT allowed the petition under Section 9, IBC
and initiated corporate insolvency resolution process. Pursuantly, an
interim resolution professional was appointed who proceeded to
conduct a forensic audit of the accounts of the company and found no
diversion of funds and admitted the entire claim of Rs.23.82 crore of
Hero.
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IBC
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NCLT
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c. In the meanwhile, however, Hero initiated the following actions
against Benlon: (i) a total of 32 complaint cases under Section 138 of
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the Negotiable Instruments Act, 1881 , were lodged against Benlon
and the appellant before the court at Saket, New Delhi; (ii) an
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application before the Delhi High Court under Section 9 of the
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Arbitration and Conciliation Act, 1996 ; (iii) a complaint before the
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Deputy Commissioner of Police, Economic Offences Wing , New Delhi,
(iv) arbitration proceedings under the A & C Act before a sole
Arbitrator claiming an amount of Rs.24.97 crore together with
interest, and (v) steps under Section 13 of the Securitisation and
Reconstruction of Financial Assets and Enforcement Of Security
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Interest Act, 2002 , whereupon Hero took possession of the collateral
security and sold and appropriated the proceeds received towards part
satisfaction of his dues.
d. NCLT on the recommendation of the Committee of Creditors approved
a resolution plan for revival of Benlon by an order dated 20.10.2020.
e. A second complaint was lodged by Hero before the Special
Commissioner of Police, EOW, New Delhi, on 11.07.2019. Close on the
heels thereof, Hero lodged a complaint under Section 156(3) of the
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Cr. PC before the Chief Metropolitan Magistrate, Patiala House
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NI Act
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OMP (I) (COMM.) No.423 of 2018
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A & C Act
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EOW
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SARFAESI Act
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Complaint Case No.12271 of 2019
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Courts on 27.07.2019. On 28.08.2019, EOW submitted a detailed
Status Report that no cognizable offence was made out in terms of
the decision in Lalita Kumari (supra) and, therefore, recommended
closure of the complaint. The CMM, vide order dated 10.11.2020,
rejected the application for registration of FIR and posted the matter
for pre-summoning evidence (as all the facts and documents were in
the possession of Hero, which could be looked into under Section 200,
Cr. PC).
f. The order dated 10.11.2020 of the CMM was challenged in a revisional
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application , which was dismissed on 22.01.2021 by the District and
Sessions Judge, Patiala House Courts, New Delhi.
g. The order of the revisional court was laid to challenge before the High
Court, which has been allowed by the impugned order.
4. The appellant questioned the impugned order by invoking the jurisdiction
of this Court under Article 136 of the Constitution on 25.01.2022,
whereupon a coordinate Bench by an order dated 28.02.2022 stayed the
impugned order; however, liberty was reserved for Hero to proceed in
terms of the order passed by the CMM under Section 202, Cr. PC.
5. During the pendency of this appeal, a couple of developments took place
which are relevant and may be noted now. On 04.03.2022, vide an
assignment agreement, the entire debt of Hero along with other creditors
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of Benlon were assigned to Prudent ARC Ltd. On 11.08.2023, no
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CMM
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C.R. No.369 of 2020
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Prudent
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objection certificate was issued by Prudent towards satisfaction of the
entire dues including that of Hero. In between, on 18.05.2022, the 32
complaints under Section 138 of the NI Act against Benlon and the
appellant were withdrawn by Hero.
6. We have heard learned counsel appearing for the appellant, learned
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counsel for Hero and learned senior counsel for the 2 respondent –
State (NCT of Delhi) at some length.
7. The short question that arises for decision is, whether from the complaint
under Section 156(3), Cr. PC lodged by Hero, the ingredients of the
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offence under Section 405, Indian Penal Code, 1860 are disclosed which
could justify the High Court to direct registration of an FIR under Section
154, Cr. PC against the appellant.
8. What would amount to “criminal breach of trust’ is dealt with by Section
405 of the IPC and the punishment for an offence thereunder is provided
in Section 406 thereof. Section 405, IPC, reads as follows:
Section 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".
9. It would appear on a bare reading of the above provision that an offence
of criminal breach of trust is committed if the accused (i) being entrusted
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IPC
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with ‘property’ or ‘dominion over property’ (ii) dishonestly
misappropriates such property or converts thereof for own use, or,
dishonestly uses or disposes of such property (iii) violating any direction
of law prescribing the mode in which such trust is to be discharged, or of
any legal contract which the accused has made touching the discharge of
such trust; or (iv) wilfully suffers any other person to do so.
10. It does not admit of any doubt that the term “entrusted” in Section 405,
IPC is crucial and governs both “with property” immediately following it
as well as “with any dominion over property” occurring thereafter. Since
the word “entrusted” is used, the same implies that there is a trust
involving an obligation tied to ownership of the property. This means, a
confidence is placed in and accepted by the owner - or declared and
accepted by him – for the benefit of another person, or for both that
person and the owner. Creation of the trust means the person to whom
the property is handed over does not become its beneficial owner even
when he is not using it according to the given directions at the time of
entrustment of the property.
11. The underlying idea which we find in Section 405, IPC is undoubtedly
this, that the property, which is entrusted, or in respect of which
dominion is passed over, to another person does not even become such
person’s property, even temporarily, for him to use as he wishes. Thus,
the section would not normally cover the case of a loan where the lender
advances money to the borrower who intends to use or utilise the money,
for the time being, till he is in possession of it, although he may have to
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return an equivalent amount later on to the lender with or without
interest or compensation for the use thereof. The position could be
otherwise if a different intention appears in the relevant loan agreement.
12. Next, when a loan is advanced, a relationship of creditor and debtor is
created and the money lent is generally to be utilised by the borrower for
the purpose it is handed over. If, however, a breach of the direction as
to how the money is to be utilised appearing from the relevant loan
agreement occasions not because the borrower dishonestly
misappropriates the same or converts it for his own use with the intention
of causing wrongful gain to himself or wrongful loss to the lender, but
because the borrower is forced by circumstances beyond his control to
act in violation of the stipulations therein and, violates the same, no
offence is committed punishable under Section 406, IPC.
13. Also, when a relation of debtor and creditor is created by a loan
transaction and the monies are not repaid according to the terms agreed
upon, it gives rise to a civil liability. A criminal liability would arise in
addition to the civil liability when all the ingredients of Section 405, IPC
are satisfied.
14. In the present case, upon the facts as they appear from the record, a
relation of debtor and creditor was created between the appellant and
Hero, respectively. The beneficial ownership in the money so advanced
to Benlon was intended to be transferred to it and it was not intended
that it was to keep the money intact in its possession and make no use
of it at all, whether or not interest was paid on it. In our opinion, on the
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plain terms of the loan agreement and the facts that have unfolded, the
appellant or, for that matter, Benlon could not be said to have committed
any offence.
15. Even if it is assumed that the appellant was entitled in terms of the loan
agreement to only utilise the money for the purpose of purchase of
machinery and not for any other purpose and that the money lent had to
be returned together with interest, the facts on record reveal that breach,
if any, of the trust had occasioned because Benlon and its directors were
forced by circumstances beyond their control not to purchase the
machinery owing to the incident of fire which ravaged the plant within a
week of receipt of the loan amount and not because the appellant had
any dishonest intention of causing wrongful gain to himself and/or
wrongful loss to Hero. So long Hero received the monthly instalments for
repayment of the loan on time, i.e., till April/May 2018, it did not even
inquire in terms of the loan agreement as to whether the money lent was
being used for the stated purpose. It is only when the process under the
IBC was set rolling by another creditor resulting in default in payment of
the instalments that Hero activated itself and took recourse to all legal
remedies – civil and criminal – that were available to it.
16. We cannot be oblivious of the fact that the assertion of the appellant that
the machinery loan was converted to a corporate loan immediately after
the incident of fire finds support at least from one documentary evidence,
i.e., the assignment deed by which the debts owed by Benlon to Hero
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were assigned to Prudent. On facts, therefore, dishonest
misappropriation or conversion is clearly non-existent.
17. Even otherwise, we find that the High Court fell in error in not truly
appreciating the dicta of this Court in Lalita Kumari (supra). At
paragraph ‘120.6’ thereof, one finds enumeration of certain non-
exhaustive category of cases in which a preliminary inquiry could be
made prior to registration of an FIR based on a complaint that is received
in a police station. ‘Commercial offences’ is one such case where
preliminary inquiry being permissible, such an inquiry was in fact
conducted by the police whereupon a finding was returned of no
cognizable offence having been committed. The impugned order of the
High Court did not examine the report to ascertain whether it suffers
from any infirmity. Keeping in view such report of inquiry, which did not
suffer from any infirmity, we feel that the High Court was not justified in
directing the second respondent to register a complaint against the
appellant for criminal breach of trust. The order of the relevant Magistrate
keeping the option of Hero open to proceed with the complaint under
Section 202, Cr. PC did not warrant interdiction by the High Court.
18. For the foregoing reasons, and also having regard to the other mitigating
circumstances, in favour of the appellant, we are of the considered
opinion that continuance of proceedings before the criminal court now
would be an abuse of the process of law. In exercise of the High Court's
power under Section 482, Cr. PC, the petition of Hero ought not to have
been accepted.
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19. The impugned order, accordingly, stands set aside. The appeal is allowed,
without any order as to costs.
20. Pending applications, if any, stand disposed of.
…………………..…………………J.
(DIPANKAR DATTA)
…….…….………....………………J.
(AUGUSTINE GEORGE MASIH)
NEW DELHI.
AUGUST 12, 2025.
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