SRI.SHANKAR N vs STATE OF KARNATAKA
- Court
- Karnataka High Court
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HC-KAR
NC: 2026:KHC:61430
CRL.P No. 2698 of 2025
CNR: KAHC010128132025
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
TH
DATED THIS THE 4 DAY OF NOVEMBER, 2026
BEFORE
THE HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
CRIMINAL PETITION NO. 2698 OF 2025 (482(Cr.PC)
/ 528(BNSS)-)
BETWEEN:
SRI.SHANKAR N
S/O. NAGARAJAH J.S,
AGED ABOUT 50 YEARS,
R/AT NO.39, SF-205,
ABHIVRUDDI ENCLAVE,
GOPALAKRISHNA LAYOUT,
SUBRAMANYAPURA, BENGALURU - 560070.
…PETITIONER
(BY SRI. YATHISHA K J.,ADVOCATE)
AND:
1. STATE OF KARNATAKA
BY BANASHANKARI POLICE STATION,
REPRESENTED BY THE
STATE PUBLIC PROSECUTOR,
HIGH COURT OF KARNATAKA,
BENGALURU 560001.
2. SRI. DARSHAN VENKATESH
S/O VENKATESH
AGED ABOUT 27 YEARS
RESIDING AT NO.15,
TH
NEW NO.09, 11 CROSS,
CHIKKALASANDRA MAIN ROAD
PADHMANABHA NAGAR,
BENGALURU-560070
…RESPONDENTS
(BY SMT. RASHMI PATEL., HCGP FOR R1;
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
Verified
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SRI. KIRAN B.S., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED U/S 482 CR.PC (FILED U/S
528 BNSS) PRAYING TO QUASH THE ENTIRE PROCEEDINGS
AGAINST ACCUSED NO.2 THE PETITIONER HEREIN, IN
SPL.C.NO.1034/2022 ARISING OUT OF CRIME NO.26/2022 OF
BANASHANKARI POLICE STATION, FOR THE OFFENCES PUNISHABLE
UNDER SECTIONS 120(B), 406, 409, 420 R/W 34 OF IPC AND
UNDER SECTION 9 OF THE KARNATAKA PROTECTION OF INTEREST
OF DEPOSITORS IN FINANCIAL ESTABLISHMENT ACT, 2004, AND
U/S 21 OF THE BANNING OF UNREGULATED DEPOSIT SCHEMES ACT,
2019, ON THE FILE OF THE PRL.CITY CIVIL AND SESSIONS JUDGE,
(CCH-01) AT BENGALURU AND ETC.
THIS CRIMINAL PETITION, COMING ON FOR ADMISSION, THIS
DAY, ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE SURAJ GOVINDARAJ
ORAL ORDER
1. The Petitioner is before this Court seeking for the
following reliefs:
i) Quash the entire proceedings against accused no.2 the
petitioner herein, in Spl.C.No.1034/2022 arising out of
Crime No.26/2022 of Banashankari Police Station, for
the offences punishable under sections 120(B), 406,
409, 420 r/w 34 of IPC and under section 9 of the
Karnataka Protection Of Interest Of Depositors In
Financial Establishment Act, 2004, and u/s 21 of the
Banning Of Unregulated Deposit Schemes Act, 2019,
on the file of the Prl.City Civil and Sessions Judge,
(CCH-01) at Bengaluru.
ii) Pass such other order and orders as this Honble Court
may deem fit to grant in the facts and circumstances
of the case to meet then ends of justice.
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
Verified
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2. Respondent No.2 lodged a complaint on 08.02.2022,
pursuant to which Crime No.26/2022 came to be
registered by Banashankari Police Station for the offences
punishable under Sections 120-B, 406, 409, 420 read
with Section 34 of the Indian Penal Code, Section 9 of the
Karnataka Protection of Interest of Depositors in Financial
Establishments Act, 2004 (hereinafter referred to as the
‘ KPIDE Act’ ), and Section 21 of the Banning of
Unregulated Deposit Schemes Act, 2019 (hereinafter
referred to as the ‘ BUDS Act’ ).
3. Investigation having been conducted, a charge sheet
came to be filed on 30.04.2022 for the aforesaid
offences. It is challenging the said proceedings, insofar as
he is concerned, that the petitioner is before this Court.
4. The submission of learned counsel for the petitioner is
that accused Nos.1 and 3 alone were running the
establishment, namely, Panchamukhi Chits Private
Limited. The petitioner, who is arrayed as accused No.2,
is only the brother of accused No.1 and had nothing to do
with the affairs of the said establishment.
5. Learned counsel submits that the allegations made in the
complaint and the statements recorded during
investigation are substantially a repetition of the
allegation that the petitioner was involved in the
business. It is contended that such statements cannot be
Digitally Signed By:
SURAJ GOVINDA RAJ
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relied upon in the absence of any documentary material
demonstrating that the petitioner derived a benefit from
the transactions. According to learned counsel, no
material establishes any nexus between the petitioner
and the alleged collection of deposits or the alleged
financial fraud.
6. In support of the said contention, learned counsel places
reliance upon the decision of a Co-ordinate Bench of this
Court in Sri Vipul Prakash Patil v. State of Karnataka
and Others, Criminal Petition No.104152/2022, decided
on 30.05.2023, more particularly paragraphs 16 to 22
thereof, which read as follows:
“16. The documents that are produced by Sri.Harshawardhan
M Patil would no doubt make out a case that the money is
received by Pankaj Namadev Patil and Santosh Gangaram
Ghodake. The defacto complainant is unable to place any
documentary proof whatsoever at least at this stage in order
to establish the nexus between the alleged fraud and the
present petitioner.
17. It is the argument of Sri.Harshawardhan M Patil that it is
for the investigating agency to investigate the matter
thoroughly and file appropriate report. Such an argument on
behalf of the defacto complainant is farfetched in the
considered opinion of this Court.
18. In order to proceed against a person with criminal action,
the complainant or the prosecuting agency must make out a
prima facie material whereby some nexus could be established
to the alleged crime with a person. If such material is not
available, very registration of the case against such persons
would definitely amount to abuse of process of law affecting
right of a citizen enshrined in Article 21 of the Constitution of
India. No person shall be allowed to undergo ordeal of a
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
Verified
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criminal investigation unless there is some material which
would connect the said person with the alleged crime.
19. In the case on hand, since only name of the present
petitioner is taken in the complaint without there being any
documentary proof to remotely establish the nexus to the
alleged fraud and the present petitioner, this Court is of the
considered opinion that continuation of investigation as against
the present petitioner in Crime No.242/2022 would necessarily
result in abuse of process of law.
20. Therefore, a case is made out by the petitioner to exercise
powers vested in this Court under Section 482 of Cr.P.C. in
seeking quashing of very registration of the case as against the
petitioner.
21. At this stage, Sri.Harshawardhan M Patil, submits that
when investigation is proceeded against other two persons and
Pinomic Ventures LLP if the investigation agency were to find
any material whereby the present petitioner is also involved in
the alleged fraud, the investigating officer may be reserved
with liberty of arraigning him as an additional accused. The
said submission appears to be fair.
22. Sri.Pramod Kathavi, learned Senior counsel fairly submits
that even if this Court does not reserve such liberty, the
investigating officer having regard to the powers vested in him
under the Code of Criminal Procedure can always arraign an
additional accused if there is sufficient material to proceed
against him and file appropriate report as contemplated under
Section 173 of Cr.P.C. Nevertheless, he has no objection if any
such material is unearthed by the investigating agency to
arraign the present petitioner as an additional accused.”
7. Relying upon Vipul Prakash Patil , learned counsel
submits that unless there is material establishing a nexus
between the petitioner and the alleged crime, the
proceedings cannot be continued against him. It is
contended that continuation of the proceedings, in the
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
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absence of such material, would violate the petitioner's
right under Article 21 of the Constitution of India. On this
basis, learned counsel seeks quashing of the proceedings
insofar as the petitioner is concerned.
8. Per contra, Sri Kiran B.S., learned counsel appearing for
respondent No.2, submits that although the complaint in
the present case was lodged by respondent No.2, several
other depositors have also lodged complaints against the
establishment. The allegations have been investigated
and the charge sheet runs into nearly 2,000 pages,
containing statements of approximately 170 witnesses.
9. Learned counsel submits that the witnesses have
consistently stated that the petitioner was involved in the
business along with accused No.1 and that the petitioner
personally collected money from several depositors on
behalf of Panchamukhi Chits. It is contended that the
statements are not confined to a general allegation of
association with accused No.1, but specifically attribute
the collection of deposits to the petitioner.
10. Learned counsel further submits that the depositors were
induced to invest their money on the promise that
interest would be paid at the rate of 24% per annum.
Initially, payments were made, but subsequently the
payments stopped and the deposited amounts were not
returned. It is submitted that nearly Rs.500 crore is
Digitally Signed By:
SURAJ GOVINDA RAJ
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alleged to have been collected by the establishment from
unsuspecting investors, who have been deprived of their
savings.
11. It is further submitted that the petitioner is a director of
Panchamukhi Apparels Private Limited, which is stated to
be a group company. The seal of Panchamukhi Apparels
was found in the premises of Panchamukhi Chits,
indicating that the businesses of the two establishments
were being conducted from the same premises. Learned
counsel submits that accused No.1 and the petitioner,
who are brothers, were handling the respective
businesses and that the material collected during
investigation establishes the petitioner's involvement in
the collection of deposits.
12. On these grounds, learned counsel submits that there is
sufficient material to continue the prosecution and that
this Court ought not to interfere with the proceedings by
conducting a mini-trial in exercise of its jurisdiction under
Section 482 of the Code of Criminal Procedure.
13. Learned High Court Government Pleader adopts the
submissions made on behalf of respondent No.2 and
submits that the investigation has been completed and
the petitioner has been arrayed as accused No.2 on the
basis of the material collected during investigation. It is
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
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therefore submitted that the petition is liable to be
dismissed.
14. Heard Sri Yathisha K.T., learned counsel for the
petitioner, Smt. Rashmi Patel, learned High Court
Government Pleader for respondent No.1, and Sri Kiran
B.S., learned counsel for respondent No.2. Perused the
papers.
15. The complaint lodged by respondent No.2 on 08.02.2022
alleges that Panchamukhi Chits and persons associated
with the establishment represented to prospective
depositors that amounts invested with the establishment
would earn interest at the rate of 24% per annum. Acting
upon such representations, respondent No.2 is stated to
have deposited money with the establishment from time
to time. Although payments were initially made, the
establishment subsequently stopped making payments
and failed to return the deposited amount.
16. The complaint specifically refers to Ananthram, Varun Raj
and Shankar, the brother of Ananthram, as persons who
collected money from respondent No.2. The petitioner
herein is Shankar.
17. During investigation, statements of approximately 170
persons were recorded. The submission on behalf of
respondent No.2 is that several of these witnesses have
specifically stated that Ananthram and his brother
Digitally Signed By:
SURAJ GOVINDA RAJ
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Shankar, the petitioner herein, collected money from
them on behalf of Panchamukhi Chits. It is further
submitted that the amount collected by the establishment
from depositors is alleged to be in the vicinity of Rs.500
crore.
18. The charge sheet contains nearly 2,000 pages. The
material relied upon by the prosecution is therefore not
confined to the complaint of respondent No.2 or to the
mere naming of the petitioner. The prosecution relies
upon statements of several depositors who are stated to
have personally dealt with the petitioner and entrusted
money to him.
19. The petitioner contends that he was concerned only with
Panchamukhi Apparels Private Limited and that
Panchamukhi Chits was being managed by accused No.1
and his wife Sandhya. The petitioner further contends
that he had no role in the collection of deposits and that
there is no documentary material showing that he
received any benefit from the transactions.
20. The prosecution, however, relies upon the statements of
depositors who have specifically attributed the collection
of money to the petitioner. It is also pointed out that the
petitioner was a director of Panchamukhi Apparels Private
Limited and that the seal of the said company was found
in the premises of Panchamukhi Chits. These
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
Verified
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circumstances, when considered along with the
statements of the depositors, require examination in their
entirety.
21. The petitioner's relationship with accused No.1, by itself,
cannot establish his guilt. Similarly, his directorship in
another company or the presence of that company's seal
in the premises of Panchamukhi Chits, taken in isolation,
would not be sufficient to attribute criminal liability.
However, the prosecution relies upon specific statements
concerning the petitioner's own conduct, namely, that he
personally collected deposits from members of the public
on behalf of Panchamukhi Chits. It is this alleged
participation, and not merely his relationship or
association, which assumes significance.
22. The principal question that arises for consideration is
whether the material collected during investigation
discloses a prima facie nexus between the petitioner and
the alleged offences, or whether the petitioner has been
implicated merely on account of his relationship with
accused No.1.
23. The seriousness of the allegations or the scale of the
alleged financial loss cannot substitute for the ingredients
of the offences. Equally, where the material collected
during investigation specifically attributes acts to an
accused, the proceedings cannot be quashed merely
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
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because the accused disputes those allegations or
because the prosecution has not produced documentary
proof of personal financial gain.
24. Section 406 of the IPC prescribes punishment for criminal
breach of trust. Section 405, which defines criminal
breach of trust, requires:
24.1. entrustment of property or dominion over property
to the accused;
24.2. dishonest misappropriation or conversion of such
property to his own use; or dishonest use or
disposal of the property in violation of a direction of
law or a legal contract governing the discharge of
the trust; or wilfully suffering another person to so
deal with the property; and
24.3. the requisite dishonest intention accompanying
such conduct.
25. The expression ‘entrustment’ is not to be understood in
an unduly narrow or technical manner. It is necessary
that the property, or dominion over it, is placed in the
hands of the accused for a particular purpose or in a
relationship which obliges him to deal with it in a manner
consistent with the confidence reposed in him. The
ownership or beneficial interest in the property must, in
Digitally Signed By:
SURAJ GOVINDA RAJ
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the circumstances contemplated by the section, remain
with a person other than the accused.
26. In the present case, the prosecution does not rest its
allegation merely on the fact that deposits were made
with a company and that the company subsequently
failed to repay them. The specific allegation is that the
petitioner himself collected money from several
depositors on behalf of Panchamukhi Chits. The
statements of the depositors are stated to identify the
petitioner as the person who received the money,
including amounts collected in cash.
27. If the depositors handed over the money directly to the
petitioner in his capacity as the person entrusted with
collecting and accounting for the deposits, the petitioner
would have had dominion over the money for the purpose
for which it was received. The allegation thus concerns
not merely a debt owed by the company but the
petitioner's direct receipt and handling of money
belonging to the depositors.
28. The subsequent failure to return deposits, by itself, would
not automatically constitute criminal breach of trust.
There must also be material from which dishonest
misappropriation, conversion, use or disposal, or wilful
permitting of another to so deal with the entrusted
property, can prima facie be inferred. In the present
Digitally Signed By:
SURAJ GOVINDA RAJ
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case, the prosecution relies upon the repeated collection
of deposits by the petitioner, the alleged operation of the
establishment as a common business, the substantial
sums collected from numerous depositors, the initial
payment of returns and the subsequent failure to account
for or return the deposits. These circumstances, taken
together, are relied upon to indicate that the money was
not merely received in an isolated transaction followed by
an ordinary repayment default, but was collected and
dealt with as part of the alleged fraudulent operation.
29. The circumstances in which the petitioner received the
cash deposits, the manner in which he accounted for or
transferred the amounts, the manner in which the
establishment dealt with the collections and whether the
petitioner dishonestly used, disposed of or permitted
others to deal with the funds contrary to the purpose for
which they were received are matters to be examined on
the evidence. The statements attributing direct collection
to the petitioner provide a prima facie foundation for that
inquiry. It would be inappropriate to quash the entire
proceedings without considering the specific role
attributed to him.
30. Section 409 of the IPC is an aggravated form of criminal
breach of trust. In addition to the ingredients of Section
405, the prosecution must establish that the accused was
entrusted with the property, or had dominion over it, in
Digitally Signed By:
SURAJ GOVINDA RAJ
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one of the capacities specifically enumerated in Section
409, namely, as a public servant or in the course of
business as a banker, merchant, factor, broker, attorney
or agent.
31. In the present case, the prosecution's case is that the
petitioner was not merely a person acquainted with the
affairs of Panchamukhi Chits. He is alleged to have acted
as a collecting agent of the establishment and to have
personally received deposits from several members of the
public. The expression ‘agent’ in Section 409 is
significant. Where a person, in the course of business,
receives money on behalf of an establishment and is
entrusted with the responsibility of collecting and
accounting for the same, his actual role and the nature of
the dominion exercised over the funds become relevant
to the application of the provision.
32. The prosecution relies upon statements of several
depositors who are stated to have personally handed over
money to the petitioner. If those statements are accepted
at their face value, they provide material to examine
whether the petitioner was acting as an agent in the
collection of deposits and whether the money received by
him was thereafter dealt with dishonestly. The
prosecution is not relying solely upon his designation as a
director of another company or his relationship with
Digitally Signed By:
SURAJ GOVINDA RAJ
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accused No.1. It relies upon his alleged conduct as a
person who collected deposits from the public.
33. Whether the petitioner was acting as an agent in the
manner contemplated by Section 409, whether the
money was entrusted to him in that capacity and whether
he committed a criminal breach of trust in respect of the
same are matters which require consideration on the
evidence. At this stage, the specific statements
attributing the collection of money to him cannot be
brushed aside.
34. It is necessary, however, to keep in view the distinction
between criminal breach of trust and cheating. In Delhi
Race Club (1940) Limited and Others v. State of
Uttar Pradesh and Another , 2024 INSC 626, reported
in (2024) 10 SCC 690, the Hon'ble Supreme Court
reiterated that criminal breach of trust requires lawful
entrustment followed by dishonest misappropriation or
conversion, whereas cheating requires dishonest
inducement at the inception which causes the person
deceived to deliver property or do or omit an act. The two
offences rest on distinct and, in their essential factual
foundation, mutually exclusive concepts. They cannot be
mechanically invoked together in respect of the very
same transaction without identifying the distinct factual
basis for each.
Digitally Signed By:
SURAJ GOVINDA RAJ
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35. The prosecution in the present case concerns a number of
depositors and multiple collections over a period of time.
The allegation of cheating relates to the representations
made to induce depositors to part with their money. The
allegation of criminal breach of trust, insofar as it is
invoked, must rest upon a distinct factual basis showing
that money was lawfully entrusted to the petitioner in his
capacity as a collecting agent and that he thereafter
dishonestly misappropriated, converted, used or disposed
of it, or wilfully permitted another to do so in violation of
the obligation attached to that entrustment.
36. The Court does not proceed on the assumption that the
same act of inducing and obtaining a deposit by
deception can simultaneously be treated as lawful
entrustment for the purpose of Section 406 or Section
409. The prosecution must establish the factual basis for
the respective offences, whether by reference to distinct
transactions, distinct stages of dealing with the funds, or
alternative legal characterisations permitted by law. The
precise applicability of Sections 406 and 409 is therefore
to be determined on the evidence and in the light of the
distinction stated above. This, however, does not warrant
quashing the entire proceedings, particularly when the
material discloses specific allegations of personal
collection and handling of deposits by the petitioner.
Digitally Signed By:
SURAJ GOVINDA RAJ
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37. Section 420 of the IPC deals with cheating and
dishonestly inducing delivery of property. The essential
ingredients are:
37.1. deception of a person by a false or misleading
representation, or by an act or omission;
37.2. fraudulent or dishonest inducement of that person
by such deception;
37.3. delivery of property, or consent to the retention of
property, as a consequence of such inducement;
and
37.4. dishonest intention on the part of the accused at
the time of making the inducement.
38. The existence of dishonest intention at the inception of
the transaction is of particular importance. A mere
subsequent failure to fulfil a promise or repay money
would not, by itself, constitute cheating.
39. In the present case, the prosecution alleges that
Panchamukhi Chits and the persons operating the
establishment represented to depositors that they would
receive interest at the rate of 24% per annum on the
amounts invested. The depositors are stated to have
acted upon those representations and parted with their
money. The statements of several witnesses are stated to
Digitally Signed By:
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attribute to the petitioner the direct collection of those
amounts.
40. The representation concerning the return payable to
depositors, if made without a genuine and viable basis for
fulfilling the promised returns, would constitute a material
representation capable of inducing members of the public
to deposit their money. The allegation that payments
were initially made but subsequently discontinued, and
that the establishment failed to return the deposits, is
relevant to the question whether the representations
were made with dishonest intention at the inception.
41. The subsequent default cannot, by itself, establish the
requisite intention at the inception. However, the
subsequent conduct may be considered along with the
manner in which the scheme was promoted, the returns
promised, the scale of the collections, the persons
involved in soliciting and receiving deposits and the
financial capacity of the establishment to honour its
commitments. In a case involving numerous depositors
and a common arrangement, the repeated nature of the
transactions and the manner in which money was
collected are relevant circumstances for assessing the
initial intention.
42. The prosecution case is not that the petitioner merely
guaranteed repayment of a private loan and thereafter
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failed to honour that assurance. It is that he participated
in the collection of money from several members of the
public as part of a common deposit-taking business, on
the basis of a promise of substantial returns, and that the
collected amounts were not returned. The statements
identifying the petitioner as a person who collected the
money provide a prima facie connection between him and
the inducement which resulted in delivery of property.
43. Whether the petitioner personally made the
representation, knowingly conveyed a representation
made by the other accused, or participated in the
operation of the scheme with knowledge of its dishonest
character are matters to be assessed on the evidence.
The absence of documentary proof of personal
enrichment does not, by itself, negate the allegation of
participation in the deception and inducement.
44. The rate of interest of 24% per annum, viewed in
isolation, may not conclusively establish that the promise
was fraudulent. However, the prosecution relies upon the
rate of return in the context of the entire arrangement,
the number of persons who invested, the substantial
amount allegedly collected, the initial payments made to
depositors and the subsequent widespread default. The
question whether the scheme was commercially viable
and whether the persons conducting it knew that the
promised returns and repayment commitments could not
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be honoured is a matter to be examined on the financial
records and other evidence.
45. The Court is not required, at this stage, to determine the
ultimate financial viability of the scheme or the exact use
to which every rupee collected was put. It is sufficient to
notice that the prosecution relies upon a course of
conduct extending beyond an isolated failure to repay,
and that the petitioner is specifically alleged to have
participated in the collection of deposits from numerous
persons. The ingredients of deception, inducement,
delivery of property and the requisite dishonest intention
are, on the prosecution version, prima facie disclosed.
46. Section 120-B of the IPC prescribes punishment for
criminal conspiracy. The definition of criminal conspiracy
under Section 120-A requires an agreement between two
or more persons to do or cause to be done an illegal act,
or an act which is not illegal by illegal means. Where the
agreement is to commit an offence, the agreement itself
constitutes the conspiracy. The agreement may be
inferred from the conduct and surrounding circumstances,
since direct evidence of a meeting of minds may not
ordinarily be available.
47. In the present case, the prosecution alleges that the
petitioner, accused No.1 and other persons were involved
in the operation of Panchamukhi Chits and the collection
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of deposits from members of the public. The material
relied upon includes statements of depositors who
allegedly identify the petitioner and accused No.1 as
persons who collected money from them. The prosecution
also relies upon the association between the business
establishments operating under the Panchamukhi name
and the fact that the seal of Panchamukhi Apparels was
found in the premises of Panchamukhi Chits.
48. The mere fact that the petitioner and accused No.1 are
brothers would not establish a criminal conspiracy. Nor
would the mere existence of associated companies or
common premises be sufficient, by itself, to infer an
agreement to commit an offence. However, the
prosecution relies upon the specific acts allegedly
performed by the petitioner in the collection of deposits,
together with the alleged concerted operation of the
establishment and the representations made to the
depositors.
49. If several persons knowingly participate in soliciting
deposits on the same terms, collecting money from the
public and operating the establishment in furtherance of a
common fraudulent arrangement, their conduct may
furnish circumstantial material from which an agreement
to commit the alleged offences can be inferred. Whether
the petitioner shared the requisite knowledge and
intention and whether the circumstances establish an
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agreement to commit an illegal act are matters for trial.
At this stage, the allegation is not based merely on
relationship or association; it is supported by specific
statements attributing active participation to the
petitioner.
50. Section 34 of the IPC embodies the principle of joint
liability where a criminal act is done by several persons in
furtherance of the common intention of all. It is not a
separate substantive offence. Its application requires
participation in the criminal act and the existence of a
common intention shared by the persons concerned.
51. The prosecution alleges that the petitioner and the other
accused participated in the operation of the deposit-
taking establishment and in collecting money from
members of the public on the promise of substantial
returns. The statements of several depositors are stated
to attribute the actual collection of money to the
petitioner. The alleged participation of the petitioner in
the collection of deposits, considered with the role
attributed to the other accused in the conduct of the
establishment, provides material to examine whether the
acts were performed in furtherance of a common
intention.
52. It is not necessary that every accused should have
performed an identical act or personally received every
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deposit. What is necessary is participation in furtherance
of the common intention. The question whether such
common intention existed and whether the petitioner
consciously participated in the alleged course of conduct
is a matter for trial. However, the petitioner's alleged
direct role in collecting deposits from several persons
provides a prima facie basis for invoking Section 34, read
with the substantive offences, subject to proof of the
requisite common intention.
53. Section 9 of the KPIDE Act deals with fraudulent default
by a financial establishment. The provision applies where
a financial establishment fraudulently defaults in
repayment of a deposit on maturity, along with the
promised interest, bonus, profit or other benefit, or
fraudulently fails to render the service assured against
the deposit. The provision also makes liable every person,
including a promoter, director, partner, manager or any
other person or employee responsible for the
management or conduct of the business or affairs of the
financial establishment.
54. The expression ‘deposit’ under the KPIDE Act is broad. It
includes receipt of money by a financial establishment
with an obligation to return it after a specified period or
otherwise, either in cash or in kind, with or without any
benefit in the form of interest, bonus, profit or otherwise.
A ‘financial establishment’ includes any person or group
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of individuals accepting deposits under a scheme,
arrangement or in any other manner, subject to the
exclusions contained in the statute.
55. The prosecution alleges that Panchamukhi Chits accepted
money from members of the public on the promise that
the deposits would be returned with interest at the rate of
24% per annum. The deposits were initially serviced by
making payments, but thereafter the establishment
allegedly stopped making payments and failed to return
the deposited amounts. On the allegations made, the
amounts received were not ordinary payments for goods
or services but money accepted with a promise of
repayment and a promised financial return.
56. The name of the establishment, namely, Panchamukhi
Chits Private Limited, does not by itself establish that the
transactions were genuine subscriptions to a chit scheme
falling within the statutory exclusion. The nature of the
actual arrangement must be examined. Where the money
is received as a deposit repayable with a promised return,
the transaction would fall within the statutory definition of
deposit unless it is shown to fall within one of the
specified exclusions.
57. The prosecution's allegation that the establishment
collected deposits from a large number of persons and
thereafter defaulted in repayment is therefore capable of
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attracting Section 9, subject to the proof of the statutory
requirements.
58. The fraudulent nature of the default also requires
consideration. Section 9 does not make every inability to
repay a deposit a criminal offence. The default must be
fraudulent. The statutory explanation, however, identifies
circumstances in which a default is deemed fraudulent,
including a default made with an intention to cause
wrongful gain to one person or wrongful loss to another,
inability arising from impracticable or commercially
unviable promises made while accepting deposits, or
deployment of money or assets acquired from deposits in
a manner involving inherent risk in recovering the same
when required.
59. In the present case, the prosecution relies upon the
promise of 24% interest, the alleged collection of a very
large aggregate amount from members of the public, the
initial payments and the subsequent cessation of
payments and failure to return the deposits. These
circumstances, when considered together, provide a basis
to examine whether the promises made at the time of
accepting deposits were commercially viable and whether
the default was fraudulent within the meaning of Section
9.
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60. The rate of interest, by itself, would not be conclusive.
Nor would the mere fact of non-payment automatically
establish fraudulent default. However, the repeated
collection of deposits from numerous members of the
public on the same terms, followed by widespread
default, is a relevant circumstance which cannot be
disregarded at the threshold.
61. The individual liability of the petitioner under Section 9
also requires consideration. The provision does not make
every person associated with a financial establishment
automatically liable. The person must fall within the class
specified by the statute, namely, a person responsible for
the management or conduct of the business or affairs of
the financial establishment.
62. In the present case, the prosecution relies upon
statements of several depositors who are stated to have
personally handed over money to the petitioner. Such
direct participation in the collection of deposits from
members of the public is relevant to determining whether
the petitioner was involved in conducting the business or
affairs of the establishment. The allegation is therefore
not confined to his being the brother of accused No.1 or a
director of another company.
63. If the petitioner repeatedly solicited and collected
deposits on behalf of the establishment, his role may
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extend beyond that of a passive employee or person
having no control over its activities. Whether he was
responsible for conducting the business or affairs of the
financial establishment, and whether the statutory
conditions for his individual liability are satisfied, are
matters to be determined on the evidence. The
statements relied upon by the prosecution provide a
prima facie basis for proceeding against him under
Section 9.
64. Section 21 of the BUDS Act prescribes punishment for
contravention of Section 3 of the said Act. Section 3
prohibits unregulated deposit schemes and prohibits any
deposit taker from directly or indirectly promoting,
operating, issuing advertisements soliciting participation
or enrolment in, or accepting deposits pursuant to an
unregulated deposit scheme.
65. The Act defines a ‘deposit’ as money received by a
deposit taker with a promise to return it after a specified
period or otherwise, with or without interest or other
benefit. A ‘deposit taker’ includes an individual, a group
of individuals, a company and other specified
arrangements receiving or soliciting deposits. An
‘unregulated deposit scheme’ is a scheme or arrangement
under which deposits are accepted or solicited by a
deposit taker by way of business and which is not a
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SURAJ GOVINDA RAJ
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regulated deposit scheme specified in the First Schedule
to the Act.
66. Section 21 contains distinct offences relating to
solicitation of deposits, acceptance of deposits and
acceptance of deposits followed by fraudulent default in
repayment or in rendering a specified service. The
applicability of the relevant sub-section must be
considered with reference to the particular conduct
alleged.
67. In the present case, the prosecution alleges that
Panchamukhi Chits and persons associated with it
solicited and accepted deposits from members of the
public by promising returns at the rate of 24% per
annum. The statements of several depositors are stated
to identify the petitioner as one of the persons who
collected the money. If the petitioner personally solicited
or accepted deposits as an individual or as part of the
arrangement through which deposits were collected, his
conduct is capable of attracting the prohibition contained
in Section 3.
68. Further, the allegation that deposits were accepted and
subsequently not repaid is relevant to Section 21(3),
which requires acceptance of deposits in contravention of
Section 3 followed by fraudulent default in repayment or
failure to render the specified service. The explanation to
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Section 21 recognises that where the terms of a deposit
scheme are entirely impracticable or unviable, those
terms are relevant facts indicating an intention to
defraud.
69. The promise of 24% interest cannot, by itself,
conclusively establish that the scheme was unviable or
fraudulent. However, it is a circumstance to be
considered with the scale of collections, the number of
depositors, the manner in which deposits were solicited,
the initial payments and the subsequent widespread
default. The statements attributing solicitation and
collection of deposits to the petitioner, read with the
allegations of fraudulent default, provide a prima facie
basis for examining the applicability of Section 21.
70. Where the deposit taker is a company or another entity
and not an individual, Section 25 of the BUDS Act also
becomes relevant. It provides for liability of persons who,
at the time of commission of the offence, were in charge
of and responsible to the deposit taker for the conduct of
its business. It further deals with liability arising from
consent, connivance or neglect of a director, manager,
secretary, promoter, partner, employee or other officer.
71. In the present case, the prosecution does not merely rely
upon the petitioner's alleged position in an associated
company. It relies upon the statements of depositors who
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allegedly dealt directly with him and entrusted money to
him. Such conduct is relevant both to the question
whether he personally participated in soliciting or
receiving deposits and, where liability is sought to be
attached through the company, whether he was in charge
of or responsible for the conduct of its business or had
participated with the requisite consent, connivance or
neglect.
72. The applicability of Section 25 must be examined on the
basis of the precise capacity attributed to the petitioner
and the material collected in that regard. The petitioner
cannot be absolved merely because the deposit-taking
establishment is a company, when the prosecution
specifically alleges his active participation in the collection
of deposits. Equally, his liability cannot be founded
merely on his relationship with the other accused or his
directorship in another company.
73. The petitioner places considerable reliance upon the
decision in Sri Vipul Prakash Patil . The said decision
proceeds on the basis that the petitioner therein had
merely been named in the complaint and that there was
no documentary material to remotely establish a nexus
between that petitioner and the alleged fraud. In that
factual setting, the Co-ordinate Bench held that
continuation of the proceedings would amount to an
abuse of process.
Digitally Signed By:
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74. The facts of the present case stand on a materially
different footing. Here, the prosecution does not rely
merely upon the petitioner's relationship with accused
No.1 or his association with Panchamukhi Apparels. The
prosecution relies upon statements of several depositors
who are stated to have specifically identified the
petitioner as a person who collected money from them on
behalf of Panchamukhi Chits. The material is therefore
stated to contain direct allegations concerning the
petitioner's participation in the transactions which form
the subject matter of the prosecution.
75. The requirement of a prima facie nexus between an
accused and the alleged offence remains essential.
However, such nexus need not invariably be established
only through documentary evidence. Statements of
persons who claim to have personally dealt with an
accused and entrusted money to him are also material
which must be considered. Whether those statements are
truthful, consistent and sufficient to establish the charges
is a matter for trial. This Court cannot, in exercise of its
jurisdiction under Section 482 of the Code of Criminal
Procedure, undertake an assessment of their credibility or
evidentiary value as though conducting a trial.
76. The submission that there is no documentary evidence
showing that the petitioner personally derived a financial
benefit from the deposits cannot be accepted as a ground
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to quash the proceedings. The offences alleged do not
uniformly require proof that the accused personally
retained or appropriated the entire amount collected. The
relevant statutory requirements include entrustment and
dishonest dealing, deception and inducement, agreement
to commit an illegal act, participation in a criminal act in
furtherance of common intention, responsibility for
conducting the business of a financial establishment, or
participation in solicitation or acceptance of deposits
under an unregulated deposit scheme, as applicable to
each provision.
77. A person who knowingly participates in the solicitation or
collection of deposits cannot claim immunity merely
because the money was ultimately received or retained
by the establishment or another accused. Whether the
petitioner acted knowingly, in what capacity he acted and
whether the requisite intention or responsibility is
established are matters to be determined on the
evidence. The absence of proof of personal enrichment is
not, by itself, decisive.
78. This Court is conscious that the mere invocation of
several penal provisions does not establish that every
offence is made out. Each provision has distinct statutory
ingredients, and the prosecution must establish them
independently. In particular, the distinction between
cheating and criminal breach of trust must be maintained.
Digitally Signed By:
SURAJ GOVINDA RAJ
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The Court has, therefore, considered Sections 406 and
409 with reference to the allegation of entrustment and
subsequent dishonest dealing, and Section 420 with
reference to the alleged deception and dishonest
inducement at the inception of the transactions.
79. The present proceedings involve numerous depositors
and repeated collections. The prosecution relies upon
different instances of collection and handling of money by
the petitioner. The precise transactions, the capacity in
which he received each deposit and the subsequent
manner in which the amounts were dealt with must be
examined at trial. The same transaction cannot be
mechanically characterised as both cheating and criminal
breach of trust without satisfying the distinct
requirements explained by the Hon'ble Supreme Court.
This qualification, however, does not justify quashing the
entire prosecution where the material discloses a prima
facie basis for the offences alleged and the petitioner's
active participation in the larger scheme.
Public interest and preventive role of the police
80. Before parting with the matter, this Court considers it
necessary to observe that offences involving fraudulent
financial establishments and unregulated deposit
schemes require serious consideration and effective
action in accordance with law. Such schemes often
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SURAJ GOVINDA RAJ
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operate by holding out promises of high returns, which
may appear attractive to persons seeking to secure or
augment their savings. Persons who are induced by such
representations may part with their hard-earned money,
often without appreciating the risks involved or the
absence of any lawful or viable basis for the promised
returns.
81. It is unfortunate that, even in the present day, members
of the public continue to be defrauded by promises of
returns which are unrealistic or incapable of being
fulfilled. The familiar principle that there is no free lunch
assumes particular significance in the context of financial
investments. When an offer appears too attractive to be
true, it ought to invite careful scrutiny. A promise of
unusually high returns, particularly when projected as
assured and without corresponding risk, should alert a
prospective depositor to examine the bona fides and
regulatory status of the establishment before parting with
money.
82. The responsibility for preventing such frauds, however,
cannot be placed solely upon the members of the public.
Persons who organise, operate or knowingly assist
fraudulent schemes must be dealt with in accordance
with law. The law must protect innocent depositors who
are induced to part with their savings through deception.
Digitally Signed By:
SURAJ GOVINDA RAJ
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83. Where material discloses a prima facie connection
between an accused and the alleged offence, technical
objections cannot be employed to obstruct a lawful
investigation or prosecution. At the same time, the
seriousness of the alleged fraud cannot dispense with the
requirement of establishing the statutory ingredients of
each offence and the individual role of each accused. The
protection of an innocent person from an unwarranted
prosecution and the protection of depositors from
financial fraud are not competing objectives. Both are
essential components of the administration of criminal
justice.
84. The role of the police in dealing with financial fraud
cannot be confined to registering cases and commencing
investigation after members of the public have already
suffered financial loss. Preventive action and public
awareness are equally important. The police, in
coordination with the concerned regulatory and
administrative authorities, ought to undertake sustained
public awareness initiatives to caution citizens against
unregulated deposit schemes, unrealistic assurances of
returns and financial offers made without lawful
authorisation.
85. Members of the public should be made aware of the
importance of verifying the registration and regulatory
status of financial establishments, understanding the
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terms and conditions of proposed investments and
exercising caution before handing over money. Such
awareness may not completely eradicate financial fraud,
but it can certainly reduce the number of persons who fall
victim to such schemes. The police must, therefore, adopt
a proactive approach by disseminating information and
issuing appropriate cautions, rather than remaining
reactive until substantial financial loss has occurred.
86. In the present case, the prosecution alleges that a large
number of depositors were induced to invest their money
on the promise of substantial returns and that the
establishment subsequently failed to repay the deposits.
The amount allegedly collected is stated to be
approximately Rs.500 crore. The prosecution further
relies upon statements of approximately 170 witnesses,
several of whom are stated to have specifically attributed
the collection of money to the petitioner.
87. The magnitude of the alleged fraud and the number of
persons stated to have been affected underscore the
importance of examining the material collected during
investigation. However, the decision in the present
petition does not rest merely on the amount allegedly
involved or the number of complaints. It rests on the
specific material relied upon by the prosecution to
establish a prima facie nexus between the petitioner and
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the collection of deposits. The truthfulness and
evidentiary value of that material are matters for trial.
88. The right of an individual to be protected against
unwarranted criminal prosecution is undoubtedly an
important constitutional safeguard. Equally, the right of
persons who have allegedly been defrauded to have their
complaints investigated and prosecuted in accordance
with law cannot be rendered illusory. The jurisdiction
under Section 482 of the Code of Criminal Procedure is
intended to prevent abuse of the process of Court and to
secure the ends of justice. It is not intended to enable the
Court to assess the credibility of witnesses, weigh
competing explanations or conduct a mini-trial when the
material collected discloses a prima facie connection
between the accused and the alleged offences.
89. In the facts of the present case, the allegations against
the petitioner are not confined to his relationship with
accused No.1 or his directorship in Panchamukhi Apparels
Private Limited. The prosecution relies upon statements
of several depositors who are stated to have personally
entrusted money to the petitioner on behalf of
Panchamukhi Chits. These statements, read with the
other material collected during investigation, disclose a
prima facie nexus requiring the petitioner to face the
proceedings.
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
Verified
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90. The petitioner is at liberty to challenge the veracity of the
statements, the nature of his alleged involvement, the
precise capacity in which he received the deposits and the
applicability of the individual statutory provisions before
the competent Court in accordance with law. The Special
Court shall, while considering the charges and the
evidence, ensure that the ingredients of each offence are
independently established and that the distinction
between cheating and criminal breach of trust is
maintained.
91. For the foregoing reasons, this Court is of the considered
opinion that the petitioner has not made out a case for
quashing the proceedings in exercise of the jurisdiction
under Section 482 of the Code of Criminal Procedure. The
petition is accordingly liable to be dismissed. This court
passes the following:
ORDER
i) The criminal petition is dismissed .
ii) The proceedings in Spl.C.No.1034/2022 arising out of
Crime No.26/2022 of Banashankari Police Station shall
continue in accordance with law.
iii) The Special Court shall independently examine the
ingredients of each offence alleged, the individual role
attributed to the petitioner and the evidence brought
on record.
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
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iv) While considering the offences punishable under
Sections 406 and 409 on the one hand and Section
420 of the IPC on the other, the Special Court shall
bear in mind the distinction between criminal breach of
trust and cheating explained by the Hon'ble Supreme
Court in Delhi Race Club (1940) Limited and
Others v. State of Uttar Pradesh and Another ,
2024 INSC 626, and shall not mechanically treat the
same factual transaction as simultaneously
constituting both offences.
v) It is made clear that the observations made in this
order are confined to the consideration of the petition
under Section 482 of the Code of Criminal Procedure
and shall not influence the Special Court while
considering the matter on its merits.
Digitally Signed By:
SURAJ GOVINDA RAJ
12/11/2026, 14:27, Bengaluru
Verified
(SURAJ GOVINDARAJ)
JUDGE
KTY
List No.: 1 Sl No.: 26