Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. OF 2023
(Arising out of SLP (Criminal) No. 3686 of 2021)
PRAKASH AGGARWAL ...APPELLANT(S)
VERSUS
GANESH BENZOPLAST LIMITED
AND ANOTHER ...RESPONDENT(S)
WITH
CRIMINAL APPEAL NO. OF 2023
(Arising out of SLP (Criminal) No. 4094 of 2021)
CRIMINAL APPEAL NOS. OF 2023
(Arising out of SLP (Criminal) Nos. 3707-3708 of 2021)
J U D G M E N T
B.R. GAVAI, J.
1. Leave granted.
2. The present appeals challenge the judgment and order
th
dated 26 April 2021, passed by the High Court of
Judicature at Bombay, thereby dismissing Criminal Writ
Signature Not Verified
Digitally signed by
Narendra Prasad
Date: 2023.04.28
15:44:49 IST
Reason:
Petition Nos. 348, 349 and 357 of 2020 filed by the
1
nd
appellants herein seeking quashing of the order dated 22
March 2017 passed by the Metropolitan Magistrate, Railway
Mobile Court, Andheri, Mumbai (hereinafter referred to as
the “trial court”), thereby issuing summons to them. The
High Court allowed Criminal Writ Petition Nos. 127, 128, 129
and 130 of 2020 filed by the complainant/respondent No.1
nd
herein, thereby, upholding the order dated 22 March 2017.
3. The facts, in brief, giving rise to the present appeals are
as under:
3.1. Ganesh Benzoplast Ltd., the original complainant and
respondent No. 1 herein, availed two Inter Corporate Deposit
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(hereinafter referred to as “ICD”) facilities, dated 14
th
February 2000 and 7 March 2000, from Morgan Securities
and Credits Pvt. Ltd – accused No. 1. The said ICD were for
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Rs. 50,00,000/-, each to be repaid by 15 May 2000 and 5
June 2000. As per the ICD, security cover of 200% of the ICD
amount was to be maintained. Accordingly, the
complainant/respondent No.1 executed a Letter of Pledge (for
short, “LoP”) in favour of accused No.1 Company, pledging
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15,00,000 of its equity shares as security, with each share
valued at Rs. 16/-, thereby amounting to Rs. 2,40,00,000/-.
3.2. Prakash Aggarwal, Meera Goyal and Suresh Chand
Goyal, appellants herein, who were Directors of accused No.
1 Company, were responsible for the management of its day
to day affairs. They were arraigned as accused Nos. 2 to 4 in
the original complaint.
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3.3. On 3 May 2000, accused No.1 Company issued a
notice to the complainant/respondent No.1 asking it to
pledge additional shares as the value of the pledged shares
had decreased to Rs. 1,24,50,000/- on account of depression
in the financial market, thereby, resulting in a shortfall of Rs.
75,50,000/- from the agreed security cover i.e. 200% of the
ICD amount.
3.4. Due to financial hardship, the complainant/respondent
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No.1 was not in a position to repay the ICD amount on 5
June 2000, i.e. the due date, and therefore, it informed
accused No.1 Company that it could sell the pledged shares
to realize the due amount, and remit the excess amount to
the complainant/respondent No.1. Thereafter, accused No.1
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Company assured the complainant/respondent No.1 that, as
and when the shares were sold, the balance amount, if any,
would be remitted to it.
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3.5. On 25 August 2000, the complainant/respondent No.1
repaid the first ICD and the loan account was closed.
3.6.
It is pertinent to note that the interest that was being
charged on ICD was being regularly recovered by accused No.
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1 Company uptill 6 August 2001. In the meanwhile, the
complainant/respondent No.1 was in constant
communication with the accused No.1 Company, seeking the
details of the sale of shares. However, these requests were
rebuffed, with accused No.1 Company asking the
complainant/respondent No.1 not to confuse the issue of
sale of shares with the issue of interest on ICD.
nd
3.7. On 2 August 2001, accused No.1 Company issued
another notice to the complainant/respondent No.1,
demanding the repayment of the ICD of Rs. 50,00,000/- as
the value of the pledged shares had fallen to Rs. 44,25,000/-,
failing which the pledged shares would be sold.
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3.8. Subsequently, on 14 August 2001,
complainant/respondent No.1 proposed to repay Rs.
25,00,000/- initially in five equal monthly installments, with
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the first installment to be paid on or before 25 August 2001.
However, on the same day, accused No.1 Company invoked
the arbitration clause in the ICD agreement and appointed a
Sole Arbitrator, claiming the outstanding amount due from
the complainant/respondent No.1.
3.9. During the pendency of the arbitration proceedings,
accused No.1 Company sold the 15,00,000 pledged shares
for an amount of Rs.24,67,631/- to one Doogar and
Associates Ltd., which was later renamed as Morgan
Ventures Ltd. in the year 2004. Importantly, accused Nos. 2
to 4 were also Directors in this transferee Company.
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3.10. The complainant/respondent No.1, on 11
February 2011, filed a criminal complaint being CC No.
56/SW/2011 against accused Nos.1 to 4, alleging fraud,
cheating and criminal breach of trust, before the trial court.
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Vide order dated 11 September 2012, the Magistrate issued
process against all the accused for offences punishable under
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Sections 403, 406, 420 and 120-B of Indian Penal Code,
1860 (for short, “IPC”).
3.11. The aforesaid order was challenged by filing a
Criminal Revision Application No. 1276 of 2012 before the
Court of Session for Greater Bombay at Bombay. Vide order
th
dated 16 January 2016, the said criminal revision
application was allowed, and the matter was remanded to the
trial court, who was directed to re-record verification under
Section 200 of the Code of Criminal Procedure,1973.
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3.12. In the meantime, on 9 December 2015, an
arbitral award was passed in favour of accused No.1
Company and the complainant/respondent No.1 was held
liable to pay the claim amount of Rs.34,59,218/- with
interest at the rate of 36% per annum.
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3.13. Pursuant to the remand order dated 16 January
nd
2016, the trial court, vide order dated 22 March 2017,
issued process under Sections 406, 420 read with Section 34
of the IPC read with Section 15-HA of the Security Exchange
Board of India Act, 1992 (for short, “SEBI Act”) against
accused Nos. 1 to 4.
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3.14. Aggrieved by the same, the accused filed Criminal
Revision Application being No.128 of 2017 before the Court
nd
of Sessions, Dindoshi, Mumbai. Vide order dated 2
December 2019, the said revision application was partly
allowed. Insofar as the process issued against accused No.1
Company, it was completely quashed and set aside, whereas,
the issuance of process against accused Nos. 2 to 4 was set
aside only under Section 420 of the IPC and Section 15-HA of
the SEBI Act. However, issuance of process against accused
Nos. 2 to 4 for the offences punishable under Section 406
read with Section 34 of the IPC stood confirmed.
3.15. Challenging the aforesaid order, criminal writ
petitions were filed both by the complainant/respondent
No.1 and accused Nos. 2 to 4/appellants herein. The High
th
Court, vide the impugned judgment dated 26 April 2021,
allowed the criminal writ petitions filed by the
complainant/respondent No.1 and dismissed the criminal
writ petitions filed by accused Nos. 2 to 4, thereby affirming
the order of the trial court and confirming the issuance of
process against them under Sections 406 and 420 read with
7
Section 34 of IPC. The charges under Section 15-HA of the
SEBI Act were dropped at the instance of the
complainant/respondent No.1, who averred before the High
Court that he would not pursue the application under the
same.
3.16. Hence, the present appeals.
4. We have heard Shri Shyam Divan, learned Senior
Counsel and Shri Vaibhav Malhotra, learned counsel
appearing on behalf of the accused Nos. 2 to 4-appellants,
Dr. Abhishek Manu Singhvi, Mrs. Anjana Prakash, learned
Senior Counsel appearing on behalf of the complainant
/respondent No.1 and Shri Siddharth Dharmadhikari,
learned counsel on behalf of the respondent No.2-State.
5. Shri Divan submitted that the complaint, even taken at
its face value, does not disclose that ingredients of any
offence have been made out. He submits that, along with the
Inter-Corporate Deposit Agreement (hereinafter referred to as
the “ICDA”), the complainant/respondent No.1 had pledged
the shares in question. As per the LoP, the accused No.1
Company was entitled to invoke the pledge at any time in the
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event of default or otherwise. In the LoP, the authority was
also given to sell and dispose of the said securities. He
further submits that, as per the LoP itself, the accused No.1
Company could have sold the shares to themselves.
6. Shri Divan further submits that, with regard to the very
same dispute, the arbitration proceedings were conducted
between the parties. The complainant/respondent No.1 has
participated in the said arbitration proceedings and an
arbitral award is also passed by the learned Arbitral
Tribunal. He submits that the same is challenged by the
complainant/respondent No.1 by a proceeding under Section
34 of the Arbitration and Conciliation Act, 1996 (hereinafter
referred to as the “Arbitration Act”). He further submits that
it could clearly be seen that the dispute between the parties,
if any, is purely of civil nature and continuation of the
criminal proceedings would amount to nothing else but an
abuse of process of law.
7. Dr. Singhvi, on the contrary, submits that the
complainant/respondent No.1 had informed the accused
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persons/appellants herein as early on 5 June 2000 to sell
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the shares. However, the accused persons/appellants chose
not to sell the shares at that point of time as the market
price was much higher. He submits that the very fact that
the shares were sold by the accused persons/appellants to a
Company wherein accused Nos. 2 and 3 are also Directors,
at a meagre price, clearly exhibits a dishonest intention on
their behalf. He submits that the complainant/respondent
No.1, for the first time, came to know about the illegal act
committed by the accused persons/appellants in the year
2009 and as such, there is no delay in lodging the complaint.
He submits that, in any case, the trial court, the Revisional
Court as well as the High Court have concurrently held that
insofar as the offence punishable under Section 406 of the
IPC is concerned, a case is made out. He therefore submits
that an interference with the concurrent findings of fact
would not be permissible. He, therefore, prays for dismissal
of the complaint.
8. With the assistance of the learned counsel for the
parties, we have perused the documents placed on record.
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9. It is not in dispute that an ICDA came to be entered into
between M/s Ganesh Benzoplast Limited, i.e. the
complainant/respondent No.1 herein and M/s Morgan
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Securities & Credits Pvt. Ltd., i.e. accused No. 1, on 7
March 2000. Under the said ICDA, accused No.1 Company
had agreed to grant the complainant/respondent No.1 the
said ICD of Rs.50,00,000/- for a period of 90 days at an
interest rate of 26% per annum. It will be relevant to refer to
Clauses 2 and 3 of the terms of the ICDA, which read thus:
“2. The Borrower is aware that the ICD is being
granted by the lender on the basis of securities
agreed to be provided as per the terms of the
sanction.
3. The borrower hereby irrevocably agrees that
it shall arrange to issue an irrevocable
instruction to their dematerialised participant
to mark a lien in favour of the lender till the
ICD and any other dues remains unpaid. All
expenses related to dematerialising of shares
shall be bone by the borrower.”
10. It could thus be seen that the ICD was granted by the
lender on the basis of the securities agreed to be provided as
per the terms of the sanction. The complainant/respondent
No.1 has also irrevocably agreed that it shall arrange to issue
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an irrevocable instruction to its dematerialized participant to
mark a lien in favour of the lender till the ICD and any other
dues remains unpaid. It will further be relevant to refer to
the following part of Clause 9 of the ICDA:
“ 9. ……….
a) Any installment of interest if any required to
be paid in installment as agreed hereinabove
remains unpaid even after the expiry of 3 days
from the respective due date for payment.
b) Any shortfall in the security pledged vide
Letter of Pledge executed subject to which
facility granted is not replenished even after
giving due Notice as provided therein.
c) …….….
d) ……….
e) ………..
f) …………
h) ………..
i) ………….”
11. It is thus clear that in the event of any of the events
occurring in sub-clauses (a) to (i) of Clause 9 of the ICDA, the
lender would be entitled at its discretion to enforce its rights
as mentioned in the ICDA, Deed of Personal Guarantees,
Corporate Guarantee and LoP. A perusal of sub-clause (a) of
Clause 9 of the ICDA would reveal that, if any installment of
interest required to be paid as per the ICDA remains unpaid
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even after the expiry of 3 days from the respective due date
for payment, accused No.1 Company was entitled to enforce
its rights as mentioned in Clause 9 of the ICDA. Similarly, if
any shortfall in the security pledged vide LoP executed,
subject to which facility was granted, was not replenished
even after giving due Notice, accused No.1 Company was
entitled to invoke Clause 9 of the ICDA.
12. It will further be relevant to refer to Clauses 5 and 8(5)
of the LoP, which read thus:
“5. The Pledgee may invoke the pledge at any
time in the event of default or otherwise for as
many number of shares as the Pledgee/ lender
deems fit in its sole discretion. However, such
invocation of pledge will not amount to sale of
share to the lender and the borrower will not
be entitled to any credit/ adjustment on such
invocation transfer of shares to the lenders
account on that date. The amount which may
be realised against as and when actual sale in
effected by the lender in the market and in
that circumstances only the borrower will be
entitled to adjustment of the sale proceeds so
realised against the ICD dues. Pledger agrees
that it has understood the concept and shall
not create any dispute on the same.
8. ……
i) ………
ii) ………
iii) ………..
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iv) ………..
v) In order to enable you to sell and dispose
off the said securities under the circumstances
mentioned in clause 7 above, We hereby give
you the authority to undertake all deeds and
acts to dispose off the said shares in adjust the
outstanding amount. We hereby confirm that
we will not dispute or claim any loss on
account of price at which securities are sold by
the lender to himself, its group companies or
to any outsider.”
13. A perusal of Clause 5 of the LoP would reveal that the
Pledgee was entitled to invoke the pledge at any time in the
event of default or otherwise for as many number of shares
as the Pledgee/lender deems fit in its sole discretion. It
further provided that such invocation of pledge would not
amount to sale of shares to the lender and the borrower
would not be entitled to any credit/adjustment on such
invocation/transfer of shares to the lender’s account on that
date. It further provided that the amount which may be
realized against as and when actual sale is effected by the
lender in the market and in that circumstances only the
borrower would be entitled to adjustment of the sale
proceeds so realized against the ICD dues. It would further
14
reveal that the Pledger had agreed that it has understood the
concept and shall not create any dispute on the same.
14. A perusal of sub-clause (v) of Clause 8 of the LoP would
reveal that a specific authority has been given by the Pledgee
to sell and dispose of the said securities under the
circumstances mentioned in the LoP. The
complainant/respondent No.1 has also agreed to undertake
all deeds and acts to dispose of the said shares to adjust the
outstanding amount. The complainant/respondent No.1 has
further agreed that it would not question whether accused
No.1 Company had got the best price for the securities.
15. A perusal of the terms of the ICDA as well as the LoP
would clearly reveal that, in the event of any of the events
occurring as provided in Clause 9 of the ICDA, accused No. 1
Company was entitled to sell the shares either to itself, its
group companies or to any outsider. The accused No.1
Company had also agreed not to dispute or claim any loss on
account of the price at which such securities were sold.
16. A perusal of the entire complaint would reveal that the
only allegation is that accused No.1 Company had sold the
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shares to itself when the market price of the shares had
fallen. The allegation is that “ The accused in order to acquire
more shares of complainant waited for further fall in share
price and sold them only in 2001 for Rs. 24,67,531/-. Thus the
accused jointly and severally are liable for unauthorized,
illegal and fraudulent sale and also for breach of trust. The
accused not only misappropriated the shares, but also cheated
the complainant as the securities were handed over only as a
surety in trust and on assurance ·of the accused which later
proved to be false that the same will be dealt as per guidelines
of SEBI. ”
17. The aforesaid averments are totally contrary to the
terms agreed between the parties in the ICDA as well as in
the LoP. As already discussed hereinabove, the ICDA as well
as the LoP specifically authorizes the accused
persons/appellants to sell the shares either to themselves or
their group of companies. It is further to be noted that
accused No.1 Company had already invoked the arbitration
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clause on 14 August 2001. In the arbitration proceedings,
a specific stand was taken by the complainant/respondent
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No.1 that accused No.1 Company should have invoked the
pledge at the stage of the first default, i.e. in May 2000.
However, the accused persons/appellants waited till August-
September, 2001 to sell the pledged shares which had in the
meanwhile depreciated in value. Another allegation made
before the arbitration proceedings was that accused No.1
Company had manipulated the price of the shares. It will be
relevant to refer to Issue No. 2 framed by the learned
Arbitrator, which reads thus:
“2) Whether the 15 lakh equity shares which
were pledged have been sold? If so, when, at
what rate, to whom and to what effect? (OPP).
(The above issue will include the contention
that the Claimant has not sold the shares at
the best available price. This will also cover the
allegation that as to whether the Claimants
were obliged to sell the shares as stated in the
letter of 3rd May, 2000).”
18. It will be relevant to refer to the following observations
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of the learned Arbitrator made in his award dated 9
December 2005:
“32. Pertinently, the average price at which-the
pledged shares were sold by the Claimant on
24.03.2001 works out to Rs.2.47 per equity
share, as per Respondent No. l’s own assertion
[as mentioned in undated written note referred
17
in para b (supra)). It is also not in1 dispute, as
noted above, that the average market price per
share as on 02.08.2001 was Rs. 2.95 per
share. Such marginal fluctuations in the price
of shares; and that too when the Claimant was
constrained to realize the entire security in the
face of habitual default by Respondent No.1;
with not many takers for the shares; cannot be
described as a consequence of price
manipulation, resulting in any wrongful loss to
the Respondents.
33. Had the share been priced at something
like Rs. 8 or 10 per share in August, 2001;
then a sale by the Claimant in the region of
Rs.2/- etc. could possibly have attracted an
allegation of price manipulation. However, in
the given circumstances, and for the reasons
stated hereinabove, the allegations levelled by
Respondent No.1 are misconceived and are
liable to be rejected.”
19. It is thus clear that the complainant/respondent No.1
was having knowledge of the sale of shares in the year 2001
itself when the arbitration proceedings were initiated. In the
complaint, it is alleged that, during the pendency of the
arbitration proceedings, the complainant/respondent No.1
became suspicious of the illegalities committed by the
accused persons/appellants and sought for certain
information. However, since the accused persons/appellants
did not give the information, the complainant/respondent
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No.1 applied to Bombay Stock Exchange (for short, “BSE”)
and National Stock Exchange (for short, “NSE”) in the year
2006 for details of sale of its shares by the accused
th st
persons/appellants on 24 August 2001, 31 August 2001,
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3 September 2001 and 12 September 2001. It is stated in
the complaint that only thereafter, in the year 2006, the
complainant/respondent No.1 came to know of the fact that
most of the shares were sold at the closing time of the share
market and at the lowest price of the day. It is averred that,
only at that point in time, the complainant/respondent No.1
came to know that the shares were sold by the accused
persons/appellants to their own companies.
20. It could thus be seen that, though the
complainant/respondent No.1 was aware about the sale of
shares as early in the year 2001, he did nothing till the year
2006 when, according to it, it had applied to BSE and NSE
for details. Even after the year 2006, the
complainant/respondent No.1 waited till the year 2011 to
lodge the complaint. Though, it is sought to be urged by the
complainant/respondent No.1 before us that it came to know
19
about the fraudulent act of the accused persons/appellants
in the year 2009, which gave a cause of action to it to file the
complaint, there is no averment to that effect in the
complaint.
21. Insofar as the other contention that the shares were
sold at a lesser price than the market price is concerned,
there is no averment in the complaint in that regard. In any
case, the transactions have been made through the BSE and
NSE. As such, the contention in that regard is without
substance. In any case, a specific finding has been given by
the learned Arbitrator in that regard. As already informed to
us, the said arbitral award is under challenge in the
proceedings under Section 34 of the Arbitration Act. We do
not wish to observe anything about the merits or demerits of
the said award as the competent court is seized of the same.
22.
However, it would clearly reveal that the
complainant/respondent No.1 has attempted to turn a purely
contractual dispute between the parties into a criminal case.
Not only that, there is an inordinate delay in lodging the
complaint. Though the complainant/respondent No.1 was
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aware about the sale of the shares in the year 2001, it did
not do anything except filing an application before the
learned Arbitrator. According to the complainant/respondent
No.1, it received the information from the BSE and NSE in
the year 2006, which fortified its suspicion about the fraud
being played. Even thereafter, for a period of 5 years, it was
silent and filed the complaint only in the year 2011. As
already stated hereinabove, though an attempt was made at
the time of hearing to contend that it has only filed the
complaint after it came to know about the fraud in the year
2009, there is no averment to that effect in the complaint.
23. We find that the complaint, taken at its face value, does
not disclose that any of the ingredients of the offence
complained of have been made out. In the totality of the
circumstances, we find that the present complaint is nothing
else but an abuse of process of law. We, therefore, find that
the appeals deserve to be allowed.
24. In the result, we pass the following order:
(i) The appeals are allowed;
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(ii) The impugned judgment dated 26 April 2021 passed
nd
by the High Court and the order dated 22 March
2017 passed by the trial court are quashed and set
aside;
(iii) The complaint bearing CC No. 56/SW/2011 filed
before the trial court under Section 403, 406, 420
and 120B of the IPC is dismissed.
25. However, we clarify that nothing observed herein or in
the impugned orders would weigh with the forum seized of
the arbitral award in the proceedings under Section 34 of the
Arbitration Act or in any other proceedings, if taken recourse
to by the appellants, if they are entitled in law.
26. Pending application(s), if any, shall stand disposed of.
…..….......................J.
[B.R. GAVAI]
…….........................J.
[VIKRAM NATH]
NEW DELHI;
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APRIL 28, 2023.
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