Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO. 2089 OF 2008
(Arising out of SLP (Crl.) No.3600 of 2006)
Sharon Michael & Ors. … Appellants
Versus
State of Tamil Nadu & Anr. … Respondents
J U D G M E N T
S.B. Sinha, J.
1. Leave granted.
2. Appellants are before us being aggrieved by and dissatisfied with the
judgment and order dated 2.3.2006 passed by a learned Single of the High
Court of Judicature at Madras in Criminal Appeal No.26498 of 2005
dismissing their applications for quashing the summons issued to them in
Crime No.32 of 2005 on a complaint filed by one of the partners of M/s.
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Aarbee Apparels Impex, Tiruppur under Sections 120-B, 409 and 420 of the
Indian Penal Code (for short, “IPC”).
3. M/s. T.M.S. Fashion Private Limited, Chennai (for short, “the
Company”) is a certifying agent. Appellant No.1 is the Assistant General
Manager of the company engaged in export of garments. Appellant No.2 is
the Accounts Manager, Appellant No.3 is the Shipping Manager, Appellant
No.4 is one of its Directors and Appellant No.5 is a Consultant for the
Company. Appellant No.6 is an employee of Bax Global Private Ltd. who
has nothing to do with the appellant company.
4. In the complaint petition, the complainant alleged that the appellant
Nos.1 to 4 had approached the Aarbee Apparels Impex which is engaged in
the manufacture of Hosiery Garments in the month of December 2004 for
supply of men’s cardigan and sweat shirts for the total value of 76,197.60
Euros to Ultimate Buyers at Germany. Pursuant thereto or in furtherance of
the said contract entered into by and between the parties, export of the said
garments were made by Respondent No.2. The Company is said to have
issued various inspection certificates in the following terms :
“This is to certify that the goods of above Order
have been inspected prior to shipment and found
in order and good conditions. This certificate
shall be entirely without prejudice and shall not
absolve the seller from liability in respect of any
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actions, claims, demand of proceedings
subsequently taken or made by TMS (Fashion)
Pvt. Ltd. and/or their customer.”
The supplier company Aarbee apparel, however, stood guarantor for
‘skip stitches after checking’.
5. The buyer company by an email refused to accept the shipment on the
premise that on a random checking too many defects disqualifying the
goods to be shipped were found and, thus, the goods being sub-standard,
were not acceptable. They asked the company to pick up the goods from
their warehouse. Respondent No.2, however, did not make any attempt to
re-export the said goods from Germany to India.
On or about 18.3.2005, it filed a complaint petition with the
Superintendent of Police, Coimbatore to help it to recover dues from the
appellant company.
Appellant company, thereafter sent a legal notice to Respondent No.2
on or about 25.3.2005, inter alia, stating :
“Our clients state that you were clearly informed
that quality control checks would be very stringent
and unless quality norms are met, the buyer would
not accept the consignment leading to large losses
all around. You accepted the terms and promise to
deliver the finished goods in time. Accordingly,
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three purchase orders were placed on you by TMS,
details as follows :
SPO No. Style No. Rate ? PC
1. 051949 P30837 Euro.6.80 (C&F)
2. 7051961 P30857 Euro.9.45 (C&F)
3. 7051964 P30858 Euro10.26 (C&F)
The delivery date was stipulated as 15.01.2005,
payment on L/C basis at sight. The letter of credit
was accordingly established by Manhattan on you
expiring on 25.01.2005 for the sum of 84.486.00
Euro you have accepted the purchase order and
claimed to have commenced manufacture.
Our clients state that within a few days, it was
found that your factory was having only around 15
machines and worse, the factory itself as not
running for a few months and you had given the
entire order on job work basis to various smaller
units in Tirupur. At that stage, our client had
committed the delivery schedule to the buyer in
Germany and also accepted heavy penalties in case
of delayed delivery of short supply. Thus, there
was no choice for our clients to cancel the order
with you and find another manufacturer. Further,
rejection would be automatic and you were
directed to ensure very strict quality checks and
delivery schedules. You have assured TMS that
despite the out sourcing of the work, quality and
delivery schedule would not be an issue since you
would personally see the order is carried out
categorically.
Our clients state that despite these assurance, you
could not stick to the schedule delivery date and
ultimately, even the letter of credit opened on you
by Manhattan expired. To our clients short and
dismay, it was found that practically none out of
the garment were defective. A Complete quality
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check was proving difficult because of your non-
cooperation and finally TMS had to send its staff
from Chennai to supervise the quality check by
end January 2005. The order was coming into
your factory from various jobbers in bits and much
time the garment was checked, it could not be the
checked garment factory since you did not even
have an repeating apparently, many of the pieces
rejected to TMS quality control staff were
repeated and brought by you as if it had passed
scrutiny. Ultimately by middle of February 2005,
our client already threatened with huge penalties
by the buyer due to delay, decided that 7.080
pieces would be shipped out on the understanding
that you will receive payment only for those
garments accepted by the buyer. The final
inspection reports from TMS passed these items
only under your letter of guarantee for the various
defects pointed out in the reports. It is relevant
that Order No.7051949 Styles P30837 totally
rejected by TMS, Tirupur, since the fabric did not
meet the specifications given in the purchase
order.
Accordingly, the other shipments pertaining to
Order No.7051961 & 7051964 left Chennai under
Airway Bill Nos.020-34456435 dated 18.02.2005
and No.020-34456413 dated 19.02.2005
destination Düsseldorf, Germany. By e-mail dated
1.3.2005, the buyer Exprit, Germany have
informed TMS, Channai that the entire
consignment was rejected by them. Our client’s
enquiries with the buyer revealed that on random
checking, it was found that practically every piece
checked had some defect or the other and their
stores could not retail such poor quality stock.
Our clients have pleaded with the buyer to salvage
at least those few pieces which they would feel
acceptable qualitywise and that process is still
underway. However, our clients have been
informed clearly that there is no obligation on the
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part of the buyer to accept even a single garment
since it is not their job to check each and every
garment before accepting the goods. Such random
checks are the accepted trade practice and failure
to adhere to such strict quality norms has resulted
in huge losses to our clients. Our clients state that
in particular, TMS has lost commission amounting
to 1882-90 Euros (Rs. One lac three thousand five
hundred and sixty only) and Manhattan have been
threatened by the buyer with a claim equal to five
time the FOB value (Rs.2,58,90,000). In fact
Manhattan have already received a debit note from
the buyer for style P30857 for 52020.54 Euro.
Further claims are expected any moment. Our
clients state that you are directly responsible for
these losses. You have deliberately made our
clients risk their reputation in the international
market and you have exposed our clients to severe
losses by your irresponsible and dishonest acts.
You have deceived our clients into placing the
order with you by falsely representing that you
have the experience, infrastructure and means to
carryout the order on top of all these you appear to
have given some false complaint to the Crime
Branch, Tirupur as if TMS has cheated you. You
are hereby called upon to immediately withdraw
this complaint which clearly amounts to malicious
prosecution meant to harass our clients failing
which our clients would take severe action against
you. Our clients also hereby put you on notice
that the consignment is lying at Germany and
despite our clients repeated mails to you, you have
neither bothered to respond and explain and
rejection of the goods nor have you agreed to
make arrangements to take back the consignment.
Our clients have been informed by the buyer that
they will not be responsible for the consignment
after 10.4.2005. The warehousing and handling
charges would have to be borne by you. Having
guaranteed the quality of the consignment to the
standards set by the buyer, you cannot today claim
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the value of the order from our clients and instead
you are due to our clients the damage suffered by
them by your non-performance. On behalf of our
clients, we hereby call upon you to pay our clients
a sum of Rs.28,61,130/- being the rupee
equivalent of 52,020.54 Euro within 15 days of
receipt of this notice, failing which our clients will
institute appropriate legal action for the recovery
thereof, needless to add at your costs and
consequences. Further, be forewarned that further
claims from the buyer to our client’s account will
be in turn claimed by our clients from you. This
notice is issued without prejudice to our clients
rights to you for malicious prosecution and
damages on account of your complaint to the
Police against our clients, if the need arises.”
6. A first information report was lodged by respondent No.2 before the
Coimbatore Police Station on or about 4.6.2005, inter alia, requesting the
officer in charge of the Police Station to take legal action for the alleged
offences committed by the appellants and help it to recover the amount from
them. Thereupon Crime No. 32 of 2005 was registered.
It is not in dispute that after two employees of the appellant company
were arrested, a sum of Rs.30,00,000/- (Rupees thirty lacs only) was paid by
the appellant company to the respondent No.2. It is further stated that
another sum of Rs.18,00,000/- (Rupees eighteen lacs only) is owing and due
to them. It is at that stage, the appellants filed an application under Section
482 of the Code of Criminal Procedure.
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By reason of the impugned judgment, while dismissing the said
application, the High Court held:
“9. The facts and circumstances of this case
would reveal that M/s. ESPRIT EUROPE
TRADING AND PRODUCT DEVELOPMENT
had approached the Manhattan Limited in Hong
Kong to supply “men’s cardigan and sweat shirts”.
Manhattan Limited had contacted TMS fashions
Pvt. Ltd. to procure those goods and supply them
to Esprit Europe Trading and Product
Development, based on the Letter of Credit
opened by Manhattan Limited, TMS Fashions Pvt.
Ltd., approached M/s. Aarbee Exports Impex to
produce “men’s cardigan and sweat shirts” for
export.
10. As far as the De facto complainant is
concerned, the de facto complainant was not
approached by M/s. Espirit Europe Trading and
Product Development or Manhattan Ltd. TMS
Fashions Pvt. Ltd. alone contacted the de facto
complainant and persuaded them to manufacture
the specified goods for export to Germany. The
documents would show that quality check had
been done by the TMS Fashions Pvt. Ltd. The
whole production done by the d facto complainant
was completely controlled by TMS Fashions Pvt.
Ltd.
11. There is a specific allegation in the
complaint that the de facto complaint refused to go
in for shipment of the goods as they understood
that the Letter of Credit opened by M/s. Manhattan
Ltd. with State Bank of India, Tirupur Branch was
not renewed on 25.1.2005. It has also been stated
in the complaint that TMS Fashions Pvt. Ltd.
informed the de facto complainant that the Letter
of Credit opened by Hong Kong Company was
revalidated upto 28.2.2005, having consigned the
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goods, the de facto complainant approached the
State Bank of India, Tirupur Branch but was
unfortunately informed by the State Bank of India,
Tirupur Branch that the Letter of Credit was never
revalidated, it is further contended in the
complaint. The allegations of criminal conspiracy
and cheating have been made in the complaint.”
It was furthermore opined :
“16. In the instant case, it has been specifically
contended in the complaint that the petitioners
herein enticed the de facto complainant to part
with the goods having made misrepresentation that
the Letter of Credit opened by the Hong Kong
Company was extended for a further period and
thereby the accused de facto complainant was
duped by the petitioners herein. Therefore, the
above authority will not apply to the facts and
circumstances of this case.”
The High Court concluded:
“20. It is not as if that the complaint lacks
ingredients of the offence of cheating and criminal
breach of trust. The petitioners cannot wriggle out
of the investigation process embarked upon by the
second respondent-police on the ground that they
acted as an agent of their principal M/s. Manhattan
Ltd. The allegation in the complaint would reveal
that the whole transaction was clinched by the de
facto complainant only with the petitioner herein.
But for the representation made and the assurance
given by the petitioners, the goods would not have
been shipped by the de facto complainant, it has
been contended in the complaint. The whole
gamut of the allegation will have to be probed into
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by the investigation agency. When the complaint
reflects commission of cognizable offence and the
same will have to be thoroughly investigated by
the second respondent-police, the question of
quashing the case registered against the petitioners
does not arise for consideration.”
7. Mr. G.V. Rao, learned counsel appearing on behalf of the appellant
would contend that the dispute between the parties having arisen out of a
contract qua contract, the complaint petition was not maintainable.
8. Mr. V. Kanagaraj, learned senior counsel appearing on behalf of
Respondent No.2, on the other hand, submitted that the complaint petition
had to be filed only because the appellant did not pay the entire amount
representing the value of the garments exported. It was contended that the
appellants having made part payment of the entire dues cannot be permitted
now to turn round and contend that they have no liability in the matter at all.
9. Indisputably Respondent No.2 is the producer of the garments. The
buyer is a German Company. Rightly or wrongly, the buyer refused to
accept the goods, inter alia, on the premise that the same were defective and
sub-standard. We will assume that the appellant company was assured
payment for such supplies. Even if that be so, it would be a del credere
agent. Its liability is, therefore, a civil liability. The allegations contained
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in the First Information Report did not reveal that any misrepresentation
was made at the time of formation of the contract. The goods were to be
supplied by Respondent No.2. They were presumably required to meet the
requirements of the buyer. Even if the certificate granted by the appellant
company was incorrect, an appropriate action against them could have been
taken for breach of contract.
10. The ingredients of an offence as contained in Section 420 of IPC are
as under:
“i) Deception of any persons;
ii) Fraudulently or dishonestly inducing any
person to deliver any property; or
iii) to consent that any person shall retain any
property and finally intentionally inducing that
person to do or omit to do anything which he
would not do or omit.”
Criminal breach of trust is defined in Section 405 of IPC. The
ingredients of an offence of the criminal breach of trust are :
“1. Entrusting any person with property or with
any dominion over property.
2. That person entrusted (a) dishonestly
misappropriating or converting to his own
use that property; or (b) dishonestly using or
disposing of that property or willfully
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suffering any other person so to do in
violation—
(i) of any direction of law prescribing
the mode in which such trust is to be
discharged, or
(ii) of any legal contract made touching
the discharge of such trust.”
Ingredients of Section 409 of IPC read as under :
“(i) The accused must be a public servant;
(ii) He must have been entrusted, in such
capacity, with property.
(iii) He must have committed breach of trust in
respect of such property.”
11. The First Information Report contains details of the terms of contract
entered into by and between the parties as also the mode and manner in
which they were implemented. Allegations have been made against the
appellants in relation to execution of the contract.
No case of criminal misconduct on their part has been made out
before the formation of the contract. There is nothing to show that the
appellants herein who hold different positions in the appellant-company
made any representation in their personal capacities and, thus, they cannot
be made vicariously liable only because they are employees of the company.
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12. In R. Kalyani v. Janak C. Mehta & Ors. [2008 (14) SCALE 85], this
Court held :
“24. As there had never been any interaction
between the appellant and them, the question of
any representation which is one of the main
ingredients for constituting an offence of cheating,
as contained in Section 415 of the Indian Penal
Code, did not and could not arise.
25. Similarly, it has not been alleged that they
were entrusted with or otherwise had dominion
over the property of the appellant or they have
committed any criminal breach of trust.
So far as allegations in regard to commission of
the offence of forgery are concerned, the same had
been made only against the respondent No. 3 and
not against the respondent No. 2. Sending a copy
thereof to the National Stock Exchange without
there being anything further to show that the
respondent No. 2 had any knowledge of the fact
that the same was a forged and fabricated
document cannot constitute offence.
Allegations contained in the FIR are for
commission of offences under a general statute. A
vicarious liability can be fastened only by reason
of a provision of a statute and not otherwise. For
the said purpose, a legal fiction has to be created.
Even under a special statute when the vicarious
criminal liability is fastened on a person on the
premise that he was in- charge of the affairs of the
company and responsible to it, all the ingredients
laid down under the statute must be fulfilled. A
legal fiction must be confined to the object and
purport for which it has been created.”
It was furthermore observed:-
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“27. If a person, thus, has to be proceeded with
as being variously liable for the acts of the
company, the company must be made an accused.
In any event, it would be a fair thing to do so, as
legal fiction is raised both against the Company as
well as the person responsible for the acts of the
Company.”
The liability of the company is, therefore, a civil liability. It is also
not a case where although a prima facie case had been made out disclosing
commission of an offence, the court is called upon to consider the defence
of the accused. The First Information Report itself refers to the documents.
They can, therefore, be taken into consideration for the purpose of
ascertaining as to whether the allegations made in the complaint petition
read as a whole, even if taken to be correct in its entirety, discloses
commission of any cognizable offence or not. As admittedly Respondent
No.2 was the supplier of garments which were found out to be defective in
nature, we are of the opinion that the dispute between the parties is civil in
nature.
13. For the reasons aforementioned, the impugned judgment cannot be
sustained. It is set aside accordingly. The appeal is allowed. The
impugned summons issued to the appellants are quashed.
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……………………………….J.
[S.B. Sinha]
..…………………………..…J.
[Cyriac Joseph]
New Delhi;
December 19, 2008