Supreme Court quashes criminal proceedings against bona fide purchasers in property fraud case: Rekha Jain vs. State of Uttar Pradesh (2022) INSC 123 (03 February 2022)

Date of the Judgment: 03 February 2022
Citation: (2022) INSC 123
Judges: Justice M.R. Shah and Justice B.V. Nagarathna
Can a person be subjected to criminal proceedings for purchasing a property, without any knowledge of the property being attached? The Supreme Court of India recently addressed this question in a case involving allegations of fraud and property attachment. The Court quashed criminal proceedings against two appellants, who were bona fide purchasers of a property, finding no prima facie case against them. The judgment was delivered by a two-judge bench comprising Justice M.R. Shah and Justice B.V. Nagarathna.

Case Background

The case revolves around a complaint filed by Pradeep Singhal, alleging that one Arun Kumar Maheshwari misappropriated funds deposited in Kuber Mutual Benefits Ltd. between 1998 and 1999. The complainant alleged that, as a result, a property was attached and given in custody to Pradeep Singhal and Bijendra Maheshwari. Subsequently, the appellants, Smt. Rekha Jain and Smt. Minakshi Jain, purchased the property in 2019. The complainant alleged that the sale was fraudulent, leading to the registration of an FIR against the appellants and others.

Timeline

Course of Proceedings

The appellants, Smt. Rekha Jain and Smt. Minakshi Jain, approached the High Court of Judicature at Allahabad seeking to quash the criminal proceedings initiated against them under Section 482 of the Code of Criminal Procedure (Cr.P.C.). The High Court dismissed their application. Subsequently, the appellants appealed to the Supreme Court of India.

Legal Framework

The case involves the following sections of the Indian Penal Code (IPC):

• Section 406, IPC: “Punishment for criminal breach of trust.—Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.”
• Section 420, IPC: “Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
• Section 467, IPC: “Forgery of valuable security, will, etc.—Whoever forges a document which purports to be a valuable security or a will, or an authority to adopt a son, or which purports to give authority to any person to make or transfer any valuable security, or to receive the principal, interest or dividends thereon, or to receive or deliver any money, movable property or valuable security, or any document purporting to be an acquittance or receipt acknowledging the payment of money, or an acquittance or receipt for the delivery of any movable property or valuable security, shall be punished with imprisonment for life, or with imprisonment of either description for a term which may extend to ten years, and shall also be liable to fine.”
• Section 468, IPC: “Forgery for purpose of cheating.—Whoever commits forgery, intending that the document or electronic record forged shall be used for the purpose of cheating, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
• Section 471, IPC: “Using as genuine a forged document or electronic record.—Whoever fraudulently or dishonestly uses as genuine any document or electronic record which he knows or has reason to believe to be a forged document or electronic record, shall be punished in the same manner as if he had forged such document or electronic record.”
• Section 120-B, IPC: “Punishment of criminal conspiracy.—(1) Whoever is a party to a criminal conspiracy to commit an offence punishable with death, imprisonment for life or rigorous imprisonment for a term of two years or upwards, shall, where no express provision is made in this Code for the punishment of such a conspiracy, be punished in the same manner as if he had abetted such offence. (2) Whoever is a party to a criminal conspiracy other than a criminal conspiracy to commit an offence punishable as aforesaid shall be punished with imprisonment of either description for a term not exceeding six months, or with fine or with both.”

The appellants sought to quash the criminal proceedings under Section 482 of the Cr.P.C., which empowers the High Court to prevent abuse of the process of law.

Arguments

Appellants’ Submissions:

• The main allegations are against Arun Kumar Maheshwari and others for misappropriation of funds between 1995-1999.
• The appellants are bona fide purchasers of the property, which was not under attachment or dispute at the time of purchase.
• There is no evidence to suggest that the appellants were aware of any prior attachment of the property.
• The appellants have no connection with the co-accused.
• The criminal proceedings against them are an abuse of the process of law, causing unnecessary harassment.

State’s Submissions:

• The State initially opposed the quashing of criminal proceedings, arguing that a charge sheet had been filed after investigation.
• However, the State could not provide any material evidence against the appellants, except for the allegation that they purchased the property.

Complainant’s Submissions:

• The original complainant stated that he had no objection to quashing the criminal proceedings against the appellants.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues. However, the core issue was whether the criminal proceedings against the appellants, who were bona fide purchasers of the property, should be quashed under Section 482 of the Cr.P.C., given the lack of evidence against them.

Treatment of the Issue by the Court

The following table demonstrates how the Court decided the issues:

Authorities

The Court did not explicitly cite any specific cases or books in its judgment. The primary focus was on the factual matrix and the application of Section 482 of the Cr.P.C. to prevent abuse of the legal process.

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• Section 482, Cr.P.C.: The Court used its inherent powers under Section 482, Cr.P.C.* to quash the criminal proceedings, emphasizing that the appellants were bona fide purchasers and there was no prima facie case against them. The Court noted that continuing the proceedings would be an abuse of the process of law and cause unnecessary harassment.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the lack of any direct involvement of the appellants in the alleged fraud. The Court emphasized that the appellants were bona fide purchasers of the property and there was no evidence to suggest that they were aware of any prior attachment or had any connection with the original accused. The Court also noted that the complainant had no objection to quashing the proceedings, further supporting their decision. The Court’s reasoning was driven by the principle that criminal proceedings should not be used to harass innocent parties.

The Court observed, “The main allegations are against the other co-accused – Arun Kumar Maheshwari and others. The only allegation against the appellants is that they have purchased the property in question, which was attached in the year 1998-1999 against the amounts due and payable to the depositors.”

The Court further stated, “Nothing is brought on record that at the time when the property was purchased by the appellants, the attachment was continued and/or any attachment was registered.”

The Court concluded, “Therefore, to continue the criminal proceedings against the appellants would be an abuse of process of law and the Court and unnecessary harassment to the appellants, who seem to be the purchasers of the property on payment of sale consideration.”

There were no dissenting opinions in this case.

Key Takeaways

• Bona fide purchasers of property cannot be subjected to criminal proceedings for the actions of previous owners unless there is clear evidence of their involvement in the original fraud.
• The Court will exercise its powers under Section 482 of the Cr.P.C. to prevent abuse of the legal process and to protect innocent parties from unnecessary harassment.
• The absence of a registered attachment on a property at the time of purchase is a significant factor in determining the bona fides of the purchaser.

Directions

The Supreme Court quashed the criminal proceedings against the appellants, Smt. Rekha Jain and Smt. Minakshi Jain, arising out of Case Crime No. 48 of 2019. The charge sheet against them was also quashed.

Development of Law

The ratio decidendi of this case is that bona fide purchasers of property cannot be held liable for the fraudulent actions of previous owners without any evidence of their involvement or knowledge of the fraud. This case reinforces the principle that criminal proceedings should not be used to harass innocent parties and that the courts will exercise their inherent powers to prevent abuse of the process of law.

Conclusion

The Supreme Court’s judgment in Rekha Jain vs. State of Uttar Pradesh provides significant relief to bona fide purchasers of property who are unjustly implicated in criminal proceedings. The Court’s emphasis on the lack of evidence against the appellants and the absence of a registered attachment at the time of purchase underscores the importance of due diligence and the protection of innocent parties from harassment.