Supreme Court sets aside High Court order on framing of charges in Cheating and Criminal Breach of Trust case: Sanghi Brothers vs. Sanjay Choudhary (2008)

Date of the Judgment: October 3, 2008

Citation: Criminal Appeal No. 1578 of 2008 (Arising out of SLP (Crl.) No. 1339 of 2007)

Judges: Dr. Arijit Pasayat, J., Dr. Mukundakam Sharma, J.

The Supreme Court addressed the question of whether the High Court was correct in interfering with the trial court’s order to frame charges against the accused for offences of cheating and criminal breach of trust. The appellant, Sanghi Brothers, alleged that the respondents, Directors of Chetak Construction Ltd., had defrauded them by failing to pay lease rents for vehicles and illegally selling some of those vehicles. The Supreme Court set aside the High Court’s order, holding that at the stage of framing charges, a strong suspicion of the commission of an offence is sufficient to proceed.

Case Background

Sanghi Brothers (Indore) Pvt. Ltd., the appellant, is a company that sells auto vehicles in Indore. The respondents are Directors of Chetak Construction Ltd. In 1988-89, the respondents approached the appellant for leasing Tata dumpers and light commercial vehicles for a specific period, agreeing to pay monthly lease rents and provide a bank guarantee. Agreements were executed on May 13, 1988, November 14, 1988, and March 25, 1989, for the delivery of 25 dumpers, 10 dumpers, 20 dumpers, and 4 light commercial vehicles, respectively. The respondents agreed to pay monthly lease rents for 36 months and provided necessary documents to ensure the agreement’s performance.

Later, the appellant discovered that Chetak Construction Ltd. was unable to pay the lease rents. The appellant requested the respondents to execute personal guarantee bonds, which they did on December 6, 1991, along with providing collateral security of a property belonging to M/s Choudhary Builders Private Ltd. The appellant alleged that the respondents violated the agreement by illegally selling eight vehicles, committing criminal breach of trust and cheating. Consequently, the appellant filed a complaint under Sections 420 (Cheating) and 406 (Criminal Breach of Trust) of the Indian Penal Code (IPC) against the respondents.

Timeline

Course of Proceedings

The trial court, after taking cognizance of the complaint and recording evidence, ordered the framing of charges against the respondents under Sections 420 and 406 read with Section 34 of the IPC. The respondents then challenged this order before the High Court of Judicature at Madhya Pradesh, Indore Bench, in a criminal revision petition.

The High Court allowed the revision petition, stating that the cases cited by the appellant were distinguishable from the present case. The High Court noted that the applicants/accused were challenging the order of framing charges based on prima facie evidence and arguing that no charges under Sections 420 and 406 IPC were made out against them. The High Court concluded that the framing of charges was not sustainable.

Legal Framework

The legal framework relevant to this case includes:

• Section 420 of the Indian Penal Code (IPC): This section deals with cheating and dishonestly inducing delivery of property. It states: “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 406 of the Indian Penal Code (IPC): This section defines the punishment for criminal breach of trust. It states: “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 34 of the Indian Penal Code (IPC): This section defines the act done by several persons in furtherance of common intention. It states: “When a criminal act is done by several persons in furtherance of the common intention of all, each of such persons is liable for that act in the same manner as if it were done by him alone.”

Arguments

Appellant’s Arguments:

• The appellant argued that the High Court’s conclusions were indefensible, asserting that the legal requirement is not that the offence be unimpeachable to base a conviction.
• The appellant contended that there was a clear intention to prevent them from exercising their right of repossession, especially after the respondents furnished property security not owned by them.
• It was argued that the High Court erred in stating that there was no allegation of criminal intention at the initial stage, as this was explicitly stated in the complaint.

Respondents’ Arguments:

• The respondents submitted that the High Court rightly considered the background facts to conclude that framing of charges was not sustainable.
• They argued that there was no intention of committing fraud, as part of the amount had been received, sale of vehicles was permitted, and the bank guarantee was encashed.
• The respondents contended that even if there was a breach of contract, it was remedied by the permission to sell vehicles and encashment of the bank guarantee, thus retrieving the whole agreement.
• It was argued that fraud requires a mental evil design, which was absent in this case, and that the dispute was civil in nature.

Issues Framed by the Supreme Court

1. Whether the High Court was correct in interfering with the order of the trial court to frame charges against the accused?

Treatment of the Issue by the Court

Authorities

The Supreme Court relied upon the following authorities:

• State of Maharashtra and Ors. v. Som Nath Thapa and Ors. (1996 (4) SCC 659): This case was cited to explain the meaning of the word ‘presume’ and to establish that if a court could conclude that the commission of an offence is a probable consequence based on the materials on record, a case for framing of charge exists.
• State of Karnataka v. L. Muniswamy (1977 (2) SCC 699): This case was referred to emphasize that at the stage of framing the charge, the court has to apply its mind to the question of whether there is any ground for presuming the commission of offence by the accused.
• Stree Atyachar Virodhi Parishad v. Dilip Nathumal Chordia (1989 (1) SCC 715): Cited to support the view that the court needs to see whether the material brought on record could reasonably connect the accused with the trial while considering the question of framing the charge.
• State of West Bengal v. Mohd. Khalid (1995 (1) SCC 684): Cited for the same proposition as Stree Atyachar Virodhi Parishad v. Dilip Nathumal Chordia.
• R.S. Nayak v. A.R. Antulay (1986 (2) SCC 716): This case was referred to analyze the terminology used in Sections 227, 239, 245 of the Code of Criminal Procedure and to establish that the test of a prima facie case is to be applied at the stage at which the court is required to consider the question of framing of charge.

Judgment

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

How each authority was viewed by the Court?

The authorities were used by the court for its reasoning for resolving the issue.

• State of Maharashtra and Ors. v. Som Nath Thapa and Ors. (1996 (4) SCC 659): The Court used this authority to define the term “presume” and to support the view that a charge can be framed if the commission of an offence is a probable consequence based on the record.
• State of Karnataka v. L. Muniswamy (1977 (2) SCC 699): The Court used this authority to emphasize that the court must consider whether there is any ground for presuming the commission of an offence by the accused at the stage of framing the charge.
• Stree Atyachar Virodhi Parishad v. Dilip Nathumal Chordia (1989 (1) SCC 715) and State of West Bengal v. Mohd. Khalid (1995 (1) SCC 684): These cases were used to support the view that the court needs to see whether the material brought on record could reasonably connect the accused with the trial while considering the question of framing the charge.
• R.S. Nayak v. A.R. Antulay (1986 (2) SCC 716): The Court referred to this case to analyze the terminology used in Sections 227, 239, 245 of the Code of Criminal Procedure and to establish that the test of a prima facie case is to be applied at the stage at which the court is required to consider the question of framing of charge.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the principle that at the stage of framing charges, a strong suspicion of the commission of an offence is sufficient to proceed with the trial. The Court emphasized that it is not necessary to formulate an opinion about the prospect of conviction at that stage. The Court also considered the explicit allegations of criminal intention in the complaint and the fact that the respondents had furnished property security not owned by them, indicating an intention to prevent the appellant from exercising the right of repossession.

Fact:Law Ratio

Key Takeaways

• At the stage of framing charges in a criminal case, a strong suspicion of the commission of an offence is sufficient to proceed with the trial.
• The court is not required to formulate an opinion about the prospect of conviction at the stage of framing charges.
• Explicit allegations of criminal intention in the complaint can be a significant factor in deciding whether to frame charges.

Development of Law

The ratio decidendi of the case is that at the stage of framing charges, a strong suspicion of the commission of an offence is sufficient for the court to frame a charge. This reaffirms the established legal position that the court does not need to assess the likelihood of conviction at this preliminary stage.

Conclusion

The Supreme Court allowed the appeal, setting aside the High Court’s order and affirming the trial court’s decision to frame charges against the respondents under Sections 420 and 406 of the Indian Penal Code. The Court reiterated that a strong suspicion of the commission of an offence is sufficient to frame a charge, and the High Court should not have interfered with the trial court’s order.