Holding

The complaint is mala fide, constitutes an abuse of process, and the proceedings under Sections 406, 420, 294, 506 and 34 IPC are quashed.

Summary

The Managing Director of Team Finance Company filed a criminal complaint under IPC sections 406, 420, 294, 506 and 34 alleging breach of trust because Mahindra & Mahindra Financial Services presented post‑dated cheques despite the debt being discharged by demand drafts as per a tripartite agreement. The appellant had earlier instituted proceedings under Section 138 of the Negotiable Instruments Act, and claimed the complaint was a retaliatory move to harass them. The High Court dismissed the appellant's petition under Section 482 of the CrPC, but the Supreme Court held that the complaint lacked the ingredients of the alleged offences and was filed with an ulterior motive. Relying on the principles laid down in State of Haryana v. Bhajan Lal, the Court classified the complaint as an abuse of the process of law and exercised its inherent power to quash the proceedings. Consequently, the criminal complaint was set aside and the appeal was allowed.

Issues considered

Whether the complaint under IPC sections 406, 420, 294, 506 and 34 is maintainable in view of pending proceedings under Section 138 of the Negotiable Instruments Act.
Whether the complaint amounts to an abuse of process of law warranting quashment under Section 482 of the Code of Criminal Procedure.
Whether the ingredients of the invoked IPC offences are established on the facts.

Legislation cited

Code of Criminal Procedure, 1973s. 482
Indian Penal Code, 1860s. 294, s. 34, s. 406, s. 420, s. 506
Negotiable Instruments Act, 1881s. 138, s. 13B

Subjects

abuse of processSection 482 CrPCSection 138 NI Actbreach of trusthire‑purchase financequashing of criminal proceedingsBhajan Lal doctrine

Judgment

[2008] 16 S.C.R. 1186

A MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD. .
AND ANR.
II.
RAJIV DUBEY
(Criminal Appeal No. 1966 of 2008)
B DECEMBER 4, 2008
_.,
[DR. ARIJIT PASAYAT AND DR. MUKUNDAKAM
SHARMA, JJ.]
I
\
c Code of Cfiminal Procedure, 1973 - s. 482 - Cheques
towards instalment issued to accused company against hire-
purchase finance - Cheques on presentation dishonoured -
Accused initiating proceedings u/s 138 of Negotiable
Instruments Act - Complaint by guarantor of the ioan that
D presentation of chequf1 amounted to breach of trust as they
were presented despite the FJntire money having been paid
through demand draft as agreed between the parties -
Initiation of proceedings uls 406 and 420 /PC - Quashing of
the proceedings - Sought - RejeGted by High Court - On
E appeal, held: In the facts of the case, the offences complained
are not made out - The complaint apparently shows that it
was with ulterior motive and thus amounted to abuse of the
process of law- Penal Code, 1860 - ss.406 and 420.

The respondent filed a complaint as the Managing
F Director of a Finance Company u/ss.406, 420, 294, 506/
r
34 IPC. He alleged hat respondent availed hire-purchase
finance from the appellant No.1 - accused company in
respect of a vehicle. Tough he had· given cheques for
payment of instalments in favour of the appellant -
G company, but an agreement was executed between the
parties that appellant company shall not present the ;._
cheque, and the payment shall be made through demand
drafts. Despite the entire amount; having paid by demand
drafts, ctppellant-company did not return the cheques and
H 1186
MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD. ~187
AND ANR. v. RAJIV DUBEY

presented the same with the bank. Judicial Magistrate A
;
took cognizance of the offence punishable u/ss.406 and
420 IPC. Petition u/s 482 Cr.P.C. by the appellant-accused
was dismissed by High Court.

In appeal to this Court appellant-accused stated that 8
several tripartite loan agreements were signed and loans
were disbursed to the customers directly by the appellant
to which the respondent was a guarantor. As per1the
agreement the respondent was required to open a
separate bank account and deposit all post dated
instalment cheques received from the customers. It was C
also required to reimburse the default in payment by the
customer. Appellants when presented the cheques. the
same were dishonoured. Hence, proceedings u/s 13B of
Negotiable Instruments Act, 1881 was initiated. Appellant
contended that the complaint was as a counter blast to D
the proceedings u/s 138 of Negotiable Instruments Act.
Allowing the appeal, the Court

HELD: It is not in dispute that the proceedings under . E
Section 138 are pending. That being so, the question of
proceeding for alleged breach of trust does not arise. The
respondent does not dispute issuance of cheques. Even
a casual reading of the complaint does not show tha' the
. ingredients of Section 406 IPC are in any event made 'out
It is also not understandable as to how Section 294 has F
any application to the facts of the case much less Section
506 IPC. In addition to this, perusal of the complaint
apparently shows the ulterior motive. It is clear that the
proceeding initiated by the respondent clearly amounted
to abuse of the process of law. The criminal proceeding G
is manifestly attended with ma/a fide and/or where the
proceeding is maliciously instituted with an ulterior
motive for wreaking vengeance on the accused and with
a view to spite him due to private and personal gru~ge.
[Para 16 and 17] (1192-E, F, G; 1194-D-E] H
1188 SUPREME COURT REPORTS [2008] 16 S.C.R.

A State of Haryana v. Bhajan Lal AIR 1992 SC 604, relied
on.

Case Law Reference:
AIR 1992 SC 604 Relied on. Para 17
B
CRIMINAL APPElLATE JURISDICTION : Criminal Appeal
No.1966 of 2008.

From the final Judgment and Order dated 20.6.2006 of the
High Court of Orissa at Cuttack in Crl. M.C. No. 6246 of 2001.
c
Mukul Rohtagi, Prashant Kumar, Triveni Potekar, Manoj,
Vandana and Chander Shekhar Ashri for the Appellants.

V. Shekhar, Manoj Aparna Sinha and Abhijat P. Medh for
the Respondent.
0
The Judgment of the Court was delivered by
1
DR. ARIJIT PASAYAT, J. 1. Leave granted.

2. ChaHenge in this appeal is to the judgment of a learned
E
Single Judge of the Orissa High Court declining to interfere with
the order passed by learned SDJM, Bhubaneshwar in ICC 210
of 2000 taking cognizance of offence punishable under
Sections 406 and 420 of the Indian Penal Code, 1860 (in short
F the 'IPC'). In the complaint it was inter-alia alleged as follows:

The complainant as the Managing Director of Team
Finance Company Pvt. Ltd., Janpath Tower, Bhubaneswar had
availed hire purchased finance from Mahindra & Mahindra
Financial Services Limited, accused appellant No.1 with the
G cons.ent and knowledge of its Managing Director, accused
appellant No.2 in respect of a vehicle for a sum of
Rs.1,89,000,00. He had giv~n seven blank cheques drawn on
Canara Bank, Main Branch Bhubaneswar in favour of accused-
appellant No.1 in the year. 1994 when the agreement had been
H executed between the parties with mutual understanding that
MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD. 1189
AND ANR. v. RAJIV DUBEY [DR ARIJIT PASAYAT, J.]

lhe said cheques would not be presented for encashment1 by A
the accused-appellant, but then payments would be made
through demand drafts regularly till the entire amount "¥as
repaid. According to the complainant, in consonance with the
said understanding the entire dues were repaid by him through
demand drafts and after repayment he wrote a letter to B
accused-appellant No.I for returning the blank cheques to him.
However, without doing .so, the accused appellants
...
mischievously and with ulterior motive presented the cheques
in the bank, a fact he learnt after receiving communication frqm
the concerned Bank, that as sufficient money was not available I c
in h'.s account. The cheques were presented in bank by the
accusAd-appellants even though their entire amount had been
repaid by the complainant. This was done with a motive to
chGat 2nd harass the complainant snd makes out offences
under Sections 406 and 420 IPC. The court below after
D
recording the initial statement of the complainant under Secti9n
200 of the Code of Criminal Procedure, 1973 (in short the
'Code') perusing the materials produced before him and beihg
prima facie satisfied about commission of the aforesaid
offences took cognizance thereof.
E
3. Stand of the appellants before the High-Court was th,at
the complaint was nothing but abuse of the process of the law.
It was as a counter blast to the proceedings initiated under
Section 138 of the Negotiable Instruments Act, 1881 (in short
the 'Act'). The High Court found that it is not a case for F
interference under Section 482 of the Code.
~

4. Learned counsel for the appellants, inter-alia, submitted
as follows:

Pursuant to the minutes of meeting dated 23.6.1995 it w~s G
agreed to enter into a tripartite Agreement between the I

~ appellant No.1-Company, the Respondent's company Team
Finance Corporation Pvt. Ltd. and the customers availing the
loan and buying the vehicle whereby appellant No.1 agreed tb
H
1190 SUPREME COURT REPORTS [2008) 16 S.C.R. \__
.
A extend loans under hire and putshase/lease directly to
~
customers with Team Finance Co. Pvt. Ltd. being the guarantor
for disbursal of the said loans to the customers for which the
Respondent was given a margin of 3-4% to market the loan
scheme. As per clause (e) of the said minutes of the meeting
B and as per clause (f) the respondent had to open a separate I
bank account and deposit all the post dated installment c
},,
cheques received from the customers ir:i the said.account which .i.-
~
was required to be remitted to the appellant Company on
minimum balance basis in its Bombay account by way of
c Telegraphic Transfer and as per clause (g) the respondent was
reqµired to send reports and statements on monthly basis to
the appellant company. As per clause (h) for any customer once
defaults in payment reached a figure of 3, the respondent had
to reimburse the said defaulted installment to the appellant •'
Company. This understanding was further reinforced as per the
D
minutes of discussions held between the appellant and
respondent on 18-07.1996 and certain additional conditions
were imposed on the respondent by the appellants whereby a ,,.
limit of Rs.20 lakhs was fixed for extending finance per month
by the respondent.
E
5. As such-several tripartite loan agreements were signed
and loan disbursed to the customers directly by the appellants j;

with the Respondent being a guarantor and as on 25th March :-
2009, the total outstanding against respondent Team Finance
F Corporation Pvt. Ltd~ stood at Rs.2,39;73,795/- the said amount /-

being u~paid despite several reminders to settle the
r-
... \
outstanding amount.

6. The appellants presented 7 cheques on 29-03-2000
bearing numbers and amounts as following: I-
G
Cheque No. Amount- Dated l
\
7891578 1655516/- 29-03-2000
7891579 2526794/- 29-03-2000
"
'----
7891580 1477323/- 29-03-2000
H

1.
..
MAHINDRA AND MAHINDRA FINANCIAL SERVICES LTD. 1191
AND ANR. v. RAJIV DUBEY [DR ARIJIT PASAYAT, J.]
>
7891581 722419/- 29-03-2000 A
7891582 19631031/- 29-03-2000
7891583 1942609/- 29-03-2000
7891584 4712236/- 29-03-2000
7. The appellants presented 3 cheques on 2-08-2000 B
against the discharge of the remaining outstanding payments
bearing the number and amounts as follows:
Cheque No. Amount Dated
7891585 3515726/- 2.8.2000
7891586 3530903/- 2.8.2000 c
7891587 1927166/- 2.8.2000
8. All these cheques were returned by the Bank to the
appellants with the endorsement that the account is not valid
and insufficient funds. D

9. In the meanwhile, in order to pre-empt the impending
proceeding under sec 138 of the Act, the respondent filed a
criminal complaint CC No. 21_0 of 2000 against the appellants
under Sections 406, 420, 294, 506, 34 IPC before SDJM
Bhubneshwar on 11-05-2000, inter-alia, claiming that the E
cheques issued by respondent were towards an outstanding
amount of Rs.1,89,000/- and the said payment has already
been made by the Respondent by way of a Demand Draft of
which no number, date or any other details are provided in the
complaint. The appellants became aware of institution of such F
a case only later when the process was issued on 18.04.2001
and the same was received by the appellants.

10. On 02-08-2000 the appellants filed Case No.753/S/
2000 U/s 138 of the Act read with section 34 of IPC before G
ACMM, Esplanade, Bombay.

11. The respondent in the meanwhile kept on representing
that he will clear the payments and vide letter dated 8-11-2000
made an offer to the appellants to agree for the full and final
H
1192 . SUPREME COURT REPORTS [2008] 16 S.C.R.
·.
A settlement of the outstanding dues for a mere sum of 25,00,000/
- against a balance of 2,39,73,795/...

12. On 18.04.2001, the Learned Co1.Jrt gf §G~M,
Bhubaneshwar in ICC 210 of 2000 issued process again§t ~h~
B appellants under Section 406/420 IPC.

13. According tO the appellants the ingredients of Section
405 are not present. In any event, the plea of the respondent
filing the petition mala fide is clearly borne out.

c 1·4. Learned counsel for the respondent on the other hand
submitted that the appellants have not' come to thj~ Court with
clean hands.
15 .. The appellants have introduced a fabricated letter
dated 24.6. l995. It is their stand· that the entire amount was
D
paid and, ther~ore, on receiving the full p~yment, the appellants
ought to have returned the cheques which were held only ~s @
collateral security.
16. It is not in dispute that the proceedings under Section
E 138 are pending. That being so, the question of proceeding for
alleged breach of trust does not arise.

17. It· is interesting to note that the respondent does not
dispute issuance of cheques. Even a casual reading of the
complaint does not show that the ingrepients of Section 406
F
IPC are in any event made out. It is also not unaer$tandable
as to how Section 294 has any application to the facts of ·th~
case much less Section 506 IPC. In addition to this, perusal of
the complaint apparently shows the ulterior motive. It is clear
that the proceeding initiated by the respondent clearly
G amounted to abuse of the process of Jaw. In State of Haryana
v. Bhajan Lal (AIR 1992 SC 604), it was, inter-a/ia, observed "
as follows:

"108. In the backdrop of the interpretation of the various
H
I
MAHINDRA AND MAHlNDRA FINANCIAL SERVICES LTD. 1193
AND ANR. v. RAJIV DUBEY [DR ARIJIT PASAYAT, J.]
>
relevant provisions of the Code under Chapter XIV and of A
the principles of law enunciated by this Court in a series
of decisions relating to the exercise of the extraordinary
power under Article 226 or the inherent powers under
Section 482 of the Code which we have extracted and
reproduced above, we give the following categories of, B
cases by way of illustration wherein such power could be
exercised either to prevent ~buse of the process of any
court or otherwise to secure the ends of justice, though' it
rnay not, be possible tg lay-down any precise, clearly
defined and sufficiently channelised and inflexible , c
guidelines or rigid formulae and to give an exhaustive list
of myriad kinds of cases wherein such power should be
exercised.
(1) Where the allegations made in the first information
report or the complaint, even if they are taken at D
their face value and accepted in their entirety do not
prima facie constitute any offence or make out a
case against the accused.
(2) Where the alleg~tions in the first information report E
and other materials, if any, accompanying the FIR
do not disclose a cognizable offence, justifying an
investigation by police officers under Section 156(1)
of the Code·except under an order of a Magistrate
within the purview of Section 155(2) of the Code. F
(3) Where the uncontroverted allegations made in the
FIR or complaint and the evidence collected in
support of the same do not disclose the
commission of any offence and make out a case
against the accused. G

(4) Where, the allegations in the FIR do not constitute
a cognizable offence but constitute only a non-
cognizable offence, no investigation is permitted by
a police officer without an order of a Magistrate as H
'
)
1194 SUPREME COURT REPORTS [2008] 16 S.C.R.

A contemplated under Section 155(2) of the Code. "'
(5) Where the allegations made in the FIR or complaint
are so absurd and inherently improbable on the
basis of which no prudent person can ~ver reach a
just conclusion that there is sufficient ground for
B
proceeding against the accused. ,,.
'~)
l. . Where there is an express legal bar engrafted in
any of the provisions of the Code or the concerned
Act (under which a criminal proceeding is instituted)
c to the institution and continuance of the
proceedings and/or where there is a specific
provision in the Code or the concerned Act,
;
providing efficacious redress for the grievance of
the aggrieved party.
D
(7) Where a criminal proceeding is manifestly attended
with mala fide and/or where the proceeding is
maliciously instituted with an ulterior motive for
wreaking vengeance on the accused and with a
view to spite him due to private and personal
E
grudge.",,

18. The case at hand falls under category (7).

19. Therefore, in view of what has been stated .in Bhajan
F La/'s case (supra), the proceedings in ICC 210 of 2000 before
learned SDJM, Bhubaneswar stand quashed. The appeal is
allowed.

K.K.T. Appeal allowed.

I
I