Holding

An arbitration clause does not preclude criminal prosecution, and a First Class Magistrate may take cognizance of an offence irrespective of territorial jurisdiction; therefore the High Court’s order quashing the complaint was erroneous.

Summary

The Chairman of Trisuns Chemical Industry filed a complaint before a Judicial Magistrate of First Class in Gujarat alleging that the respondents, directors of a company in Madhya Pradesh, cheated them by supplying inferior toasted soybean extracts after taking advance payment. The magistrate forwarded the complaint to the police under Section 156(3) CrPC. The respondents moved the Gujarat High Court under Section 482 CrPC to quash the complaint, arguing that the dispute was civil in nature and covered by an arbitration clause, and that the magistrate lacked territorial jurisdiction. The High Court quashed the complaint, but the Supreme Court allowed the appeal, holding that an arbitration clause does not bar criminal prosecution for an offence and that any First Class Magistrate may take cognizance of an offence irrespective of where the act occurred. Consequently, the High Court’s order was set aside and the complaint reinstated, with directions for bail if arrests occur.

Issues considered

The presence of an arbitration clause in a commercial agreement bars criminal prosecution for cheating.
Whether a Judicial Magistrate of First Class has jurisdiction to take cognizance of an offence when the alleged act occurred outside the magistrate's territorial jurisdiction.
Whether Section 190 of the Code of Criminal Procedure permits any First Class Magistrate to take cognizance of any offence irrespective of territorial limits.
Whether the High Court was justified in exercising its inherent power under Section 482 CrPC to quash the complaint.

Legislation cited

Code of Criminal Procedure, 1973s. 156(3), s. 177, s. 179, s. 190, s. 193, s. 482
Indian Penal Code, 1860s. 420

Subjects

cheatingcriminal jurisdictionarbitration clauseSection 190 CrPCSection 482 CrPCterritorial jurisdictionmagistrate cognizancecivil vs criminalquashing of complaint

Judgment

A TRISUNS CHEMICAL INDUSTRY
v.
RAJESH AGARWAL AND ORS.

SEPTEMBER 17, 1999

B [K.T. THOMAS AND M.B. SHAH, JJ.]

Code of Criminal Procedure, 1973.

Ss.156, 190, 482-Quashing of complaint-Grounds for-Complaint to
C Magistrate First Class for offence of Cheating and other offences alleged to
have been committed under Penal Code-Magistrate forwarliing it for
investigation-High Court quashing complaint on grounds that the dispute
was of a civil nature and covered under arbitration clause and that the
Magistrate did not have territorial jurisdiction to try the case-Held, High
Court erred in quashing the complaint-Merely because an act has a civil
D profile is not sufficient to denude it of its criminal outfit-Power ofa Magistrate
of the First Class to take cognizance of an offence is not impaired by
territorial restrictions-As to which Court has jurisdiction to enquire into or
try the offence is to be decided during post-Cognizance stage and not
'
earlier.

E A complaint was filed by the Chairman of the appellant-company against
the respondents and their company located at Indore, Madhya Pradesh, before
the Judicial Magistrate I Class Gandhidham, Gujarat alleging that the
respondents committed offences including the offence of cheating the
appellants. It was alleged that the respondents approached the appellant and
offered to supply "Toasted Soyabean Extracts". The appellants were induced
F to pay the price on the representation that the best quality commodity would
be supplied, but the respondents supplied the most inferior quality, and thus
the appellants suffered a huge loss. The Magistrate forwarded the complaint
to the police for investigation. The respondents filed a petition under S.482
of the Code of Criminal Procedure 1973, before the Gujarat High Court for
G quashing the complaint on the grounds, that the dispute was of civil nature
and, therefore, no prosecution should have been permitted, and that the
Judicial Magistrate, Gandhidham had no jurisdiction to entertain the

H
complaint. The High Court quashed the complaint and the order passed by
the Judicial Magistrate. Aggrieved, the complainants filed the present appeal.
Allowing the appeal, the Omrt
686
-
TRISUNS CHEMICAL INDUSTRY v. RAJESH AGARWAL 687

HELD: 1. The High court was not right in holding that the provisions A
incorporated in the agreement for referring the disputes to arbitration is an
effective substitute for a criminal prosecution, when the disputed act is an
offence. Arbitration is a remedy for affording reliefs to the party affected by
breach of the agreement but the arbitrator cannot conduct a trial of any act
which amounted to an offence albiet the same act may be connected with the 1
/
discharge of any function under the ai;reement. The investigating agency
B
should have had the freedom to go into the whole gamut of the allegations
and to reach a conclusion of its own. Pre-emption of such investigation would
bejustified only in very extreme cases. (689-H; 690-A-B]

State of Haryana v. Bhajan Lal, (1992) suppl. 1 SCC 335 and Rajesh C
Bajaj v. State NCT of Delhi, (1993) 3 SCC 259, relied on.

2. The High Court also erred in holding that the Judicial Magistrate
had no power to take cognizance of the offences alleged. It is an erroneous
view that the Magistrate taking cognizance of an offence must necessarily
have territorial jurisdiction to try the case as well. In view of s.190 of the D
Code of Criminal Procedure, 1973, "any" Magistrate of the First Class has
the power to take cognizance of any offence, no matter that the offence was
committed within his jurisdiction or not. Only in certain special enactments
special provisions are incorporated for restricting the power of taking
cognizance of offences falling under such Acts. The jurisdiction aspect E
becomes relevant only when the question of inquiry or trial arises. After
taking cognizance, the Magistrate may have to decide as to the Court which
has jurisdiction to enquire into· or try the offence and that situation would
reach only during the post cognizance stage and not earlier. Even otherwise,
without being apprised of the fuller conspectus a decision on the question
of jurisdiction should not have been taken by the High Court at a grossly F
premature stage as this. (691-H; 692-A-C]

3. If any of the respondents is arrested in connection with the complaint,
he will be released on bail by the arresting officer on execution of a bond
to his satisfaction. [692-F] G

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No. 950
. of 1999.

From the Judgment and Order dated 6.11.98 of the Gujarat High Court
in S. Crl. A. No. 1453of1997. H
688 SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A Anoop Chaudhary and Ashok Kumar Gupta, for the Appellant.

A.K. Chitale and Niraj Sharma, for the Respondents.

The Judgment of the Court was delivered by

B THOMAS J. Leave granted.

Chairman of the appellant company filed a complaint before the Judicial
Magistrate of First Class, Gandhidham (Gujarat) alleging certain offences
including the offence of cheating against another company located at Indore
(Madhya pradesh) and its Directors. The Magistrate forwarded the complaint
C to the appellant for investigation as per his order passed under Section 156(3)
of the Code of Criminal Procedure (for short "the Code"). The accused
Directors thereupon moved the High Court of Gujarat under Section 482 of
the Code for quashing the complaint. A single Judge of the High Court
quashed the complaint as also the order passed by the Magistrate thereon.
D Complainant has, therefore, filed this appeal.
The gist of the complaint is this : In the month of October 1996 the
accused Directors approached him and offered to supply 5450 metric tones
of "Toasted Soyabean Extractions" for a price of nearly four and a half crores
of rupees. The rate quoted by the accused was higher than· the market price.
E Appellant had to pay the price in advance as demanded by _the accused. So
the same was paid through cheques. But the accused sent the commodity
which was of the most inferior and sub-standard quality. Complainant produced
Xerox copies of the reports obtained from the laboratory to which samples
of the commodities were sent for testing purposes. The said laboratory has
remarked that the commodity was of "the most inferior and sub-standard
F quality." The complainant suffered a loss of 17 lakhs of rupees by the aforesaid
consignment alone. According to the appellant he was induced to pay the
price on the representation that the best quality commodity would be supplied
and the price was paid on such representation. But by supplying the most
inferior quality the accused deceived the complainant and thereby the offence
G was committed. The above are the salient features of the allegations in the
complaint.

We have noted from the judgment of the learned single judge of the
High Court that appellant's counsel in the High Court did not tum up to argue
the matter. Evidently learned judge was deprived of the advantage of getting
H appellant's version projected. The deficiency is seen reflected in the impugned
TRISUNS CHEMICAL INDUSTRY v. RAJESH AGARWAL [THOMAS, J.] 689
judgment also. A

Respondent's counsel in the High Court put forward mainly two
contentions. First was that the dispute is purely of a civil nature and hence
no prosecution should have been permitted, and the second was that the
Judicial Magistrate of First Class, Gandhidham has no jurisdiction to entertain B
the complaint. Learned Single Judge has approved both the contentions and
quashed the complaint and the order passed by the Magistrate thereon.

On the first count learned single judge pointed out that there was a
specific clause in the Memorandum of Understanding arrived between the
parties that disputes, if any, arising between them in respect of any transaction C
can be resolved through arbitration. High Court made the following
observations:

"Besides supplies of processed soyabean were received by the
complainant company without any objection and the same have been
exported by the complainant-company. The question whether the D
complainant-Company did suffer the loss as alleged by it are the
matters to be adjudicated by the Civil Court and cannot be the subject
matter of criminal prosecution."

Time and again this Court has been pointing out that quashment of FIR
or a complaint in exercise of inherent powers of the High Court should be E
limited to very extreme exceptions vide State o/Haryana v. Bhajan Lal, [1992]
suppl. 1 SCC 335 and Rajesh Bajaj v. State NCT of Delhi, [1999] 3 SCC 259.

In the last referred Case this court also pointed out that merely because
an act has a civil profile is not sufficient to denude it of its criminal outfit. F
We quote the following observations:

"It may be that the facts narrated in the present complaint would as
well reveal a commercial transaction or money transaction. But that is
hardly a reason for holding that the offence of cheating would elude
from such a transaction. In fact, many a cheatings were committed in G
the course of commercial and also money transactions."

We are unable to appreciate the reasoning that the provision incorporated
in the agreement for referring the disputes to arbitration is an effective
IL
substitute for a criminal prosecution when the disputed act is an offence.
Arbitration is a remedy for affording reliefs to the party affected by breach H
690 SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.

A of the agreement but the arbitrator cannot conduct a trial of any act which
amounted to an offence albeit the same act may be connected with the
discharge of any function under the agreement. Hence, those are not good ...
reasons for the High Court to axe down the complaint at the threshold itself.
The investigating agency should have had the freedom to go into the whole
gamut of the allegations and to reach a conclusion of its own. Pre-emption
B of such investigation would be justified only in very extreme cases as indicated
in State of Haryana v. Bhajan I;_ql (Supra).

Learned single judge has accepted the alternative contention advanced
by the respondent pertaining to want of jurisdiction for the Judicial Magistrate
C of First Class, Gandhidham in respect of the offence alleged in the complaint.
This is what the High ·Court has said on that aspect: ..
"Further, there is nothing in the complaint which shows that any part
of the transaction took place within the territories of the State of
Gujarat. It appears that even the supply of processed soyabean was
D delivered to the complainant-company at the factory itself. In my view,
therefore, Mr. Shah is rigbt in contending that the Court of the learned
Judicial Magistrate, First Class, Gandhidham ought not to have takeri
cognizance of the matter and ought not to have directed to issue the
process."

E It is an erroneous view that the Magistrate taking cognizance of an
offence must necessarily have territorial jurisdiction to try the case as well.
Chapter XIII of the Code relates· to jurisdiction of the criminal courts "in
enquiries and trials." That chapter contains provisions regarding the place
where the enquiry and trial are to take place. Section 177 says that "every
offence shall ordinarily be inquired into and tried by ·a Court within whose
F local jurisdiction it was committed." But section 179 says that when an act
is an offence by reason of anything which has been done and of a consequence
which has ensued, the place of enquiry and trial can as well be in a Court
"within whose local jurisdiction such thing has been done or such consequence
has ensued." It cannot be overlooked that the said provisions do not trammel
G the powers of any court to take cognizance of the offence. Power of the Court
to take cognizance of the offence is laid in Section 190 of the Code. ~ub
sections (1) & (2) read thus:

'(i) Subject to the provisions of this Chapter, any Magistrate of the
first class, and any Magistrate of the second class specially empowered
H in this behalf under~ sub-section (2), may take cognizance of any
TRI SUNS CHEMICAL INDUSTRY v. RAJESH AGARWAL [THOMAS, J.] 691

offence: A
(a) Upon receiving a complaint of facts which constitute such
offence;

(b) Upon a police report of such facts;
B
(c) Upon i~formation received from any person other than a
police officer, or upon his own knowledge, that such offence has
been committed.

(ii) The Chief Judicial Magistrate may empower any Magistrate of
the second class to take cognizance under sub-section (1) of C
such offences as are within his competence to inquire into or
try."

Section 193 imposes a restriction on the court of Sessions to take
cognizance of any offence as a court of original jurisdiction. But 'any'
Magistrate of the First Class has the power to take cognizance of any offence, D
no matter that the offence was committed within his jurisdiction or not.

The only restriction contained in Section 190 is that the power to take
cognizance is "subject to the provisions of this Chapter." There are 9 Sections
in Chapter XIV most of which contain one or other restriction imposed on the
power of a First Class Magistrate in taking cognizance of an offence. But E
none of them incorporates any curtailment on such powers in relation to
territorial barrier. In the corresponding provision in the old Code of Crin:inal
Procedure (1898) the commencing words were like these: "Except as hereinafter
provided." Those words are now replaced by "Subject to the provisions of
this chapter." Therefore, when there is nothing in Chapter XIV of the Code
to impair the power of a Judicial Magistrate of First Class taking cognizance F
of the offence on the strength of any territorial reason it is impermissible to
deprive such a Magistrate of the power to take cognizance of an offence of
course, in certain special enactments special provisions are incorporated for
restricting the power of taking cognizance of offences falling under such acts.
But such provisions are protected by non-obstante clauses. Any way that is G
a different matter.

The jurisdictional aspect becomes relevant only when the question of
enquiry or trial arises. It is therefore a fallacious thinking that only a Magistrate
having jurisdiction to try the case has the power to take cognizance of the
offence. If he is a Magistrate of the First Class his power to take cognizance H
692 SUPREME COURT REPORTS [1999] SUPP ..2 S.C.R.

A of the offence is not impaired by territorial restrictions. After taking cognizance
he may have to decide as to the Court which has jurisdiction to enquire into
or try the offence and that situation would reach only during the post
cognizance stage and not earlier.

Unfortunately, the High Court, without considering any of the aforesaid
B legal aspects, rushed to the erroneous conclusion that the "judicial magistrate
of first class, Gandhidham has no power to take cognizance of the offences
alleged" merely because such offences could have been committed outside
the territorial limits of the State of Gujarat. Even otherwise, without being
apprised of the fuller conspectus a decision on the question of jurisdiction
C should not have been taken by the High Court at a grossly premature stage
as this.

For all the aforesaid reasons we are unable to concur with the impugned
judgment. We, therefore, quash it.
,

D Learned counsel for the respondents invited our attention to the fact
that all the accused persons arrayed in the complaint are residing at Indore
in Madhya Pradesh and he apprehends that revival of investigation in the
case would most probably embroil them in a miserable position if they are
arrested. We considered that aspect in the view we now take and we also
foresee such a plight for the accused. To alleviate any possible hardship for
E the respondents we direct that if any of the respondents is arrested in
connection with the above complaint, he shall be released on bail by the
arresting officer on execution of a bond to his satisfaction. However, such
arrested person shall be bound to report to the investigating officer at the
place and time specified for the purpose of interrogation.
F The appeal is disposed of in the above tenns.

RP. Appeal disposed of.