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Davinder Singh and Jaspal Singh v. State of Punjab - CRM-56477-M-2005 [2006] RD-P&H 5954 (25 August 2006)


Date of Decision: 1.9.2006

Davinder Singh and Jaspal Singh



State of Punjab



Present:- Mr.Rajan Gupta, Advocate for the petitioners.

Mr.B.S.Sewak, Deputy Advocate General, Punjab.

Mr.H.N.S.Gill, Advocate for the complainant.



The petitioners, who are partners of rice sheller being run under the name and style of Zimidara Rice Mills, Dhilwan, District Kapurthala (hereinafter referred as "the mill"), seek quashing of FIR No.46 Dated 4.7.2003 registered against them under Sections 420, 408 and 120-B IPC at Police Station Dhilwan, District Kapurthala.

The above noted FIR had been registered at the instance of District Manager PUNSUP, District Kapurthala. The allegations made in the FIR reveal that on 8.10.2001 the mill had entered into an agreement with PUNSUP, Kapurthala, a Government Undertaking, for custom milling of paddy crop for the year 2001-2002. The mill was required to deliver the rice to FCI in the PUNSUP account after milling the paddy crop. The mill was entrusted 96275 bags weighing 4-8137-50-000 of paddy grade-A. Out of this quantity, 29270 bags weighing 14586-44-000 paddy was transferred by the miller to other rice mills for milling purposes. As such, 67005 bags weighing 33551-06-000 paddy grade-A was left with the miller for custom milling as aforementioned. Against this, the miller delivered 22184 bags weighing 16582-27-000 rice grade-A to FCI in PUNSUP account. The mill had deposited Rs.5,05,000/- in PUNSUP account, which is approximate cost 500 quintals equal to 750 quintals of paddy. Thus, the mill was left with balance of17329 bags weighing 8713-06-000 of paddy grade -A. This should have been physically available with the mill. However, on physical verification conducted by the Field Officer on 12.6.2003, it was found that only 5550 bags weighing 2775-000-000 of paddy grade-A was lying in the mill. Accordingly, there was a shortage of 11779 bags weighing 5938- 06000 of paddy grade-A with the mill. It was, as such, found that the mill had embezzled/mis-appropriated this paddy, which had been given to it for custom milling and had been entrusted to the mill by the complainant- PUNSUP. On the basis of this complaint, the impugned FIR was registered against the mill and the petitioners, who are partners and thus running the mill.

Referring to agreement dated 8.10.2001, the petitioners have admitted that the mill was entrusted paddy by the PUNSUP for shelling. It is also not in dispute that this paddy was for custom milling. The allegations of shortage, however, have been denied. It has been mentioned in the petition that in the month of May, 2002, petitioner No.2 had written to the District Manager, PUNSUP, Kapurthala for shifting the paddy due to space problem but the PUNSUP officials did not take any step in this regard. It is also claimed that Gurcharan Singh and Balwant Singh Inspectors, PUNSUP started unnecessarily harassing and interfering with the shelling work, which was thus badly affected. It is then disclosed that repeated requests and reminders were given to the PUNSUP for shifting of paddy, but no action was taken on any of the requests. It is claimed that unfortunately, the paddy lying in the sheller premises got decayed and the petitioners had to deposit cost of damaged/shortage of paddy. It is in this regard that the mill had deposited Rs.5,05,000/- towards cost of damage/shortage of paddy. In addition, the petitioners-mill had also issued cheques in favour of PUNSUP as security in respect of balance cost of shortage of paddy, if any, found on settlement between the parties. These cheques stated to have been deposited as security, were presented by PUNSUP on 26.6.2003 and were dishonoured on 30.6.2003. As per the petitioners, these cheques were presented without settling the balance cost of shortage of paddy if any. A legal notice under Section 138 of the Negotiable Instruments Act was issued to the petitioners for dishonouring of the cheques as aforementioned and ultimately the complaint was filed by PUNSUP against the petitioners. Copies of FIR dated 4.7.2003 and the complaint have been annexed with the petition. It has also been disclosed in the petition that the PUNSUP has also initiated the arbitration proceedings against the petitioners-mill, besides stating that the cheques, which had been given to PUNSUP as a security, had been presented and this false FIR registered against the petitioners.

The petitioners have sought quashing of FIR dated 4.7.2003 mainly on the ground that PUNSUP had resorted to multiple proceedings against same persons and that whole dispute is of a civil nature. Referring to clause 21 of the agreement, which has been annexed with the petition, it has been submitted that this arbitration clause should take care of all the differences and disputes and the matter can be referred to arbitrator. In this background, it has been claimed that registration of a case by PUNSUP and filing of complaint under section 138 of Negotiable Instruments Act amount to abuse of the process of the Court. Grievance has also been made for adding the offence under Section 409 IPC in the challan that had been filed in the trial Court on the ground that the mill is neither a public servant nor a banker, merchant or agent. Finding fault with the action on the part of the PUNSUP authorities, it has been averred that they intentionally and deliberately did not take any step for shifting of paddy despite repeated requests and reminders sent by the petitioners-mill and hence the situation was created leading to decay of the paddy.

I have heard the learned counsels for the parties.

Mr.Rajan Gupta, Advocate appearing on behalf of the petitioners has made two fold submissions. He would firstly submit that no criminal liability is made out from the facts and circumstances of this case.

The dispute, if any, between the parties is of a civil nature, which can be resolved in the arbitration proceedings as per the terms of the agreement.

Reliance has been placed on Kailash Verma Vs. Punjab State Civil Supplies Corporation and another reported as 2005 (1) RCR (Criminal)727 to say that non-return of rice, as per the agreement, would only reveal a dispute of civil nature and as such no offence under Section 406 IPC was made out.

Counsel would further submit that the complaint under section 138 of the Negotiable Instruments Act as filed by the PUNSUP would show that multiple proceedings are being resorted to by respondent PUNSUP, which is against the settled principle of law. It is submitted that different proceedings under different heads against the same persons from same set of facts are not permissible and would amount to abuse of the process of the Court. In this regard, he has sought support from the decision in the cases of G.Sagar Suri and another Vs. State of U.P. and others, (2000) 2 Supreme Court Cases 636 and T.T.Antony Vs. State of Kerala and others (2001) 6 Supreme court Cases 181.

On the other hand, Mr. B.S.Sewak, counsel for the State and Mr.H.N.S.Gill, counsel for the complainant have submitted that the facts and circumstances of the present case are entirely different and would not be covered by the ratio of the decision in Kailash Verma's case (supra). They have drawn my attention to a decision of this Court in the case of Pawan Kumar Vs. State of Haryana 2006 (2) RCR (Criminal) 162 to urge that the arbitration clause would not bar criminal prosecution if the facts reveal commission of a criminal offence.

I have given my thoughtful consideration to the submissions made by the counsels for the parties. It is first required to be seen if the ratio of the decision in Kailash Verma's case (supra) would be attracted in the facts and circumstances of this case or not. For that, it would be essential to understand that the system of entrusting paddy for custom milling. There are two types of rice which are milled by the millers and there are known as levy rice and custom milled rice. A difference between the two types is required to be understood. Custom milling rice is the rice delivered by the millers to the Govt. of the paddy purchased by Govt. or its agencies and given to the millers for milling. Levy rice is a rice delivered by the millers to the Govt. out of the paddy purchased by them directly from the market and they are required to give 75 % of the rice out of the paddy milled and purchased by them. It is thus clear that the paddy, which is supplied to the mill for custom milling of rice is a property of the agency, which had supplied paddy and it is only entrusted to the mill for the purpose of milling. The mill is required to account for the rice and in case it is unable to do so, certainly it would expose itself to criminal liability, besides the civil liability that it may incur. In the State of Punjab, a scam known as "Rice Scam" received very wide publicity. The millers had apparently benefited to a huge extent by short supplying rice in return for the paddy that was entrusted to the Mills. This, of course, could not have been without the connivance of employees of agency. The rice scam was of multi facet in nature. It was found that in some cases, the price of the rice was more in the market than the rate at which this was required to be supplied to the government. The same was sold by the mills in the market. In these circumstances, it was very easy for the millers to urge that they were prepared to compensate the agency. In civil liability, they would still be gainers by paying dues of the agency. In some other cases, where it was found that the price of the rice was more if it was returned to the agency than the open market, then the millers resorted to mixing the custom milled rice with the levy rice and thus gained tremendously. All these issues are required to be adjudicated properly in a proceeding, which may be of a civil or criminal nature. It is not clear from the facts in Kailash Verma's case (supra), if the paddy involved in this case was of custom milling variety or levy rice. The ingredients of the criminal breach of trust are entrustment of property of which the accused person is duty bound to account for and the same is either dishonestly mis-appropriated or converted to own use or if the same is dishonestly used or disposed of in violation of any direction of law prescribing the mode in which such trust is to be discharged. It cannot be denied that this rice being given for custom milling had been entrusted to the mill, which the petitioners own as partners. They have rather admitted the entrustment of paddy crop. They have also not seriously disputed the shortage that had been found on checking. It is their case that this paddy got decayed and hence it could not be delivered back as per the instructions.

It would be a matter of evidence if this paddy had really decayed as stated by the petitioners or in fact this had been dishonestly mis-appropriated or converted to their own use by the petitioners. The dispute in the arbitration, as can be seen, would be of a different nature. The arbitrator mainly would decide as to how much amount would be due towards the petitioners on account of less supply of rice and would have no jurisdiction to go into the other aspects relating to dishonest mis-appropriation or converting the paddy to own use for any gain, which could not be termed as legal.

Accordingly, I am of the view that the ratio of Kailash Verma's case (supra) would not be attracted in the present case. The allegations in the FIR reveal clear cut case of criminal breach of trust, which is required to proceed along with civil proceedings in the nature of arbitration. Accordingly, the prayer of the petitioners to quash this FIR and the proceedings cannot be accepted.

Rather, the present case would be covered by the ratio of decision in the case of Trisuns Chemical Industry v. Rajesh Agarwal and others, JT 1999 (6) S.C.618. In this case, the allegation of the complainant was that the Director-respondent had approached the appellant -Company for supply 5450 metric tones of "Toasted Soyabean Extractions" for a price of nearly four and a half crores of rupees. The appellant Company paid the amount through cheques. The commodity, which was supplied, was found to be most inferior and sub-standard quality. The complainant had suffered a loss of Rs.17 lacs from this consignment. After obtaining report in regard to the inferior quality of the consignment, the complaint was filed for initiating the criminal prosecution against the accused. The High Court had quashed this complaint on the ground that the dispute is purely of a civil nature and hence no prosecution should have been permitted. The same was taken in appeal before the Hon'ble Supreme Court. Noticing the judgment in the cases of State of Haryana v. Bhajan Lal, JT 1990 (4) SC 650 and Rajesh Bajaj v. State NCT of Delhi JT 1999 (2) SC 112, the Hon'ble Supreme Court observed that "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 limited to very extreme exceptions." In the case of Rajesh Bajaj (supra), the Hon'ble Supreme Court had observed that "merely because an act has a civil profile is not sufficient to denude it of its criminal outfit." It would be a benefit to quote observations of Hon'ble Supreme Court in this regard:-

"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 the course of commercial and also money transactions." In Trisuns Chemical Industry'case (supra), the Hon'ble Supreme Court specifically dealt with the filing of a criminal complaint in cases where there is an arbitration clause. In this regard, the Hon'ble Supreme Court observed as under:-

"We are unable to appreciate the reasoning that the provision 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 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 of such investigation would be justified only in very extreme cases as indicated in Bhajan Lal v. State of Haryana (Supra)."

It can thus be said that criminal prosecution and remedy by way of arbitration are two separate and distinct courses available to an aggrieved party. As noticed by the Hon'ble Supreme Court, arbitration is a remedy affording relief for breach of agreement and this cannot be a substitute for a criminal trial where the facts reveal commission of an offence, which may be arising out of the same sets of facts. As already noticed above, the arbitration clause in itself cannot lead to quashing all the proceedings and it would depend on facts and circumstances of the case. It has to be resorted to in an exceptional case as may have been done in the case of Kailash Verma (supra). The present case, in my considered opinion, would not fall under such extreme or exceptional case.

There is another aspect of the matter, which would reveal that the criminal and the arbitration proceedings are distinct in nature in the present case. Admittedly, the petitioners had deposited a sum of Rs.5,05,000/- for costs of the damage and shortage of paddy. Further, the cheques for a sum of Rs.20 lacs were admittedly given by the petitioners to the respondent. Though it is claimed that these were given only as security and not for encashment but the fact remains that this figure must have been arrived at on the basis of shortage or damage of paddy as claimed. The arbitration proceedings would go to the extent of shortage and damage of paddy and, accordingly, determine the amount required to be paid by the miller to the respondent-PUNSUP. The aspect of criminal breach of trust and dishonest mis-appropriation cannot be gone in the arbitration proceedings and is to be seen by the Court exercising criminal jurisdiction.

It can also not be said that dishonouring of a cheque when presented by the PUNSUP relates to same transaction and amounts to multiplicity of the proceedings. The cheques had been dishonoured and as such reveal the commission of another offence under the provisions of Section 138 of Negotiable Instruments Act. This would have nothing in common with the offence of criminal breach of trust, which had earlier been committed and found on account of damage/shortage of paddy entrusted to the mill. The dishonour of the cheque would further reveal a separate and distinct offence for which the PUNSUP is fully entitled to maintain the complaint (copy Annexure P5). It would be for the trial Court to see if these cheques had been presented as security or were given as payment for the shortage of the paddy entrusted to the mill. This would also clearly reveal the distinct nature of civil and criminal proceedings. In the arbitration proceedings, Punsup is entitled to recover the cost of less rice supplied by the agency on account of this shortage whereas the criminal Court will determine if there had been any mis-appropriation revealing the offence of criminal breach of trust. Even if it is found that the petitioners are guilty of having committed the offence of criminal breach of trust, they still would remain liable to pay value of the paddy found short which had been entrusted to them. It would be for the Court trying the case in the FIR to see if it was a case of criminal breach of trust or simple negligence or shortage showing dishonest, mis- appropriation etc. and then decide the case. The facts in G.Sagar Suri's case (supra) are also not attracted in the present case. This was a case where the complaint under Section 138 of the Negotiable Instruments Act was found pending in addition to the lodging of the criminal prosecution for the alleged offences under sections 406 and 420 IPC. In the present case, the offence under sections 406, 409 and 120-B IPC etc. are for different sets of facts and are not relating to dishonour of the cheques. These offences are for not supplying the rice for the paddy entrusted to the Mill, which is a separate and distinct act on the part of the petitioners from the one in issuing cheques. Similarly, the case of T.T.Antony (supra) is also clearly distinguishable. Here the Hon'ble Supreme court has observed that there cannot be a second FIR and no fresh investigation on receipt of every subsequent information give rise to one or more cognizable offence. This is not so in the present case. As already noticed, in the present case, the offence of criminal breach of trust and dishonouring of the cheques are two separate and distinct acts leading to different liability. Even the approach in seeking quashing of the FIR on the ground that part payment made cannot be acceded to or accepted. It is not known to criminal law if the proceedings revealing criminal offence can be allowed to be quashed on account of payment or part payment. Accordingly, no case for interference in the present case is made out. The present petition is dismissed.

(Ranjit Singh)


September 1,2006



Reproduced in accordance with s52(q) of the Copyright Act 1957 (India) from judis.nic.in, indiacode.nic.in and other Indian High Court Websites


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