ATHENA FINANCIAL SERVICE LTD Vs. STATE OF MAHARASHTRA

JUDGEMENT

(1.) HEARD the learned counsel for the respective parties. This petition filed under Article 227 of the constitution and section 482 of the Code of Criminal Procedure prays for quashing and setting aside the order of issuance of process passed in Criminal Case No. 1391 of 2005 by the learned Judicial Magistrate, first Class, Court No. 4 at Pune and confirmed in Criminal Revision Application no. 416 of 2005 by the learned Addl. Sessions Judge vide his order dated 11-10-2005. The said complaint has been filed by the present respondent No. 2 - Bank for the offences punishable under sections 403, 406, 417, 420, 421, 423 and 424 read with section 34 of IPC and process was issued in respect of these offences on 1-7-2005 against six accused, and this petition has been filed by accused Nos. 1, 2 and 3. Accused Nos. 4 to 6 are impleaded as Nos. 3 to 5. In the year 1990 a company by the name 20th Century Kinetic Finance Ltd. was incorporated as a joint venture between 20th Century Finance Corporation Ltd. and kinetic Engineering Ltd. Thereafter on purchase of majority shares by the Kinetic group the name of the said Company was changed to Kinetic Fincap Ltd. Another two companies of Kinetic Group viz. Kinetic lease and Finance Ltd. and Kinetic Capital finance Ltd. were merged as per the order dated 18-10-1999 passed by this Court and all the merged companies started functioning in the name and style as Kinetic finance Ltd. with effect from 14-3-2001 and thereafter on 15-4-2004 the name of Kinetic finance Ltd. was changed to Athena financial Service Ltd. (accused No. 1. ). Accused No. 2 was the Chairman and accused No. 3 was the Managing Director of accused No. 1 at the relevant time. Accused Nos. 4 to 6 were full time Directors of accused No. 1.

(2.) THE respondent No. 2 - Bank purportedly on the representation of accused Nos. 2 and 3 had granted Cash credit Facilities upto the limit of Rs. 150 lakhs and Rs. 250 lakhs to the erstwhile companies i. e. Kinetic Leasing and Finance co. Ltd. and Kinetic Fincap Ltd. vide letters dated 15-3-2000 and 2-6-2000 respectively for the purpose of financing the company's hire purchase business. The respondent no. 2 further claims that the accused had given undertakings dated 29-3-2000 and 2-6-2000 acknowledging the grant of facilities and also confirmed that the loan would be utilised only for the purpose of financing their hire purchase business as also confirming the right of the respondent no. 2 - Bank to recall the entire loan amount in case of change of the purpose and/or diverting the funds for any other business. The accused No. 1 Company entered into the working Capital Consortium Agreement on 20-12-2001 with 21 Banks and the State bank of India was designated as the lead bank for the Consortium. The respondent no. 2 - Bank also joined the said Consortium by executing Supplementary Agreement dated 4-7-2002 and the same was to be treated as part and parcel of the main agreement dated 20-12-2001 forming consortium. In addition to the main agreement and supplementary agreement, the accused Nos. 2 to 5 on behalf of the accused No, 1-company had also executed several sanction letters and relevant loan documents in favour of various Banks for obtaining finance and they are : <FRM>JUDGEMENT_760_BCR(CRI)2_2007Html1.htm</FRM> The Working Capital Agreement and all above documents were signed by the accused Nos. 2 and 3 in their capacity as managing Director and Executive Director of the accused No. l. The strength of the consortium went to 23 Banks and the accused No. 1 company represented by accused Nos. 2 to 6 availed total cash credit facilities to the tune of Rs. 144,56,00,000/- (One hundred forty four crores fifty six lakhs only) from the Consortium member banks and out of the same, the share of the present respondent No. 2 was Rs. 4 crores. The accused No. 1 - Company and its predecessor companies were carrying on the business of non-banking financial activities and more particularly the leasing as well as financing for the two wheelers manufactured by Kinetic Engineering Ltd. under the hire purchase scheme. As per the complainant - Bank the accused No. 1 was showing profits till the year 2002-2003 and it was projecting good profits in future. However, it started defaulting in regular repayment of the debts and evading submission of monthly stock statements from August 2003 onwards. As per the complainant Bank the stock audit was carried out by the lead bank i. e. State Bank of India and the stock audit report dated 30-11-2002 indicated that the stock position was inflated by inclusion of non-performing assets and overdue account and the hire purchase agreements were not signed by the authorised signatory on behalf of the accused company, proposal forms and other documents were not filled up completely etc. The accused No. 1 - Company had incurred a loss of Rs. 8. 89 crores as on 30-6-2003. Results of the accused No. 1 -company showed huge loss.

(3.) THE respondent No. 2 filed the complaint on or about 1-7-2005. It is contended by Mr. Sawant, the learned counsel for the petitioners that before filing the complaint the Consortium of the Banks had already approached the Debt Recovery tribunal by filing O. A. No. 5 of 2005 on or about 7-1-2005 and in the said application the plaintiffs have prayed for recovery of the loan amounts due to each of them from the accused No. l - Company and thus the consortium member Banks including the respondent No. 2 -complainant have already resorted to the appropriate civil remedy. Once the recovery proceedings have been instituted, the subsequent complaint alleging criminal offences cannot be entertained and on that main ground itself the proceedings in C. C. No. 1391 of 2005 are required to be quashed and set aside. Mr. Sawant read through the entire complaint as well as the audit report dated 20-2-2004, the agreement dated 20-12-2001 regarding Working Capital Consortium and submitted that even prima facie there was no case of any of the offences made out in the complaint and the failure of the accused no. 1 - Company to repay the loan amounts to the complainant - Bank was basically a contractual liability defaulted and there could be no case of criminal offence that could be attributed to the accused No. 1-Company and its Directors. The complaint read as it is, does not disclose any offence against the petitioners or against any other accused and, therefore, there was no prima facie case triable against the petitioners. There is no pleading in the complaint that the petitioners harboured an intention of cheating, defrauding or misleading the complainant Bank and the Company's failure to honour its commitment in repayment of loan by itself does not constitute an offence of cheating. It was further submitted by Mr. Sawant that all the facilities availed by the accused were under the legal agreements and that proper securities were given to the Consortium members and the transactions entered into were subject to the civil jurisdiction and not criminal jurisdiction. The Consortium or any of the members may file a civil suit but the accused cannot be proceeded against in a criminal Court on the ground that any of them or all of them committed an offence of cheating or played a fraud. He further submitted that as far as the complainant-Bank is concerned, though the loan amounts were sanctioned in the year 2000, till September 2003 the Bank did not have any complaint regarding the repayments of the said loan amounts and because of the competition in the hire purchase business on account of lowering of loan interest on vehicles by the Banks, the business of the accused No. 1 - company received a set back. As per Mr. Sawant, the petitioners have not violated any of the terms and conditions of the Consortium agreement dated 20-12-2001 and the audit report relied upon by the complainant Bank does not make out even a prima facie case of any criminal offence. He submitted that the consortium was well aware that the accused No. 1 Company was banking with centurian Bank Ltd. even before the consortium agreement was signed and, therefore, there was no question of diverting the funds to the said Bank surreptitiously or by way of defrauding the complainant bank. Number of decisions were cited by mr. Sawant in support of his plea for quashing the proceedings and more particularly the following decisions: (1) (Hridaya Ranjan Prasad Varma and ors. Vs. State of Bihar and anr.) 2000 DGLS 639 : a. I. R. 2000 S. C. 2341 : J. T. 2000 (3) S. C. 604 : 2000 (2) SCALE 694 : 2000 (4)S. C. C. 168. (2) (Ajay Mitra Vs. State of M. P. and ors.), 2003 bom. c:r. (Cri.) (S. C.)990 : 2003 DGLS 98 : A. I. R. 2003 S. C. 1069 : J. T. 2003 (1)S. C. 418 : 2003 (1) SCALE 487 : 2003 (3)S. C. C. 11. (3) (Salim Akbarali Nanji Vs. Union of India and ors.), 2006 DGLS 317: J. T. 2006 (5) S. C. 587 : A. I. R. 2006 S. C. 2218 : 2006 (5)S. C. C. 302. He also relied upon a judgment of this Court in the case (Motorola Incorporated vs. Union of India and ors.), 2004 Cri. L. J. 1576 while dealing with allegations that the accused company projected a write off of rs. 100 crores of its existing receivables. Mr. Sawant submitted that the write off did not bar the accused No. 1 from following up the recoveries and the said proposal could not be treated to be an act of fraud or cheating by referring to the judgment in the case of Salim nanji (supra ). He relied upon the following observations made by the Apex Court, ". . . The write-off is only an internal accounting procedure to clean up the balance sheet, and it does not affect the right of the creditor to proceed against the borrower to realise his dues. Moreover, it does give some benefit to the bank under the income tax laws because after write-off tax is payable only on the amount recovered as and when recovery is made. . . "