Crucially, finding that the complaint is conspicuously silent on any specific averment demonstrating dishonest intention at the inception of the transaction, the Delhi High Court held that a mere breach of contractual terms, absent fraudulent or dishonest misappropriation, does not satisfy the ‘mens rea’ required under Sections 405 or 409 of IPC.
Therefore, in the absence of entrustment in its criminal sense, the existence of a fiduciary relationship, and specific allegations of dishonest misappropriation, the basic requirements for invoking Section 409 IPC are wholly lacking, added the Court.
Pointing out that the complaint was filed as a counterblast to the proceedings initiated by the bank under Section 138 of the NI Act, the Court called it an abuse of the process of law, and quashed the summoning order as well as the Non-Bailable Warrant. The Court also set aside the Complaint Case and discharged the petitioners.
A Single Judge Bench of Justice Neena Bansal Krishna observed that the cheque was admittedly handed over to the petitioner Bank by the respondent Company as security for the loan of Rs. 15 crores under a Working Capital Demand Loan Agreement. The Loan Agreement, particularly Clause 16, specified that upon an ‘Event of Default’, the bank was entitled to enforce its security. The Bench thus clarified that a security cheque is a guarantee for a future obligation, intended to be used only if the issuer fails to meet the agreed obligation.
The Bench analysed the foundational elements of criminal breach of trust under Section 405 IPC, which are ‘entrustment’ of property and ‘dishonest misappropriation’ of that property, and explained that ‘entrustment’ implies the creation of a fiduciary relationship where the owner of the property retains ownership.
The Bench found that the presentation of the cheque was strictly in terms of the Loan Agreement following a default by the borrower. The complainant’s grievance that there was no legally enforceable liability for which the cheque could have been presented may serve as a defence in the proceedings under Section 138 of the NI Act, but it does not constitute a criminal breach of trust.
The Bench, therefore, held that the voluntary issuance of a security cheque as part of a commercial loan transaction does not create a fiduciary relationship but merely evidences a contractual arrangement between a creditor and a debtor.
Briefly, in March 2011, the petitioner/ complainant (CTBC) offered loan facilities to LKL and required an ‘undated’ cheque as a trust security, assuring that it would be retained strictly as a security instrument and not be utilised for any other purpose. The complainant, however, discovered that the security cheque was presented for encashment, without the knowledge or consent of the company, leading to its dishonour.
It was alleged that the bank officials, in conspiracy, committed a criminal breach of trust by misappropriating the cheque and created a false document by filling in the date, thereby committing forgery for cheating.
Appearances:
Advocates Sanjay Gupta, Rajnish Gaur, Ateev Mathur, and Amol Sharma, for the Petitioner
APP for the State, Utkarsh, along with the Advocates Ayush Jindal, Harsh Vashisht, Harshita Bansal, Pankush Goyal, and Myank Sharma, for the Respondents
