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IN

* IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of decision: 04th JANUARY, 2022
IN THE MATTER OF:
+ CRL.M.C. 736/2021
M/S. HERO FINCORP LIMITED ..... Petitioner
Through: Mr. Sanjeev Singh, Ms. Kajal Bhatia,
Mr. Deepank Anand, Mr. Dashmeet
Singh, Advocates.

versus

THE STATE (NCT OF DELHI) & ANR. ..... Respondents

Through: Ms. Meenakshi Chauhan, APP for the
State.
Mr. Ashok Kumar Goyal, Advocate
for the respondent No.2.
CORAM:
HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD

SUBRAMONIUM PRASAD, J.
1. The present petition is filed under Section 482 CrPC praying for
setting aside the order dated 22.01.2021 passed by the Learned Principal
District & Sessions Judge, Patiala House in Criminal Revision No. 369/2020
whereby, the Ld. PDJ dismissed the Revision and upheld order dated
10.11.2020 passed by the Chief Metropolitan Magistrate which had rejected
the application for registration of an FIR under Section 156(3) CrPC.
2. The Petitioner herein is a Non-Banking Finance Company(NBFC),
incorporated under the Companies Act,1956 and registered with the Reserve
Bank of India as an institution providing financial assistance. The

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Respondent No. 2 is Sunil Sharma, Director of M/s Benlon India Ltd. The
facts leading upto the present case are given as hereunder-
i. Mr. Balbir Sharma, Mrs. Sudesh Sharma and Mr. Balbir
Sharma in their capacity as Directors of M/s Benlon India Ltd.
approached the Petitioner in October 2014 for grant of a loan of
Rs. 12.25 Crores stating that their company required to
purchase 18 winding machines with standard accessories. Three
agreements, namely the Master Facilities Agreement,
Supplementary Agreement and Personal Guarantees were
executed between both the parties. The loan was sanctioned by
the Petitioner vide sanction letter reference No.
HFCL/MTL/1007/2014 dated 24.10.2014.
ii. Mr. Balbir Sharma, Mrs. Sudesh Sharma and Mr. Sunil Sharma
in their capacity as Directors of M/s Benlon India Ltd. again
approached the Petitioner in December 2014 for the grant of a
loan of Rs. 10 Crores stating that their company required to
purchase 12 sets of Spinning (Winding)Machine, Model- TH-
9C. Three agreements, namely the Master Facilities Agreement,
Supplementary Agreement and Personal Guarantees were
executed between both the parties. The loan was sanctioned by
the Petitioner vide sanction letter reference No.
HFCL/MME/01-07/20145 dated 06.02.2015.
iii. Mr. Balbir Sharma, Mrs. Sudesh Sharma and Mr. Sunil Sharma
in their capacity as Directors of M/s Benlon India Ltd. again
approached the Petitioner in October 2014 for the grant of a
loan of Rs.15 Crores stating that their company required to

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purchase further equipment i.e. 6 Chennile Machines- PAFA

SPIRAFIL 2FR (2) 1 PET FDY Production Spinning Line with
JWA 15/1500.Three agreements, namely the Master Facilities
Agreement, Supplementary Agreement and Personal
Guarantees were executed between both the parties. The loan
was sanctioned by the Petitioner vide sanction letter reference
No. HFCL/MME/02-04/2016 dated 13.2.2016.
iv. The Respondent No. 2, Mr. Balbir Sharma and Mrs. Sudesh
Sharma agreed to create a first pari passu charge on fixed assets
in favour of the Petitioner on the land and building at Plot No.
122, 123, 124, 506, 508, 509, 510 HSIDC Industrial Area,
Kundli, Sonipat, Haryana. Further, it was agreed that Mr. Balbir
Sharma will create an equitable charge on a property situated at
Punjabi Bagh in favour of the Petitioner and a Memorandum of
Deposit of Title Deed dated 13.2.2016 was executed in the
Petitioner’s favour.
v. The Respondents made payments of their loan installments to
the Petitioner until May 2018 when the Respondents started
defaulting on their payments. It is indicated that the
Respondents’ business/company suffered a huge financial loss
in a fire at their official premises and they were not in a position
to repay their debts/liabilities. The company was liquidated and
proceedings were initiated before the NCLT and a liquidator
was appointed. The Petitioner also filed their claim before the
NCLT and the Committee of Creditors. The
Petitioner took possession of the Flat at Punjabi Bagh that was

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mortgaged in their favour. The Petitioner further invoked the

arbitration clause in the agreement against the Respondents on
11.1.2019. Respondent No. 2 filed a securitization application
(No.4/2019) before the Debt Recovery Tribunal which is
pending.
vi. The Petitioner on 13.12.2018 filed a complaint to Deputy
Commissioner of Police, Economic Offences Wing stating that
the Respondent No.2 hatched a criminal conspiracy whereby
they defrauded the Petitioner by taking loans on the pretext of
purchasing machines and equipment, and actually utilized the
money for illegal purposes and caused a wrongful loss to the
Petitioner of Rs.37.25 Crores. It is stated therein that before
sanctioning of the loans the Respondent No.2 had agreed to a
contract whereby he would utilize the loan amount only
towards purchase of machines and would further timely send
invoices to the Petitioner showing purchase of machinery. It
was alleged by the Petitioner that the Respondents in order to
keep availing of the loans fabricated and forged documents to
substantiate their end of the agreement and gave incomplete
documentation regarding the machinery.
vii. The Assistant Commissioner of Police, EOW sent a letter dated
08.07.2019 to the authorized representative of the Petitioner,
Mr. Kisalay Kartikey which stated that the complaint of the
petitioner could not be established and intimated that they were
closing the complaint.

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viii. The Petitioner addressed a complaint dated 11.7.2019 to the

Commissioner of Police, EOW intimating in greater detail the
allegations as were stated in the letter dated 11.7.2019 and
annexed allegedly forged proforma invoices, showing the
buying of machines, that were sent to the petitioner by
Respondent No.2 as per their agreement.
3. The Petitioner filed an application under Section 156(3) Cr.P.C before
the Magistrate calling upon her to direct the Police to register a FIR against
the Respondent No.2 on the charges of cheating, forgery, criminal breach of
trust and misappropriation for a sum of Rs. 7,35,22,719/- which Respondent
No.2 and his parents Mr. Balbir Singh and Mrs. Sudesh Singh induced the
Petitioner to grant them as a loan for buying machinery instrumental for
their business. It was stated therein that the Respondent No.2 stopped paying
the interest installments and failed to adhere to the repayment schedule as
per their agreement and when the Petitioner’s went to inspect the factory site
of the Respondent No.2 they were not allowed to inspect the premises out of
there. It is stated that the respondent No.2 and his parents in furtherance of
the criminal conspiracy dishonestly misappropriated the loan amount for
their own gains in complete contravention in specified terms of the loan
agreement.
4. The learned CMM, Patiala House Court vide order 10.11.2020
dismissed the application under Section 156(3) Cr.P.C of the petitioner and
held that the commission of a cognizable offence shall require the
registration of an FIR, but every cognizable offence does not require
investigation by the police.

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5. Aggrieved by the above order, the petitioner filed a revision before

the learned Principal District and Sessions Judge, Patiala House Courts,
New Delhi challenging the order dated 10.11.2020, passed by the learned
CMM, Patiala House Courts, New Delhi. The Revisionist Court by a
detailed order dated 22.01.2021 analyzed the scope of Section 156(3) Cr.P.C
and powers that are conferred on the Magistrate to take cognizance of a
complaint under Section 190 Cr.P.C or direct the police to conduct an
investigation of a cognizable offence, after due application of mind under
Section 156(3) Cr.P.C. The learned Revisionist Court upheld the order the
ld. CMM dismissing the prayer for the registration of an FIR and held that
the said order did not suffer from any infirmity, impropriety or illegality.
6. Heard the parties and perused the material placed on record.
7. Mr. Sanjeev Singh, appeared for the petitioner. Ms. Meenakshi
Chauhan, learned APP appeared for the State. Mr. Ashok Kumar Goyal
appeared for Respondent No.2.
8. Mr. Sanjeev Singh, learned Counsel, submits that the orders passed by
the revisionist court and the ld. CMM suffer from a non-application of
judicial mind. He submitted that the respondent No.2 has usurped the loan
amounts granted to him for his own purposes and has gone violated the loan
agreements dated 25.10.2014, 11.02.2015 and 13.02.2016 under which bona
fides large sum of monies were disbursed for the purposes of procuring
machinery and appliances for the business of respondent No.2.
9. He submits that the respondent No.2 consciously deviated from the
terms agreed upon in the master facility agreements and the supplementary
agreements, and in furtherance of his motives to use the money for extra-
legal purposes, to show a perfunctory compliance of the terms of the

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contract submitted concocted and fabricated purchase invoices to show that

the loans were being utilized only towards purchase of machinery.
10. He submits that the Respondent no. 2 had since early 2016 willfully
defaulted on the installments on the payment of loan and violated the
repayment schedule as agreed upon in the terms of the contract. He further
contends that when the respondents started defaulting the officials of the
Petitioner company visited the factory of the respondent no.2 for a surprise
inspection and the said officials were not allowed to enter the premises and
later found out that the machinery had been sold and a few of the machines
had been moved to another location. He submits that the shifting of
machinery had to be done with prior intimation to the financier a.k.a the
Petitioner, and it was an express obligation under the contract.
11. He submitted that the Respondent No.2 have admitted to this fact that
machines had not been purchased with the loans sanctioned before this
Court in OMP(I) (COMM.) 423/2018 and this fact has been recorded in the
Court order dated 19.12.2018. He contends that the orders passed by the Ld.
Courts below neglected to take into account this categorical admission of
non-purchase of machinery by Respondent No.2 before this Hon’ble Court.
12. Mr. Ashok Kumar Goyal, learned counsel for respondent No.2,
submitted that the orders passed the ld. PDJ and the ld. Chief Metropolitan
Magistrate were reasoned orders made with the application of judicial minds
and taking into account relevant factors such as the various ongoing
proceedings waiting adjudication. He submitted that there was no intention
to cheat or deceive the petitioner’s company and loans were disbursed after
a comprehensive verification by the petitioner and after furnishing of
substantial personal guarantees by the respondent’s company.

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13. He vehemently argued that the loans were being timely repaid and the
bills of machinery obtained were being submitted to the petitioner until
May, 2018. He submitted that he suffered losses in his business due to a
deteriorating business climate and demonetization which was aggravated by
a fire that took place in his factory, destroying 180 Crore Rupees worth of
machinery. He finally submitted that the total loan amount of 37.5 Crore
Rupees stands fully repaid pursuant to the proceedings before the NCLT
and, therefore, since the loan amount has been remitted, the contract binding
the terms and conditions of the loan stands performed and no offence is
made out.
14. The material on record discloses that the petitioner advanced three
loans to the respondent for the sole purpose of procuring machinery and
other accessories thereof and based on this understanding Loan agreements
were entered into, and three loans of Rs.12.25 Crores, Rs.10 Crores and
Rs.15 Crores were given by the petitioner. The relevant terms of the
Supplementary Agreement have been reproduced below:-

“2. Facility Terms

2.1Dlsbureement
a. The nature of the Facility is "Machinery purchase funding".
The Borrower desires to purchase certain Machineries (as
specifically set forth in Schedule (I) in relation to the sanctioned
Purpose and has approached HFCL vide the utilization Request
to finance the Machinery); basis which HFCL has agreed to
sanction the Facility, in respect thereof, pursuant to the Facilities
Agreement.

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b. Pursuant to the above, HFCL will make payment

under/disburse the Facility to the borrower and/or any third
party, being the supplier of Machinery in the manner as set forth
in Schedule I. That any disbursement of Facility to a third party,
being the supplier of Machinery (who is entitled to receive money
from Borrower basis the sanctioned Purpose) shall be against the
account of the Borrower, under the Facilities Agreement and
accordingly shall be deemed as Disbursement made to the
Borrower under the Agreement"

15. The relevant portion of Section 405 and 406 IPC which defines
criminal breach of trust and the punishment of criminal breach of trust are as
under:
"Criminal breach of trust.—Whoever, being in any manner
entrusted with property, or with any dominion over property,
dishonestly misappropriates or converts to his own use that
property, or dishonestly uses or disposes of that property in
violation of any direction of law prescribing the mode in which
such trust is to be discharged, or of any legal contract, express
or implied, which he has made touching the discharge of such
trust, or wilfully suffers any other person so to do, commits
“criminal breach of trust”
Illustration:
a) xxx
b) xxx
c) A, residing in Calcutta, is agent for Z, residing at
Delhi. There is an express or implied contract
between A and Z, that all sums remitted by Z to A
shall be invested by A, according to Z’s direction. Z
remits a lakh of rupees to A, with directions to A to
invest the same in Company’s paper. A dishonestly
disobeys the direction and employs the money in his
own business. A has com-mitted criminal breach of
trust."

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406. Punishment for criminal breach of trust.—Whoever

commits criminal breach of trust shall be punished with
imprisonment of either description for a term which may
extend to three years, or with fine, or with both.

17. The ingredients of the offence of criminal breach of trust is that:

i) Entrustment of property.
ii) The use/discharge of such property being specified by express
or implied contract.
iii) A dishonest misappropriation in using or disposing such
property.
18. The Hon’ble Supreme Court in Jaswant Rai Manilal Akhanay Vs.
State of Bombay, AIR 1956 SC 575 has interpreted the provision of Section
405 IPC as follows:
“But when section 405 which defines "criminal breach of
trust" speaks of a person being in any manner entrusted with
property, it does not contemplate the creation of a trust- with
all the technicalities of the law of trust. It contemplates the
creation of a relationship whereby the owner of property
makes it over to another person to be retained by him until a
certain contingency arises or to be disposed of by him on the
happening of a certain event. The person who transfers,,
possession of the property to the second party still remains the
legal owner of the property and the person in whose favour
possession is so transferred has only the custody of the
property to be kept or disposed of by him for the benefit of the
other party, the person so put in possession only obtaining a
special interest by way of a claim for money advanced or spent
upon the safe keeping of the thing or such other incidental
expenses as may have been incurred by him.”

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19. The Hon’ble Supreme Court in Sardar Singh vs. State of Haryana,
(1977) 1 SCC 463 has expanded the facets of the criminal breach of trust as
follows:
“The offence of criminal breach is defined in Section 405 and
an essential ingredient of this offence is that the accused being
in any manner entrusted with property or with dominion over
property, dishonestly misappropriates or converts to his own
use that property or dishonestly uses or disposes of that
property in violation of any direction of law prescribing the
mode in which such trust is to be discharged or of any legal
contract, express or implied, which he has made touching the
discharge of such trust.”

20. The allegations made by the petitioner against respondent No.2’s

company in its application under Section 156 (3) Cr.P.C reveals that the
loans were given pursuant to a written contract and it appears prima facie
that the respondent No.2 did not conform to all the terms and conditions that
they agreed to at the time of seeking loan from the petitioner. It is correct
that there are multiple proceedings that are presently being adjudicated
before the sole arbitrator, liquidation proceedings before the NCLT and a
claim that was decided by the Debt Recovery Tribunal. It is an admitted
position, which has been verified by the State that the respondent No.2
incurred losses due to a fire that broke out at the factory of the petitioner
causing him financial stress.
21. It has been held by the Supreme Court of India in Trisuns Chemical
Industry V. Rajesh Agarwal (1999) 8 SCC 686 invoking an arbitration
clause does not preclude filing of criminal proceedings and these two
proceedings can be pursued parallely and independently, without affecting

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each other. In other words, there is no bar of pursuing criminal proceedings

once arbitration has commenced.
22. Section 154 Cr.P.C provides for the registration of the First
Information Report in respect of cognizable offences, which the police is
mandated by law to register in writing and thereafter investigate into it. If
the police refuses to file a First Information Report then a complaint can be
filed with the Magistrate to direct the police to probe into the commission of
a cognizable offence. The remedy under Section 156 (3) Cr.P.C can only be
exercised to report the commission of a cognizable offence and not non-
cognizable offences.
23. The Apex Court in Lalita Kumari vs. State of U.P., (2014) 2 SCC 1
has emphatically held that the police is duty bound to register an FIR on
receiving information on the commission of a cognizable offence. The
police has no other option but to register an FIR when such information
pertaining to a cognizable offence and has to mandatorily investigate into
the allegations of the FIR.
"49. Consequently, the condition that is sine qua non for
recording an FIR under Section 154 of the Code is that
there must be information and that information must
disclose a cognizable offence. If any information disclosing
a cognizable offence is led before an officer in charge of the
police station satisfying the requirement of Section 154(1),
the said police officer has no other option except to enter the
substance thereof in the prescribed form, that is to say, to
register a case on the basis of such information. The
provision of Section 154 of the Code is mandatory and the
officer concerned is duty-bound to register the case on the
basis of information disclosing a cognizable offence. Thus,
the plain words of Section 154(1) of the Code have to be
given their literal meaning.

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“Shall”
50. The use of the word “shall” in Section 154(1) of the
Code clearly shows the legislative intent that it is mandatory
to register an FIR if the information given to the police
discloses the commission of a cognizable offence.

53. Investigation of offences and prosecution of offenders

are the duties of the State. For “cognizable offences”, a duty
has been cast upon the police to register FIR and to conduct
investigation except as otherwise permitted specifically
under Section 157 of the Code. If a discretion, option or
latitude is allowed to the police in the matter of registration
of FIRs, it can have serious consequences on the public
order situation and can also adversely affect the rights of
the victims including violating their fundamental right to
equality.

54. Therefore, the context in which the word “shall”

appears in Section 154(1) of the Code, the object for which
it has been used and the consequences that will follow from
the infringement of the direction to register FIRs, all these
factors clearly show that the word “shall” used in Section
154(1) needs to be given its ordinary meaning of being of
“mandatory” character. The provisions of Section 154(1) of
the Code, read in the light of the statutory scheme, do not
admit of conferring any discretion on the officer in charge of
the police station for embarking upon a preliminary inquiry
prior to the registration of an FIR. It is settled position of
law that if the provision is unambiguous and the legislative
intent is clear, the court need not call into it any other rules
of construction.

55. In view of the above, the use of the word “shall” coupled
with the scheme of the Act lead to the conclusion that the
legislators intended that if an information relating to
commission of a cognizable offence is given, then it would
mandatorily be registered by the officer in charge of the

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police station. Reading “shall” as “may”, as contended by

some counsel, would be against the scheme of the Code.
Section 154 of the Code should be strictly construed and the
word “shall”should be given its natural meaning. The
golden rule of interpretation can be given a go-by only in
cases where the language of the section is ambiguous and/or
leads to an absurdity.

56. In view of the above, we are satisfied that Section 154(1)

of the Code does not have any ambiguity in this regard and
is in clear terms. It is relevant to mention that Section 39 of
the Code casts a statutory duty on every person to inform
about commission of certain offences which includes
offences covered by Sections 121 to 126, 302, 64-A, 382,
392, etc. of the Penal Code. It would be incongruous to
suggest that though it is the duty of every citizen to inform
about commission of an offence, but it is not obligatory on
the officer in charge of a police station to register the
report. The word “shall” occurring in Section 39 of the
Code has to be given the same meaning as the word “shall”
occurring in Section 154(1) of the Code."

24. Applying the law to the facts of this case, undisputedly loans have
been taken by the respondent No.2 for purchase of machineries. The
machineries have not been purchased and the money, which had been taken
for purchase of machinery, has been misappropriated for the use of
respondent No.2. The facts on the face of it prima facie discloses a
cognizable offence. The learned CMM and the learned PDJ have erred in not
directing the registration of the FIR as the offence alleged of directly comes
within the four corners of the Constitution Bench Judgment of Lalita Kumari
vs. State of U.P. (Supra). The complaint of the Petitioner discloses a
cognizable offence i.e. criminal breach of trust in respect of the terms of
contract that was agreed upon, which requires to be investigated by the

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police despite taking into account the fact that borrowed amounts stand
repaid to the Petitioner or the fact that proceedings before the arbitral
tribunal are ongoing. Therefore, this Court is of the opinion that a
cognizable offence has been alleged against respondent No.2 and the same
should be investigated after the registration of an FIR.
25. This Court directs the Economic Offences Wing to register an FIR
against the respondent No.2 under the appropriate Sections.
26. This petition is accordingly disposed of along with the pending
application(s), if any.

SUBRAMONIUM PRASAD, J
JANUARY 04, 2022
S. Zakir

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