State of Bombay vs Rusy Mistry and Anr.

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: Supreme Court of India

Case Number: Not extracted

Decision Date: 24 September 1959

Coram: P.B. Gajendragadkar, K. Subba Rao

The State of Bombay filed a special leave appeal dated 24 September 1959 challenging a decision of the High Court of Judicature at Bombay. The High Court had set aside the convictions and sentences imposed by the Sessions Court for Greater Bombay on the accused respondents, and it had subsequently acquitted them of the offences with which they had been charged. The appeal was presented before a bench of the Supreme Court of India consisting of Justice P.B. Gajendragadkar and Justice K. Subba Rao, the latter of whom also authored the judgment. The purpose of the petition was to obtain a reversal of the High Court’s order, thereby reinstating the findings of guilt and the corresponding punishments that the lower court had originally imposed.

The factual background began with the incorporation of a private limited company named Industrial Commercial Trust Limited on 1 April 1943. The principal shareholders of this enterprise were the first accused and a gentleman identified as Sir Chinubhai Madhavlal. During the same year, the firm Asian Air Associates—hereinafter referred to as “the Company”—was created as a subsidiary of the Industrial Commercial Trust Limited. Both the first accused and Sir Chinubhai Madhavlal served as partners of the Company, while the second accused held the position of General Secretary. The Company operated a factory at one location and maintained its head office at another, and its principal business involved manufacturing and repairing equipment for the Royal Air Force. In or about October 1943 the Company entered into a contract with Messrs. Ramdas and Sons for the purchase of certain machinery and tools at an agreed consideration of Rs 3,05,001, and subsequently took possession of the said items. On 8 January 1944 Ramdas and Sons sent a letter (Exhibit C) accompanied by an enclosure (Exhibit D) that described the machinery sold and acknowledged receipt of the full price. In January 1944 the list contained in Exhibit D was detached from the accompanying letter and the price shown therein was altered to Rs 4,05,001, effectively converting the list into a voucher. On the basis of this voucher the Company entered accounting entries that debited the Plant and Machinery Account with Rs 4,05,001 and credited Ramdas and Sons with the same amount. The accounts reflected that Rs 3,05,001 had been paid to Ramdas and Sons, leaving a balance of Rs 1,00,000 as a credit to the seller’s account; this balance was carried forward in the books until 30 March 1946. Towards the end of 1944 the first accused paid Sir Chinubhai Madhavlal approximately Rs 17,00,000 and assumed control of both the Industrial Commercial Trust Limited and the Company. After this acquisition the first accused and his wife became the partners of the Company. Finally, on 30 March 1946 the outstanding credit of Rs 1,00,000 owed to Ramdas and Sons was transferred to the personal account of the first accused, and a corresponding debit entry was made against the Ramdas and Sons account.

The Court explained that the company had entered into a contract with the Director of Munitions Production, who represented the Government of India, for the manufacture, overhauling, repair and modification of Royal Air Force equipment. The contract was intended to be effective retrospectively from 11 November 1943. One of the contractual clauses provided that the company would be entitled to recover its actual costs together with a profit margin of seven and a half per cent, which was later increased to ten per cent, on those actual costs. The calculation of the actual cost was required to include depreciation. The prosecution alleged that the accused had dishonestly inflated the cost of machinery purchased from Ramdas and Sons by forging Exhibit D, and that they had attempted to cheat the Government by submitting bills based on the forged figures. The prosecution also relied on an allegation that the company had received a commission of Rs 3,338 from the Electric Cable and Machinery Co. Ltd., which was omitted from the accounts in order to increase the apparent cost of electrical goods bought from that supplier. The Court noted that the learned Additional Solicitor General, who represented the State, did not pursue the appeal on this commission issue, and therefore no further discussion of that point was required. The two accused were committed to the Sessions Court and were tried by the Additional Sessions Judge for Greater Bombay before a special jury. For clarity, the Court reproduced the charges framed against the accused, as the ultimate decision on the appeal depended upon them. The first charge alleged that Rusy Mistry, accused No 1, and P. N. S. Ayyar, accused No 2, as principal partner and General Secretary of the Asian Air Associates, had entered into a criminal conspiracy in Bombay around January 1944, which continued until 7 September 1948, to cheat the Government of India by submitting inflated bills based on a ten per cent depreciation allowance under their contract, by overstating the value of machinery purchased from Ramdas and Sons, and by failing to disclose and deduct the commission received from the Electric Cable and Machinery Co. Ltd.; the charge named an offence under Section 120B of the Indian Penal Code. The second charge stated that, in the capacities described and during the same period and place, the accused had, in furtherance of their common intention, committed acts to achieve the object of the conspiracy.

In the case, the prosecution alleged that the accused had forged a valuable security, specifically an acknowledgment receipt referred to as Exhibit C, together with a list of machinery identified as Exhibit D. The alleged forgery was said to have been carried out by first separating the acknowledgment receipt dated 8 January 1944 from the list of machinery. Then, one of the accused, or both, were said to have added new entries to the list of machinery. The modifications were described as follows: the date “31‑12‑1943” was written in ink; the amount “Rs 4,05,001” was entered in pencil; and the words and figures “Total price : Rs 4,05,001” and the typed words “Rs four lakhs, five thousand and one only” were placed over the original signature of Ramdas and Sons. These alterations were intended to make it appear that the signature and the price had been supplied by Ramdas and Sons themselves. The prosecution asserted that the accused performed these acts with the intention of committing fraud and that, as a result, they were guilty of an offence punishable under Section 467 read with Section 84 of the Indian Penal Code, which lies within the jurisdiction of the Court of Session for Greater Bombay.

The second allegation related to the subsequent use of the forged document. The list of machinery, Exhibit D, which formed part of Exhibits G and D, was claimed to have been used by one or both of the accused as if it were a genuine and authentic document. The prosecution contended that the accused either fraudulently or dishonestly presented the forged list as genuine, despite knowing, or having reason to believe, that it was a counterfeit. By presenting the forged list as genuine, the accused were said to have furthered the common intention of the alleged conspiracy. Accordingly, the accused were charged with an offence punishable under Section 471‑467 read with Section 34 of the Indian Penal Code, an offence also within the jurisdiction of the Court of Session for Greater Bombay.

The third charge involved the alleged cheating of the Government of India. The prosecution alleged that, acting in their respective capacities and during the same period and location, the accused induced two government officials—the Controller of Supply, Accounts, Bombay, and the Controller of Army Factory Accounts, Calcutta—to part with public funds. This was done by dishonestly causing the officials to pay a sum of Rs 21,025, which represented the depreciation on an inflated amount claimed in the bills for machinery purchased from Ramdas and Sons. In addition, the accused were said to have caused the payment of Rs 483, representing depreciation on a commission of Rs 3,338 that one of them had received from the Electric Cable and Machinery Co. Ltd. for purchases made from that company. Both sums were described as property of the Government of India. By inducing the officials to make these payments, the accused were alleged to have cheated the Government. Consequently, the prosecution charged the accused with an offence punishable under Section 420 read with Section 120B and/or Section 34 of the Indian Penal Code, again within the jurisdiction of the Court of Session for Greater Bombay. The charge presented to the jury was an extensive document comprising approximately one hundred and seventeen printed pages.

The learned Sessions Judge accepted the verdict returned by the jury and entered convictions against both accused persons. Accused No 1 was found guilty of the offence defined in Section 417 of the Indian Penal Code, read with Sections 511 and 34, and was sentenced to undergo rigorous imprisonment for a period of six months. In addition, the same accused was convicted under Sections 471 to 467, read with Section 34, and received a further term of rigorous imprisonment for three years. Accused No 2 was also convicted of the offence under Section 417, read with Sections 511 and 34, and was sentenced to six months of rigorous imprisonment. Moreover, Accused No 2 was convicted of the offence under Section 467, read with Section 109, and was sentenced to three years of rigorous imprisonment. He was further convicted under Sections 471 to 467, read with Section 34, and received an additional three‑year term of rigorous imprisonment. The substantive sentences imposed on both accused were ordered to run concurrently, meaning that the periods of imprisonment were to be served at the same time. Consequently, both accused were convicted for treating the forged document identified as Exhibit D as genuine and for attempting to cheat the Government of India. In addition, Accused No 2 was convicted of abetting the forgery of Exhibit D. Both accused subsequently filed two separate appeals in the High Court of Judicature at Bombay, seeking to overturn the convictions and the sentences imposed upon them. In the High Court the appeals were heard by a bench consisting of Justices Bavdekar and Chainani. Justice Chainani, acting as the senior judge, delivered the principal judgment, while Justice Bavdekar agreed with the majority of the findings except for one point concerning whether the Company itself had attempted to cheat the Government of India. Justice Chainani set out his findings as follows: first, that there were mis‑directions in the charge addressed to the jury; second, that several irregularities occurred during the course of the investigation; third, that the Company must be held to have attempted to cheat the Government; and fourth, that it had not been established that either or both of the accused had attempted to cheat the Government. He concluded his discussion by stating that, although there was no doubt that a fraud had been attempted against the Government and that, in all probability, the accused were aware of that fraud, the evidence presented by the prosecution did not enable the court to say with certainty that the accused were responsible for the fraud or even that they were aware of it, and therefore the prosecution had failed to prove its case beyond reasonable doubt. Justice Bavdekar, while accepting the findings of Justice Chainani, went further to hold that the matter had not progressed beyond the preparatory stage and that it could not be said that the Company had made an attempt to cheat the Government.

The learned Additional Solicitor General, appearing on behalf of the State, then raised before this Court two principal points for consideration.

The parties raised two principal submissions. First, they contended that the High Court erred in holding that there were misdirections in the charge to the jury. Second, they asserted that, based on the admitted facts and evidence, no court could reasonably find that accused numbers one and two were not guilty of the offences charged against them. Regarding the first submission, the learned High Court judges had identified two alleged misdirections and a number of procedural irregularities. The Supreme Court is satisfied that at least one clear misdirection existed in the charge to the jury, and that this misdirection effectively vitiated the entire charge. Mrs. Bapasola had lodged a complaint before Superintendent Sen, which is recorded as Exhibit Z‑26. The document is lengthy and sets out alleged antecedents of the first accused covering the period from 1936 to 1949. In that document the first accused is portrayed as a notorious swindler who allegedly amassed a large fortune through fraud and black‑marketing. Most of the statements contained in the exhibit are wholly irrelevant to the specific charges framed against the accused. If the document had been read in full to the jury, it would inevitably have prejudiced them. The learned Sessions Judge, however, in his charge to the jury, read to them selected portions of the exhibit, describing those passages as “relevant portions.” The passages he read alleged that accused No 1 had obtained contracts from the Royal Air Force and the Royal Navy by improper means and that the large sums allegedly swindled were used to start several new concerns. He also read allegations that the accused had committed fraud on the Government of India through his nineteen firms, involving fraud amounts of several lakhs of rupees. After presenting these so‑called “relevant portions,” the Sessions Judge concluded by stating that the first information report lodged by Mrs. Bapasola on 27 January 1949 had been finished, and he instructed the jury to erase from their memory all other allegations made by Mrs. Bapasola against accused No 1 or his concerns that did not relate to the charges in this case. He cautioned the jurors not to start with any prejudice regarding how the accused began his life or rose to eminence, noting that such background was not relevant to the present proceedings. He added that the property amassed by the accused might be considered as a circumstance in assessing whether the charge of cheating was proved, but that it was not conclusive. Consequently, he emphasized that, apart from that aspect, the accused’s wealth or poverty had little bearing on establishing guilt.

In the course of his charge to the jury, the learned Sessions Judge, after cautioning the jurors that they should not allow the antecedents of the first accused to prejudice their assessment, nevertheless informed them that certain allegations concerning the extensive property that the accused had supposedly amassed were relevant to the offence with which he was charged. The Court observed that, however well‑informed the jurors might be, they are not legally trained to separate irrelevant from relevant material, and consequently the vivid depiction of the accused’s alleged past misdeeds and the narrative of alleged fraudulent conduct would likely have influenced them on an unconscious level. A routine warning or admonition could not, and indeed could not, remove the prejudicial effect created by the Judge’s reading of the document to the jury.

Two precise questions therefore arise from the presence of this document. First, whether the document constitutes a first information report, and second, if it does qualify as such, whether the learned Sessions Judge was justified in reading to the jury portions of it that had no connection with the specific charge framed against the accused. A first information report, as defined under Section 154 of the Criminal Procedure Code, is the information given to a police officer relating to the commission of an offence, and it may also be the information supplied by an informant on the basis of which an investigation is commenced. It is distinct from information obtained after the investigation has begun, which is governed by Sections 161 and 162 of the same Code. The law is well settled that a first information report is not substantive evidence; it may be used only to corroborate or contradict the informant’s testimony in court or to impeach his credibility. Accordingly, a judge may not present such a report to the jury as evidence of fact, but may only refer to the particular parts that serve the limited purposes of corroboration, contradiction, or impeachment.

Applying these principles to the present case, the learned Sessions Judge held that Exhibit Z‑26 was not a first information report, on the ground that it was not the initial complaint made by Mrs Bapasola to the police. If the document was indeed not a first information report, it fell under the ambit of Sections 161 and 162, and the Judge should have relied upon it only to the extent permitted by the proviso to Section 162, namely, to contradict a specific statement made by Mrs Bapasola. By reading to the jury the portions of the document that he described as “relevant,” the Judge therefore misdirected himself, because the document could not be used as substantive evidence of the matters in dispute.

Even assuming, for argument’s sake, that Exhibit Z‑26 qualified as a first information report, the learned Sessions Judge still employed the document for a purpose not authorized by the statute. He treated the report as substantive evidence and read to the jury large portions that were wholly irrelevant to the charge at hand. The Court concluded that such use of the document was beyond the scope of the legal provisions and amounted to an impermissible introduction of prejudicial material into the trial.

In the proceedings before the Sessions Judge, the jurors were informed that certain passages of a document were relevant because they illustrated the manner in which the first accused, described as a man of modest means, had acquired a substantial fortune. The charge against the accused was that he had cheated the Government of a sum of twenty thousand rupees. The Court observed that the alleged earlier fraudulent activities, which supposedly enabled the accused to amass a large fortune, bore no logical connection to the specific offense of cheating the Government for which the accused was presently tried. Consequently, the introduction of that highly prejudicial document into the judge’s address to the jury was deemed improper. The High Court had previously held that this constituted a misdirection that prejudiced the accused, and the present Court agreed with that assessment. Accordingly, it was affirmed that the High Court judges were fully justified in examining the case on its substantive merits, having corrected the erroneous evidentiary step taken by the Sessions Judge.

The learned counsel for the accused, while seeking to uphold the High Court’s conclusion on the merits, contended that the Supreme Court should not exercise its discretionary jurisdiction under Article 136 of the Constitution to revisit the factual findings of the High Court, especially in a matter where the accused had been acquitted. It was noted that Article 136 does not grant a right of appeal to any party; rather, it confers a discretionary power upon the Supreme Court to intervene in suitable cases, a power that cannot be exhaustively defined nor be interpreted as creating a statutory right where none exists. Established practice of the Privy Council, the Federal Court, and the Supreme Court is to refrain from interfering with factual determinations except in exceptional circumstances—such as when a finding shocks the conscience, violates procedural norms, breaches principles of natural justice, or results in substantial and grave injustice. This self‑imposed limitation is reinforced when a lower court’s factual findings lead to an acquittal. However, the present case presented findings that were at times halting and appeared inconsistent, and the admitted and proved facts prima facie suggested the accused’s guilt rather than innocence. The Court therefore heard the counsel’s arguments in detail to determine whether this situation warranted an exception to the usual rule. Upon reviewing the counsel’s submissions and the record, the Court found that the conclusions drawn by the learned judges could be supported on a firmer basis, rendering further intervention unnecessary.

The Court observed that the arguments presented before the High Court, before this Court, and the discussion that appeared in the address to the jury and in the High Court’s judgment had extended beyond the limits of the enquiry that the charges strictly permitted. The charges themselves had already been set out earlier in the judgment. The learned Sessions Judge had acquitted the accused of the first two charges. The third charge concerned the offence of forgery of Exhibit D and the use of that document, while the fourth charge alleged the offence of cheating the Government of India. Both the third and fourth charges were founded on the allegation that the accused had cheated the Government by presenting bills and by claiming depreciation amounts on the inflated figures shown in the accounts that were based on Exhibit D.

The learned Additional Solicitor General argued that the fourth charge— the charge of cheating—should not be interpreted as limited only to the presentation of the bills by the accused to the Government. He contended that the charge should be read broadly so that the prosecution could prove the cheating offence at a later stage, namely when the accounts derived from Exhibit D were shown to Sundaram, an officer authorized by the Government to investigate the cost of production, and when Sundaram, relying on the material costs shown in those accounts, recommended payment by the Government. He further submitted that both the prosecution and the accused, as well as the courts, had understood the charge in this expanded sense and consequently the accused had not suffered any prejudice.

The Court could not accept the counsel’s construction of the fourth charge. It emphasized that the essential words of the fourth charge were: “to part with a sum of Rs 21,025, being the amount of depreciation on the inflated amount in the bills submitted for the machinery bought from Ramdas and Sons.” The Court noted that it had been suggested that the “bills” mentioned might be the bills issued by Ramdas and Sons to the Company, rather than the bills submitted by the Company to the Government of India. The Court observed that Ramdas and Sons had not submitted any bills for the machinery they sold, and even assuming that Exhibit C was a bill, it did not contain any inflated amount. In the context of the charge, the phrase “bills submitted for the machinery” could only refer to the bills presented by the accused to Government officers, not to bills issued by Ramdas and Sons to the accused. Any possible ambiguity was removed by the wording of the first charge, which was incorporated by reference into the fourth charge. The first charge read: “That you, Rusi Mistri, Accused No. 1, and P. N. S. Ayyar, Accused No. 2, … to cheat the Government of India by submitting inflated bills based …”.

In this matter, the Court observed that the fourth charge referred to the same bills that were mentioned in the first charge, namely the bills that the accused had presented to the Government of India. The charge described a situation in which a depreciation of ten percent, allowed by the contract between Asian Air Associates and the Government of India, was calculated on the value of the machinery purchased from Ramdas and Sons as shown at a higher figure than the amount actually paid to that supplier. This description made clear that the bills in charge four were the very bills that the accused had submitted to the Government, and the learned Sessions Judge interpreted the charge in that same way. In his directions to the jury, the Sessions Judge explained that the prosecution claimed Asian Air Associates had prepared bills by computing depreciation on an inflated amount of rupees four lakh five thousand one rather than on the true purchase price. According to the Judge, this alleged practice meant that the Government was made to pay more depreciation than was actually due, and that the offence of cheating was said to have been committed by inflating the bills in this manner.

Ground thirty‑eight of the memorandum of criminal appeal numbered one thousand three hundred fifty‑two of 1953, filed by the second accused, contended that the Sessions Judge had failed to inform the jury that Sundaram’s evidence indicated depreciation bore no direct relation to the bills submitted by Asian Air Associates to the Government. The High Court examined the evidence and concluded that the accused had not made any claim in the bills based on depreciation calculated on the inflated machinery cost. Consequently the High Court held that it could not be said that the accused had failed to raise the issue that the charge was unsupported, nor that the matter was being presented for the first time before the Supreme Court.

On the facts, the Court held that the prosecution had not proved an attempt to cheat the Government of India as alleged in the charge. The prosecution’s case relied principally on Exhibit D, which served as the sheet‑anchor of its evidence. However, the Court noted that the insertion of an inflated figure in Exhibit D had been made in January 1944, while the contract with the Government was dated 2 March 1944. Although the contract was intended to apply retrospectively from 11 November 1943, the Court reasoned that any legal effect of that retrospective date could affect civil rights under the contract but could not be used to create criminal liability for actions taken before the contract was executed. The Court also remarked that, although it was suggested that Exhibit D might have been forged in anticipation of the contract’s execution, there was no record to substantiate that suggestion. Therefore, the Court concluded that the allegation of cheating could not be sustained on the basis of the evidence presented.

The Court observed that no documentary evidence was presented to show that the interpolation in Exhibit D was made in anticipation of the contract with the Government. Because the record did not establish such anticipation, the Court declined to base any finding on a mere speculation that the entry was inserted solely for that purpose. The contract with the Government required that each bill be submitted to the Controller of Supply and Accounts in Bombay and be prepared on the basis of actual costs plus ten percent. Accordingly, the Company prepared a total of 1,265 bills, of which only three were filed in this Court and identified as Exhibits W, W1 and Z 29. Exhibit V, which contains the first page of the Asian Air Associates cost ledger for January 1944, demonstrates how overhead charges were computed in those bills. The ledger shows that no claim was based on the purchase cost of materials recorded in the accounts; instead, the claim relied on a hypothetical multiplier of four times the labour charges. For example, Exhibit V lists a labour amount of Rs. 152‑7‑0 and an overhead amount of Rs. 609‑12‑0, which is exactly four times the labour figure. The witness Harihar admitted that the overhead figure was derived by applying an approximate percentage to the labour charges. He also acknowledged that the bills presented to the Government of India did not correspond to any actual depreciation charges in the capital account. The High Court, having considered this evidence, correctly concluded that the on‑cost charges in the Company’s bills were calculated at four times the labour charges and that no depreciation amounts were claimed based on the figures in the Company’s books. Consequently, the Court found that the fourth charge—alleging an attempt to cheat the Government by submitting bills with inflated machinery costs from Ramdas and Sons—was not proved. Since the fourth charge fails, the third charge, which alleged forgery of Exhibit D and use of the forged document, must also fail because it was predicated on the same fraudulent intent. The Court noted that the accused did not rely on Exhibit D or on the account footnotes of that exhibit in any of the submitted bills, thereby lacking the essential element of the forgery offense. In the final analysis, the Court agreed with the High Court’s conclusion, albeit for different reasons, and dismissed the appeal.