Tulsi Ram vs State of U.P.

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

Court: Supreme Court of India

Case Number: Criminal Appeals Nos. 62 and 63 of 1958

Decision Date: 27 September 1962

Coram: J.R. Mudholkar, Syed Jaffer Imam, N. Rajagopala Ayyangar

In the matter titled Tulsi Ram versus State of Uttar Pradesh, the Supreme Court delivered its judgment on 27 September 1962. The bench comprised Justice J.R. Mudholkar, Justice Syed Jaffer Imam and Justice N. Rajagopala Ayyangar. The case is reported in 1963 AIR 666 and in the Supplement to the Supreme Court Reports, volume 1, page 382. The petitioner, Tulsi Ram, challenged his conviction under the provisions of the Criminal Trial‑Conspiracy‑Sanction law, specifically invoking Section 196A of the Code of Criminal Procedure, 1898, and Section 420 of the Indian Penal Code, 1860. The central issues were whether a valid sanction, as required by Section 196A, had been placed on record, whether the document on record demonstrated that the Governor had considered the factual circumstances before granting that sanction, and whether conviction for cheating required proof of both wrongful gain to the accused and wrongful loss to the banks.

The Court observed that the appellants could not introduce the question of sanction for the first time before the Supreme Court, because the requirement of Section 196A demanded an inquiry into the factual basis of the sanction during the trial proceedings. The letter exhibited by the prosecution was an official communication from the Under‑Secretary to the Government, which explicitly stated that the Governor had been pleased to grant sanction for the prosecution of the appellants. From this official communication a statutory presumption arose that the Governor had indeed accorded the sanction, and that the official act of granting such sanction had been performed in accordance with law. Consequently, the document satisfied the prima‑facie requirements of Section 196A, and no further proof of the Governor’s consideration of facts was necessary. Regarding the offence of cheating, the Court held that Section 420 does not demand proof of both wrongful gain and wrongful loss; the two are merely facets of the concept of dishonesty, and it is sufficient to establish either one. In the present case, the appellants secured unlawful credits, thereby achieving wrongful gain; even though the prosecution did not demonstrate a corresponding loss to the banks, the existence of wrongful gain alone was enough to sustain a conviction for cheating and for conspiracy to cheat. The Court cited the authorities Sanjiv Ratanappa Bonad v. Emperor (1932) I.L.B. LVI Bom. 488 and Kotamraju Venkatarayudu v. Emperor (1905) L.R. 28 Mad to support this interpretation.

The Court reduced the terms of imprisonment imposed on four of the appellants to the period they had already served and ordered that each of them pay a fine of three thousand rupees. The reduction was based on the view that imposing further incarceration would not fulfil any useful purpose after a considerable lapse of time since the original sentencing. The Court also observed that the appellants were very young at the time they allegedly committed the offences and that their conduct had been carried out under the dominating influence of the principal accused. Accordingly, the Court found that continued detention would be unnecessary and disproportionate, and that a monetary penalty would be a more appropriate form of punishment in the circumstances.

This matter was listed under the criminal appellate jurisdiction as Criminal Appeals Nos. 62 and 63 of 1958. The appeals challenged the judgment and order dated 15 April issued by the Allahabad High Court in Criminal Appeals Nos. 1332 and 1476 of 1954. Counsel for the appellants was led by a representative appointed for that purpose, while counsel for the respondents was similarly instructed. The judgment was pronounced on 27 September 1962, and the opinion was delivered by Justice Mudholkar. The appeals arose from a certificate granted by the High Court and were concerned with the same trial proceedings that had resulted in convictions before the Second Additional District and Sessions Judge, Kanpur.

The original trial concluded that, except for Chandrika Singh, the appellants were convicted of offences under Section 471 of the Indian Penal Code read with Sections 467 and 468, each receiving separate sentences for those charges. In addition, Tulsi Ram, Beni Gopal and Babu Lal were each found guilty of offences under Section 417 read with Section 420, while Moti Lal was convicted only of an offence under Section 417, and Lachhimi Narain was convicted under Section 420. All six appellants were also convicted under Section 120B, IPC, and were sentenced separately for that offence. On appeal, the Allahabad High Court set aside the convictions and sentences of Tulsi Ram, Beni Gopal, Babu Lal and Moti Lal for the offences under Section 471 read with Sections 467 and 468, and it also quashed the conviction of Moti Lal under Section 417. However, the High Court upheld the convictions under Section 120B for all the appellants and affirmed the convictions of Tulsi Ram, Beni Gopal and Babu Lal under Section 417 read with Section 420. Regarding Lachhimi Narain, the High Court maintained the conviction and sentences imposed by the Additional Sessions Judge on all counts and dismissed the appeal in its entirety. The factual backdrop revealed that the appellants, other than Chandrika Singh, belonged to a Marwari trading family originating from Rae Bareli, with Chandrika Singh employed as a servant. The familial relationships among Lachhimi Narain and the first four appellants were illustrated in a genealogical chart, showing the lineage and connections that linked the accused parties.

In this case, the Court observed that Lachhimi Narain functioned as the Karta, or head, of the family and that the whole family business was conducted under his directions and supervision. This observation was regarded as material because it bore on the defence raised by the first four appellants in criminal appeal Crl A 62 of 1958. It was unanimously accepted that the family carried on its commercial activities through five distinct enterprises, namely: the firm Beni Gopal Mohan Lal with its head office in Rae Bareli; the firm Tulsi Ram Sohan Lal with its head office at Lalgunj in the Rae Bareli district; the firm Bhairon Prasad Srinivas with its head office in Rae Bareli; the firm Gobardhan Das Moti Lal with its head office at Madhoganj in the Partapgarh district; and the firm Sagarmal Surajmal with its head office at Unchahar in the Rae Bareli district. Although different family members were listed as partners in each of these five firms, it was not disputed that the actual conduct of the business of every one of these firms was directed and supervised by Lachhimi Narain. In fact, his name appeared as a partner only in the firm Bhairon Prasad Srinivas, where he was shown as a partner together with his father Sri Niwas and his brother Pahlad.

The Court further noted that, in May 1949, the firm Bhairon Prasad Srinivas was appointed the sole importer of cloth for distribution among wholesalers in the Rae Bareli district. Before this appointment, a syndicate consisting of four Rae Bareli firms had held the exclusive import licence for cloth in that district. The syndicate, however, failed to take delivery of large consignments of cloth, leading the Deputy Commissioner to discover that cloth bales valued at approximately Rs 2,25,000 were lying idle at the railway station and that demurrage charges on those consignments were accruing daily. It was not contested that, after the Deputy Commissioner intervened, Bhairon Prasad Srinivas agreed to act as the sole importer, to take receipt of the cloth and to distribute it among the local wholesalers. Subsequently, the firm was also required to take delivery of cloth worth more than Rs 23 lakhs. In addition to cloth, the same firm and another allied firm were engaged in the import and distribution of food grains and salt within the district.

Both lower courts held that, in order to obtain short‑term credit facilities, the appellants devised an ingenious scheme and were able to secure credit amounting to Rs 80 lakhs between May 1949 and December 1949. While appellant Lachhimi Narain consistently admitted that such a scheme had been employed, the other appellants denied any knowledge of it. The Court described the particulars of the scheme as follows: a partner or an employee of one of the five firms would book small consignments—typically two or three bags—of rapeseed, poppy seed, or mustard seed from various railway stations in the Rae Bareli and Partapgarh districts and arrange for their transport to stations in West Bengal, including the city of Calcutta. The person concerned

In this case, the scheme involved preparing forwarding notes and obtaining railway receipts for small consignments of two or three bags of rapeseed, poppy seed or mustard seed. The railway authorities issued the receipts in triplicate: one copy was given to the consignor, a second copy was sent to the destination station and a third copy was retained in the records of the forwarding station. The consignor’s copy of the receipt was then taken to Rae Bareli, where it was altered by changing the number of bags, the weight of the consignment and the freight charges. The alteration was carried out by low‑level workers acting under the direct instruction of Lachhimi Narain. After the falsification, the consignor endorsed the forged receipt in favour of one of the firms—Beni Gopal Mohan Lal, Tulsi Ram Sohan Lal, Sagarmal Soorajmal or Bhairo Prasad Srinivas. The endorsed firms subsequently drew large sums of money that corresponded to the exaggerated quantities shown in the forged receipts. They used the receipts as security to obtain demand drafts or hundi, which were drawn in favour of various banks and, in two instances, in favour of a firm styled Murarka Brothers, Calcutta, which acted as drawee. The Murarka Brothers firm had been established by the family in Calcutta about a year before the transactions began. After its establishment, Lachhimi Narain opened an account for the firm in the Calcutta branch of Allahabad Bank and authorized Babu Lal and Chandrika Singh—originally an employee of Bhairo Prasad Srinivas who had been transferred to Calcutta—to operate that account. The banks that discounted the hundi and drafts were the Kanpur branches of the Bank of Bikaner, the Bank of Bihar, the Bank of Baroda and the Central Bank of India; the payees of the hundi were the Kanpur firms Matadin Bhagwandas and Nand Kishore Sitaram. Those payees realised the amounts by presenting the hundi together with the forged railway receipt to Murarka Brothers in Calcutta. The banks obtained payment through their own Calcutta branches, while the two Kanpur firms received payment through certain other banks. To enable Murarka Brothers to honour the hundi when presented, Lachhimi Narain and Tulsi Ram, together with the acquitted accused Srinivas and a munim named Hanuman Prasad (who also died during the investigation), arranged telegraphic transfers that moved money from the Allahabad Bank accounts of the family firms in Rae Bareli, Lucknow and Kanpur to the Murarka Brothers account in Calcutta. Because the actual consignments could not be delivered on the basis of the forged receipts—such delivery would have immediately exposed the fraud—the goods were instead delivered through commission agents who provided indemnity bonds, claiming that the railway receipts had been lost. The indemnity bonds were executed either by a partner or an employee and were verified by the station masters and goods clerks before being endorsed in favour of the consignees.

It was established by the evidence and was not contested before the Court that the consignees, acting at the specific request of Lachhimi Narain, actually received the small consignments. After taking delivery, these consignees disposed of the goods and credited the proceeds of sale to the account of Bhairav Prasad Srinivas or to the Murarka Brothers in Calcutta. The majority of the forged railway receipts have not been produced, presumably because they were destroyed after the hundis they supported had been honoured and the corresponding receipts from the banks or the firms were received. The prosecution alleged that the banks and the firms obtained discount charges of only one or two annas per cent for the amounts paid, whereas had the family firms obtained the same amounts by way of a loan, they would have been liable to interest at six to nine per cent. Towards the end of December 1949, the Kanpur branch of the Bank of Bikaner and the Bank of Bihar each received a number of unhonoured hundis together with the forged railway receipts that had been presented as security. The Bank of Bikaner recovered five hundis amounting to Rs 3,52,000, of which Rs 1,82,000 had been negotiated directly with the firm of Bhairav Prasad Srinivas and Rs 1,70,000 through Nand Kishore Sitaram. The Bank of Bihar, Kanpur, received six hundis valued at Rs 1,92,000 that were negotiated through Matadin Bhagwandas, and the bank adjusted the account by debiting Matadin Bhagwandas for that sum. The unpaid payees subsequently conducted inquiries with the consignees and the railways and discovered that the railway receipts offered as security were forged. Those forged receipts have been exhibited in the present case to substantiate the charge of forgery.

After the fraudulent practices of the family firms and the forgeries were uncovered, Daya Ram, identified as PW 62 and a partner in the firm of Matadin Bhagwandas, lodged a complaint before the City Magistrate of Kanpur on 4 January 1950. Subsequently, B N Kaul, the manager of the Bank of Bihar, filed a report at the police station in Colonelganj, Kanpur on 18 January 1950. The appellants, except for Chandrika Singh, executed a mortgage deed on 5 January 1950 in favour of the Bank of Bikaner for Rs 3,62,000, an amount that included Rs 3,52,000 of unpaid hundi principal together with interest and other charges. According to the prosecution, Bhairav Prasad Srinivas paid the firm of Matadin Bhagwandas Rs 1,00,000 and Lachhimi Narain executed a promissory note for the remaining Rs 92,000 in their favour. The defence contended that the criminal case filed by Matadin Bhagwandas was settled by the payment of the agreed amount, thereby resulting in the acquittal of the accused on the complaint lodged by Matadin Bhagwandas. The appellant Lachhimi Narain accepted full responsibility, admitting that he had obtained credit of Rs 80 lakhs on the security of forged railway receipts and that the quantities of goods consigned had been inflated by his munims, Raj Bahadur and Hanuman Prasad, both of whom were deceased. He asserted that, apart from the involvement of those two munims, the scheme was concealed from everyone else and that he had no criminal intent because he intended to repay the entire amount raised.

Lachhimi Narain admitted that he had obtained credit amounting to eighty lakh rupees by using railway receipts as security, and that the quantities of goods shown on those receipts had been deliberately overstated. He further confessed that the inflation of the quantities had been carried out by his munims, Raj Bahadur and Hanuman Prasad, both of whom were deceased at the time of the trial. According to his statement, the involvement of the two munims was the only collaboration, and every other person concerned was kept unaware of the scheme. Lachhimi Narain argued that he had not committed any offence because his intention was to obtain the funds for a legitimate purpose and, moreover, he asserted that he had fully repaid the entire amount that had been raised. The remaining appellants each acknowledged that they had taken part in certain aspects of the transactions, but they denied being members of a conspiratorial group. They maintained that any actions they performed were done merely on the instruction or bidding of Lachhimi Narain and that they did not share a common unlawful purpose.

Mr. A. N. Mulla, appearing on behalf of the appellants, raised the preliminary point that the prosecution had failed to produce the sanction required under section 196A of the Code of Criminal Procedure, and therefore, he contended, the proceedings should be deemed void from the beginning. He acknowledged the existence of a document marked as Exhibit P‑1560, which was a letter addressed by Mr. Dave, Under‑Secretary of the Uttar Pradesh Home Department, to the District Magistrate of Kanpur. The letter informed the magistrate that the Governor had been pleased to grant sanction for commencing proceedings against the persons named in the order. However, Mr. Mulla argued that such a communication could not be considered a valid sanction or its equivalent because a sanction, to be legally effective, must be issued as a written order bearing the signature of the sanctioning authority. He emphasized that no other individual could act in place of the sanctioning authority and that any oral consent, even if given, could not be treated as a lawful sanction. Furthermore, Mr. Mulla submitted that the document on record did not, on its face, demonstrate that the Governor had examined the facts of the case before granting sanction. He advanced a hypothetical scenario in which the true circumstances—namely, that the firm Bhairo Prasad Srinivas had never sought appointment as sole importer of cloth for Rae Bareli district, that the firm had been persuaded by the Deputy Commissioner to undertake the work in a critical situation, that large amounts of credit were obtained through fraudulent representations and forgeries but without any intention by Lachhimi Narain to cause loss, that all parties had been fully repaid, and that the prosecution had been initiated by railway authorities rather than by any aggrieved party—would have led the Governor to refuse sanction. The Court, however, declined to permit Mr. Mulla to pursue this argument, observing that it was not a pure question of law but required a factual investigation, and therefore could not be decided at this stage of the proceedings.

In this matter the appellants asserted that no sanction had been obtained and that the complaint failed to produce proper proof that the authority concerned had granted sanction after reviewing all material facts in accordance with Article 166 of the Constitution. The argument was that, had this issue been raised before the trial court, the prosecution could have introduced evidence showing that the Governor had indeed received the complete relevant material, had deliberated upon it and, after such consideration, had expressed the sanction in the manner prescribed for a Governor’s act. Counsel for the appellants, however, contended that Section 196A of the Code of Criminal Procedure operates as a limitation on the criminal court’s power to inquire into a charge of conspiracy. According to this contention, the court does not acquire jurisdiction to examine the charge unless the limitation is removed, and therefore it is essential for the prosecution to demonstrate that the limitation was removed by virtue of the appropriate authority having granted its sanction in compliance with the statutory provisions. The counsel further argued that it was not the defence’s duty to raise an objection on the ground of an absent or improper sanction. The strength of this argument would have been considerable if not for the inclusion of Exhibit P‑1560 in the record. Although this document is neither the original order issued by the Governor nor an official copy of it, the exhibit records a factual statement that the Governor had consented to sanction the prosecution of the appellants for certain offences as required by Section 196A of the Code of Criminal Procedure. The document originates as an official communication from the Home Department addressed to the District Magistrate at Kanpur. Consequently, a presumption arises that the sanction referred to in the document was indeed granted, and, because the communication is an official one, a further presumption follows that the official act mentioned therein was performed in a regular manner. In the Court’s view, the document placed on record therefore prima facie satisfies the requirements of Section 196A of the Code of Criminal Procedure, and the appellants can no longer maintain that there is any evidence showing the absence of a valid sanction. Accordingly, the contention raised by the counsel for the appellants was overruled. The next point raised by the counsel was that the charge framed by the prosecution amalgamated several offences and thereby resulted in a miscarriage of justice. This issue had not been raised in the lower courts, and the Court found no merit in it. The objection concerned the first charge, which reads as follows: “That between the months of …”

It was alleged that between the months of May 1949 and December 1949, both months inclusive, in the districts of Rae Bareli, Pratabgarh and Kanpur, a group of individuals identified as Sri Niwas, Lachhimi Narain, Tulsi Ram, Beni Gopal, Babulal, Moti Lal, Brij Lal Coenka, Chajju Lal and Chandrika Singh entered into an agreement among themselves and also with the deceased Hanuman Prasad and Purshottom Dass, or caused such agreement to be carried out, to commit several illegal acts. The alleged illegal acts consisted of cheating a number of banking institutions – namely the Bank of Bikaner, Kanpur; the Bank of Baroda, Kanpur; the Bank of Bihar, Kanpur; the Central Bank of India, Kanpur; M/s Matadin Bhagwan Dass, Kanpur; and M/s Nand Kishore Sitaram, Kanpur – by dishonestly inducing these banks and bankers to part with large sums of money. The alleged method involved presenting hundis drawn on Murarka Bros., Calcutta, which were purportedly covered with securities, while the parties knew that the accompanying receipts and documents were forged. The accused are said to have used these forged documents as if they were genuine, acting in pursuance of a common agreement, and thereby committing an offence punishable under section 120B read with sections 467, 468, 471 and 420 of the Indian Penal Code, an offence that lies within the jurisdiction of the Court of Sessions.

Counsel for the accused raised an objection, contending that the charge as framed combined several offences and thereby resulted in a miscarriage of justice. The objection was examined and the Court found that the charge did not, in fact, jumble multiple offences. Rather, the charge constituted a single charge of conspiracy. The reference to various sections of the Indian Penal Code was intended solely to specify the objects of the alleged conspiracy – namely cheating and forgery. By mentioning those sections, the charge sought to make clear that the purpose of the conspiracy was to forge railway receipts, which were valuable securities, and to use those forged documents as if they were genuine. The Court noted that the accused appeared to have understood the nature of the charge, as they had not, at any appropriate stage, expressed confusion or bewilderment regarding its content. Consequently, the objection raised by counsel was overruled.

The next issue identified by the Court concerned the alleged forgeries committed by Lachhimi Narain. The Court accepted that the commission of the forgeries could not be denied. The remaining question was whether Lachhimi Narain could be held guilty of cheating and, if so, whether his liability should be placed under section 420 of the Indian Penal Code, as the learned Additional Sessions Judge and the High Court had held, or under section 417 of the Indian Penal Code, as contended before this Court. Counsel correctly pointed out that a conviction under section 420 requires proof not only that the accused cheated another person, but also that, by doing so, the accused dishonestly induced the victim to deliver any property or other thing of value. Dishonest conduct, according to the law, is conduct carried out with the intention of causing wrongful gain to one person or wrongful loss to another person. The term “wrongful loss” is defined as a loss incurred by unlawful means of property to which the victim is legally entitled, while “wrongful gain” refers to a gain acquired by unlawful means of property to which the gaining party is not legally entitled. Counsel further argued that there had been no wrongful loss suffered by the banks and the two firms that discounted the hundis drawn by the family‑owned firms. The High Court, however, had held that those firms did suffer wrongful loss because they received only a meagre amount for discounting the hundis, whereas, had the true facts been disclosed, they would not have discounted the hundis, even though they might have advanced loans at an interest rate between six and nine percent. The Court observed that the fraudulent misrepresentation made to the banks and the firms caused them to lose the amount they could otherwise have obtained, thereby constituting wrongful loss. The Court has reviewed a large number of documents on record, and it is evident from those documents that the parties who discounted the hundis in question were entitled to

The term “person” was explained as meaning a gain obtained by unlawful means of property to which the gaining individual is not legally entitled. Counsel for the appellant argued that the banks and the two firms that had discounted the hundi instruments suffered no wrongful loss. The High Court, however, concluded that the firms did experience a wrongful loss because they received only very small amounts for discounting the hundis. The court observed that, had the true facts been known, the firms would not have discounted the hundis, even though they might have been willing to advance loans and to charge interest at rates ranging from six to nine percent on the sums advanced. The court held that the fraudulent misrepresentation made to the banks and the firms caused them to lose the amount they could otherwise have obtained, and therefore a wrongful loss was established.

The record contains a large number of documents, and from those documents it is clear that the parties who discounted the hundis in question were authorised to levy, in addition to the discount charge, interest at a rate of six percent or higher if payment was not made within twenty‑four hours of presentation. Exhibits numbered 1440 to 1454, which are debit vouchers of the Bank of Bikaner, and exhibits 1330 to 1345, which are debit vouchers of the Bank of Bihar, demonstrate that the first bank charged interest at six percent and the second bank charged interest at nine percent. These interest amounts were debited and actually realised by the banks from the firms for the entire period during which the hundis, although presented, remained unpaid. While these exhibits are illustrative, they show that the banks were not deprived of interest income.

Counsel for the appellant also pointed out that the managers and officers of the banks and the firms had been examined, and none of them testified that any loss of interest resulted from these transactions. Mr. Mathur, appearing for the State, responded by noting that, in practice, a hundi could not be presented for payment in less than ten days. He referred to exhibits P. 1106 and P. 1055, which are records of bills purchased by the Central Bank of India at Kanpur. He directed attention to the penultimate column of these exhibits, which bears the heading “date enquired on,” and asserted that this column records the date of presentation. As an example, he cited the first entry showing a date of June 10, which he said was the date the hundi was discounted by the Central Bank of India, and the date in the penultimate column as June 20, which he interpreted as the date of presentation. According to his reasoning, for the ten‑day interval and the subsequent twenty‑four‑hour period, the bank would have received only the discount charge and no interest. The hundi in question was later realised.

In this case the Court observed that the hundi had been realised on June 25, and consequently, according to the State’s counsel, the bank could have received interest for only four days. However, the Court noted that the heading of the penultimate column in the paper book had been incorrectly reproduced; the original heading was “Date enquired”. In addition, the last column was headed “non‑payment advice sent”. With these facts in mind, the Court concluded that the entry in the penultimate column could not be interpreted as the date of presentation but rather as some other date, and that no column in either document recorded the actual presentation date. Accordingly, the documents failed to assist the State’s case. The Court further remarked that it was the bank’s responsibility to ensure that hundis were presented without delay, and that any delay caused by the bank itself would have to be borne by the bank. Moreover, the Court pointed out that if the bank were unable to earn interest, or earned only minimal interest, for a period of ten days, this condition would have applied to all transactions, not solely to those backed by forged railway receipts. Hence, the contention advanced by Mr Mathur lacked substance. Mr Mathur also argued that because the banks faced the risk of losing money due to the forged railway receipts, a wrongful loss must be attributed to the firms’ actions. The Court acknowledged the force of this argument but refrained from issuing a definitive opinion, stating only that the appellant firms had undoubtedly obtained an unlawful gain. The Court then considered the submission of Mr Mulla, who contended that the firms merely obtained temporary credits on the basis of their hundis and therefore did not make any wrongful gain. He argued that the firms possessed good market credit and, for the transactions in question, offered respectable equivalents in the form of hundis. He further stated that out of roughly 180 hundis drawn by the firms, only a very few were dishonoured, and that these dishonourments occurred solely in December 1949. Mr Mulla also noted that it had not been shown that Murarka Brothers, on whose behalf the hundis were drawn, were unable to meet the hundis throughout the nine‑month period of the transactions. Of the hundis amounting to Rs 80 lakhs, Rs 74 lakhs were honoured, and the remaining amount might also have been honoured but for a market slump and the fact that cotton bales worth Rs 12 lakhs belonging to the appellants were pledged in the bank’s godowns.

In the matter before the Court, the Central Bank of India had secured an amount of nine lakh rupees. It was observed that, had the cotton bales mentioned been sold in the ordinary course of business, the financial crisis that arose in December and that caused the dishonour of certain hundi payments—payments in which the Bank of Bikaner and Matadin Bhagandas were named as payees—would not have occurred. Learned counsel for the appellants argued that the credit obtained by the firms was not secured on the basis of forged railway receipts but rather on the hundis themselves, which had been drawn by parties possessing market credit and drawn on a party whose ability to honour the hundis throughout the relevant period had not been shown to be inadequate. The Court found that this line of argument did not carry persuasive force.

The testimony of B. N. Kaul, the manager of the Kanpur branch of the Bank of Bihar (recorded as PW 32), was considered. Mr. Kaul explained that he purchased the hundis because the accompanying railway receipts demonstrated that the consignments were large and that the value of those consignments was commensurate with the amounts for which the bills had been drawn. He further stated that he would not have purchased the hundis if the consignments had been of very small quantity, thereby indicating that a mismatch between consignment value and the amount advanced would have deterred his purchase. In addition to Kaul’s evidence, the Court noted other material that showed the real basis for discounting the bills was not merely the credit of the appellant or the security offered by the bills themselves.

The evidence presented was consistent with the ordinary banking practice of discounting hundis only when they are backed by railway receipts for consignments dispatched by the drawer to third parties. While it is undisputed that hundis constitute securities and that a bank may, on the basis of the drawer’s credit, discount such instruments, the presence of railway receipts as supporting documents indicates that the parties intended those receipts to serve as additional security for the discounting transaction. When a consignor draws a hundi for the price of a consignment and supports it with the railway receipt obtained for that consignment, the consignor effectively pledges the goods to the bank that discounts the hundi; consequently, the railway receipt functions as a security for that transaction. If that security proves to be worthless or essentially worthless because the actual value of the consignment is only a fraction of what had been represented, the act of discounting the hundi by the party who drew it must be regarded as unlawful. From this reasoning, the Court concluded that the firms in question obtained credit by unlawful means and thereby derived an unlawful gain.

In the present matter, the Court observed that the profit which had been obtained by the respondents through the transaction was unlawful and could not be justified. Counsel for the petitioner, Mr. Mulla, argued that an act cannot be characterised as dishonest merely by showing that one individual deceived another and obtained an improper benefit; the argument required proof that the deception also caused the other party to suffer a corresponding loss. To support this position he cited the decision in Sanjiv Ratanappa Ronad v. Emperor (1932) 1 LR LVI Bom 488. In that earlier case the first accused, who was a police Sub‑Inspector, had been found guilty of preparing a false document by altering an entry in his own diary with the intention of fabricating evidence. It was submitted before the Court that, for an offence of forgery under sections 463 and 464 of the Indian Penal Code, the document must be made either dishonestly or fraudulently, and that those terms must be interpreted according to the definitions contained in the Penal Code. The submission further contended that it was insufficient to demonstrate that the deception was intended merely to secure an advantage for the deceiver. Justice Baker, who sat on the Bench, addressed this argument on page 493 and explained: “The definition of ‘dishonestly’ in section 24 of the Indian Penal Code applies only to wrongful gain or wrongful loss, and although there are conflicting rulings on the precise meaning of ‘fraudulently’, the prevailing view of this Court is that there must be some advantage on one side together with a corresponding loss on the other.” Section 463, which defines forgery, states: ‘Whoever makes any false document or part of a document with intent to cause damage or injury to the public or to any person, or to support any claim or title, or to cause a person to part with property, or to enter any express or implied contract, or with intent to commit fraud or that fraud may be committed, commits forgery.’ The provision therefore requires proof of an intention to cause damage or injury before a fabricated document can be classified as false or as forgery. Considering the language of section 463, the observation made by the learned judge is understandable and may be correct. However, the matter before this Court pertained to an offence under section 420 of the Indian Penal Code, which requires dishonest inducement as an essential element. Justice Baker correctly noted that “as dishonesty involves a wrongful gain or wrongful loss, it does not apply to the present case where no pecuniary question arises.” Nevertheless, it is clear that an offence punishable under section 420 of the Indian Penal Code inevitably includes a pecuniary element because the statute specifically addresses dishonest inducement to part with property. The first part of section 464 of the Indian Penal Code provides that a person is said to make a false document when he dishonestly or fraudulently makes signs or other matters on a document with a particular intention, and this provision covers both dishonest and fraudulent acts.

In this matter, the Court observed that the statutory language includes both dishonest acts and fraudulent acts within the definition of a false document. When a case does not involve any monetary question, the requirement to prove dishonesty may be dispensed with, and establishing fraud alone suffices. Consequently, as the trial judge had previously held, if the conduct is fraudulent, the prosecution must still demonstrate an intention to cause injury to the defrauded party. However, where the accusation is that a person dishonestly induced another to part with property, the analysis must focus on whether a wrongful loss occurred to the victim or a wrongful gain accrued to the accused. These two aspects represent the two limbs of the legal concept of dishonesty, and proving either one satisfies the statutory requirement. The law does not demand proof of both loss and gain simultaneously. Therefore, the precedent relied upon by counsel was held to be distinguishable from the present facts. Counsel also cited the dissenting opinion of Subrahmania Ayyar, J., in Kotamraju Venkatarayudu v. Emperor, which requires that deception under sections 465 and 461 result in some loss or risk of loss to an individual or the public. That dissent, along with other authorities mentioned by counsel, was found not to govern the case because they are distinguishable for the same reasons that separate Sanjiv Ratanappa Ronad’s case from the present matter. Accordingly, the Court concluded that the offence of cheating had been established against the accused. The High Court had previously found dishonesty on the part of Lachhimi Narain, noting that he alone drew and negotiated the various hundis involved. Counsel argued that the prosecution had not proved that the other appellants drew or discounted any hundi, but that submission was rejected on the basis of the Additional Sessions Judge’s findings that Tulsi Ram sold certain hundis to the Central Bank of India backed by forged railway receipts. The Judge also found that Beni Gopal had booked a consignment of two bags of rapeseed from Rae Bareli to Raniganj, drew a hundi of Rs 40,000 on a tampered railway receipt, and later obtained a stamped indemnity bond for the same consignment delivered to the firm Chiranji Lal Ram Niwas. In a second transaction, Beni Gopal’s firm booked two bags of poppy seeds, drew a hundi for Rs 38,000 on a railway receipt that had been tampered with, and, as reported in Murarka (1) (1905) I. L. R. 28 Mad. 90 and (2) (1932) I. L. R. LVI Bom. 488, sold that hundi to the Central Bank of India. These findings formed the basis for the conviction of the appellants under sections 417 and 420 of the Indian Penal Code.

In that case the learned Additional Sessions judge had convicted both appellants for an offence punishable under sections 417 and 420 of the Indian Penal Code. He had also held that appellants Babu Lal and Moti Lal were guilty of offences under the same sections. The High Court later set aside the conviction and sentence imposed on Moti Lal. Upon review it was found that the prosecution had not succeeded in proving that Babu Lal had either drawn or negotiated hundi instruments supported by forged railway receipts. The material on which the Additional Sessions judge, and apparently also the High Court, had relied did not address those specific allegations. Whatever role Babu Lal may have played in the transactions, his actions did not satisfy the elements of the offence stipulated in section 420, and consequently his conviction and sentence for cheating were ordered to be set aside. The High Court, however, had affirmed the conviction of Tulsi Ram and Beni Gopal for offences under sections 417 and 420 of the Penal Code. Evidence on record demonstrated that both individuals had participated either in the drawing or in the negotiation of hundi instruments that were secured by forged railway receipts. The evidence adduced by the Additional Sessions judge was not contested before this Court, and therefore the convictions of Tulsi Ram and Beni Gopal for cheating were confirmed. Nonetheless, it was observed that, having found the acts to fall under section 420, it was inappropriate for the High Court to affirm a conviction described as “sections 417/420”, which suggested an inconsistency in the charge. The only remaining issue concerned alleged conspiracy. Counsel for the respondents fairly admitted that, irrespective of the fate of the other accused, Lachhimi Narain could not escape liability under section 120B because two other individuals had been expressly associated with him, though those persons had died before trial. Regarding the remaining appellants, counsel strongly asserted that no evidence of conspiracy existed. He acknowledged that he could not challenge the correctness of the findings of the Additional Sessions judge and the High Court regarding certain acts committed by the appellants, but contended that those acts were insufficient to demonstrate their participation in any conspiracy. According to him, the other appellants had merely been directed by Lachhimi Narain to perform those acts and were unaware of the systematic deception he practiced in the transactions. That argument could not be accepted. At least as far as two of the appellants, Tulsi Ram and Beni Gopal, were concerned, they were guilty of cheating itself, and that fact, together with the other evidence and the circumstances established against each appellant, was sufficient to conclude that they were aware of the conspiracy.

In the present case, the Court observed that the two appellants Tulsi Ram and Beni Gopal were guilty of cheating, and that this finding, together with the additional evidence cited in the concluding portion of the High Court’s judgment, established that each of them possessed knowledge of the conspiracy. Regarding the appellant Babu Lal, the Court listed the acts that had been proved: first, the signing of four forwarding notes; second, the presentation of a cheque to the Bank of Bikaner at Kanpur; third, the cashing of another cheque; fourth, the payment of certain hundis together with forged railway receipts; and fifth, the signing of thirty‑two indemnity bonds. The forwarding notes related to consignments whose security had been provided by hundis discounted by banks, and by presenting and cashing the cheques Babu Lal had operated on the bank account into which the proceeds of those hundis, backed by forged railway receipts, had been credited. The Court held that, when these facts were considered alongside the payment of hundis supported by forged receipts, they were sufficient to demonstrate Babu Lal’s participation in the conspiracy. Moreover, the signing or endorsing of thirty‑two indemnity bonds had permitted the delivery of a large number of consignments for which the railway receipts had been forged, further linking him to the unlawful scheme. The Court then turned to the appellant Moti Lal and identified the proven acts as follows: the signing of twenty‑three forwarding notes concerning consignments whose railway receipts had been tampered with but which nonetheless secured certain hundis drawn by the firm; and the signing or endorsing of fifty‑two indemnity bonds on the basis of which delivery of those consignments, although supported by tampered railway receipts, was accepted as security by banks or firms that discounted hundis for the value of the goods. The Court concluded that these circumstances justified the finding of the Additional Sessions Judge, a finding that the High Court had upheld. In addition, the Court emphasized that the four appellants were closely related to Lachhimi Narain, that they operated a joint family business, and therefore shared a common financial interest. It was deemed inconceivable that they could have been unaware of Lachhimi Narain’s fraudulent activities. Accordingly, the Court affirmed their convictions under section 120B of the Criminal Procedure Code. With respect to Chandrika Singh, the Court noted that his situation differed. He had initially been employed by the firm Bhairo Prasad Srinivas and had been transferred to Calcutta about a year before the questioned transactions began, at which time the firm Murarka Brothers was established. He was placed in charge of paying hundis presented to Murarka Brothers. The High Court had held him to be a party to the conspiracy on the ground that he had signed a letter of authority, Exhibit P‑1388 dated July 22, 1948, by which Lachhimi Narain authorized him to operate the Murarka Brothers account.

Chandrika Singh, while working in the Calcutta branch of the Allahabad Bank, was shown to have performed several transactions that were admitted by him and corroborated by witnesses. He paid twenty‑five thousand rupees to the Hindustan Commercial Bank and, in return, received the hundis and railway receipts that were the subject of the case; this payment was proved by the testimony of G. N. Ghosh and by voucher number P‑1232. He also made payments on behalf of Murarka Brothers to the Bank of Bihar at Calcutta, obtaining the corresponding hundis and railway receipts; the vouchers bearing his signature, numbered P‑1342, P‑1343, P‑1346 and P‑1348 through P‑1353, were admitted by him. In addition, he effected similar payments to the Calcutta branches of the Central Bank of India, the Punjab National Bank and the Allahabad Bank. Regarding the Punjab National Bank, his admission was supported by receipt P‑1375, and concerning the Allahabad Bank, his admission was backed by vouchers P‑1440 to P‑1446 and P‑1448 to P‑1457. These actions, the High Court noted, merely show that he discharged the duties assigned to him in handling the hundis.

The High Court’s first ground for holding him guilty was that he had appended his specimen signature to a letter of authority dated July 22, 1948, in which Lachhimi Narain authorized him to operate the Murarka Brothers’ account at the Allahabad Bank, Calcutta. The present Court observed that this signature was affixed long before any alleged conspiracy and therefore did not bear on the matter presently before it. The remaining three grounds, according to the present Court, simply indicated that Chandrika Singh performed the payments that were his responsibility; even if forged railway receipts were included among the documents he handled, that fact alone could not justify concluding that he participated in the conspiracy. At most, such a circumstance might have raised his suspicion. Consequently, the present Court found that none of the High Court’s reasons substantiated a finding that Chandrika Singh was a conspirator. The Court also considered an additional argument raised by the learned Additional Sessions Judge, which stated that Singh had been asked to explain his disposal of the forged railway receipts and that he claimed to have handed them to Calcutta commission agents and to Raj Bahadur Singh, a munim of Bhairo Prasad Sri Niwas. The judge asserted that the receipts were actually taken by merchants on indemnity bonds and that Singh’s explanation was false, implying that he destroyed the forged receipts because he knew of their falsity. The present Court found this reasoning faulty, noting that it rested on the assumption that the railway receipts endorsed in favour of Murarka Brothers were forged, whereas the evidence showed that the appellants regularly sent genuine consignments of food grains to West Bengal and that legitimate railway receipts could have been issued in their favour. Therefore, Singh’s statement that he gave the receipts to commission agents could merely pertain to authentic documents, and the inference that he acted with conspiratorial intent was unsupported.

The Court observed that the Additional Sessions Judge had based his reasoning on the premise that the railway receipts endorsed in favour of Murarka Brothers were forged or had been tampered with. The evidence, however, demonstrated that the appellant firms regularly dispatched genuine consignments of food grains and similar articles to West Bengal. Consequently, the possibility that authentic railway receipts for such consignments could have been endorsed in favour of Murarka Brothers could not be dismissed. The explanation offered by Chandrika Singh—that he handed the railway receipts to the Calcutta commission agents—could plausibly refer to the receipts relating to those genuine consignments. Therefore, the risk imagined by the learned judge, namely that the receipt holder at the railway station would compare the number of bags with the corresponding invoices and expose fraud, did not arise in this context. Moreover, considering the overall method employed by the appellant firms, it would not be reasonable to assume that the railway receipts for tampered consignments were ever endorsed to Murarka Brothers. On the whole, the Court found Chandrika Singh’s explanation to be reasonable and concluded that he was entitled to the benefit of doubt.

Accordingly, the Court set aside the conviction of Chandrika Singh under section 120‑B of the Indian Penal Code, as well as the sentences imposed by the trial court. In determining a new punishment, the Court took into account several mitigating circumstances. The offences had been committed thirteen years earlier, the appeal had remained pending in the High Court for about four years, and an additional three years were required to prepare the High Court’s paper book. The principal offender, Lachhimi Narain, was fifty‑two years old when the alleged transactions began and had become sixty‑five years old at the time of this judgment. Imposing the original seven‑year term would have resulted in incarceration until he reached seventy‑two years of age, a period likely to affect his health. The Court also noted that no actual loss had been suffered by any person as a result of the alleged fraud, and that the accused and his family had already endured significant monetary hardship and reputational damage over the intervening years. Consequently, the Court reduced the term of imprisonment to three years, increased the fine previously imposed by the Additional Sessions Judge from five thousand rupees to ten thousand rupees, and stipulated that in default of payment the accused would undergo rigorous imprisonment for one year. The sentences were consequently modified as ordered.

In its order the Court clarified that the term of imprisonment fixed for Lachhimi Narain was intended to cover every offence for which he had been found guilty; the Court expressly stated that it was not imposing a separate term for each individual charge but that the single term applied to the whole set of convictions. Regarding the four other appellants, the Court observed that, given the considerable lapse of time since the offence, there was no practical benefit in returning them to custody. The record showed that each of those individuals had already served a brief period of detention of a few weeks before being released on bail. Consequently, the Court held that it would be both just and equitable to adjust their punishments by limiting the term of imprisonment to the portion of the sentence they had already served, and to replace any further custodial liability with a monetary penalty of three thousand rupees for each appellant, with the alternative that, should the fine not be paid, the appellant would be required to undergo rigorous imprisonment for six months. In reaching this decision the Court said it had taken into account three relevant considerations. The first consideration had been mentioned earlier in the judgment. The second consideration was the very young age of the four appellants at the time the alleged transactions were carried out. The third consideration was that, although the appellants were aware that the scheme was improper and expected to obtain benefit from it, they acted under the dominating influence of Lachhimi Narain, who was the family’s karta. Accordingly, the Court modified the sentences of the four appellants as described and allowed the appeals in part.