Karnataka High Court
Rajkumar Chellappan Pillai vs State Of Karnataka on 4 April, 2025
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 04TH DAY OF APRIL, 2025
BEFORE
THE HON'BLE MR. JUSTICE M. NAGAPRASANNA
WRIT PETITION No.11195 OF 2023 (GM - RES)
BETWEEN:
1. RAJKUMAR CHELLAPPAN PILLAI
S/O GOPALA PILLAI CHELLAPPAN PILLAI
AGED ABOUT 49 YEARS
AT ZONTA INFRATECH PVT. LTD.,
1ST FLOOR, RELIABLE PHOENIX TOWERS
16 AND 16/1, MUSEUM ROAD
BENGALURU - 560 001.
2. JAYARAM POOJARY
S/O NARASIMHA POOJARY
AGED ABOUT 50 YEARS
AT ZONTA INFRATECH PVT. LTD.,
1ST FLOOR, RELIABLE PHOENIX TOWERS
16 AND 16/1, MUSEUM ROAD
BENGALURU - 560 001.
3. SREEJU S. NAIR
S/O SURENDRANPILLAI
AGED ABOUT 32 YEARS
AT ZONTA INFRATECH PVT. LTD.,
1ST FLOOR, RELIABLE PHOENIX TOWERS
2
16 AND 16/1, MUSEUM ROAD
BENGALURU - 560 001.
... PETITIONERS
(BY SRI PRABHULING K.NAVADGI, SR.ADVOCATE A/W
SMT.NAYANA TARA B.G., ADVOCATE)
AND:
1 . STATE OF KARNATAKA
BY THE STATION HOUSE OFFICER
CUBBON PARK POLICE STATION
BENGALURU - 560 001
REPRESENTED BY SPP
HIGH COURT OF KARNATAKA
BENGALURU - 560 001.
2 . MR. PATRICK DIETER BAUER
S/O HEINZ DIETER BAUER
AGED ABOUT 52 YEARS
R/A NO.11, DROSSELSTRASSE
SUEDLOHN 46354 DE, GERMANY
... RESPONDENTS
(BY SRI B.N.JAGADEESHA, ADDL.SPP FOR R-1;
SRI R.V.S.NAIK, SR.ADVOCATE FOR
SRI NITIN PRASAD, ADVOCATE FOR R-2)
THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND
227 OF THE CONSTITUTION OF INDIA READ WITH SECTION 482 OF
CR.P.C., PRAYING TO QUASH THE FIRST INFORMATION REPORT
AND COMPLAINT IN CRIME NO.34 OF 2023, REGISTERED BY THE
CUBBON PARK POLICE STATION, BEFORE THE III ADDITIONAL
CHIEF METROPOLITAN MAGISTRATE COURT AGAINST THE
PETITIONERS HEREIN WHO ARE LABELLED AS ACCUSED NOS.1 TO
3 RESPECTIVELY, FOR OFFENCES WHICH ARE MADE PENAL U/S
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420, 409 AND 34 OF THE INDIAN PENAL CODE, WHICH IS
PRODUCED AT ANNEXURE-A , A1 AND A2.
THIS WRIT PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS, COMING ON FOR PRONOUNCEMENT THIS DAY, THE
COURT MADE THE FOLLOWING:-
CORAM: THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CAV ORDER
The petitioners, three in number, are knocking at the doors of
this Court calling in question registration of a crime in Crime No.34
of 2023 for offences punishable under Sections 409, 420 and 34 of
the IPC, pending before the III Additional Chief Metropolitan
Magistrate, Bengaluru.
2. Facts adumbrated, are as follows:
The three petitioners are office bearers of one Zonta Infratech
Private Limited ('the Zonta Company' for short). The 1st
petitioner/accused No.1 is its Managing Director and petitioners 2
and 3 are employees of the Company. The Zonta Company is not
an accused. It is in the business of waste management, water and
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waste-water management in India and beyond the shores of the
Nation and has contracts with several municipal corporations in the
country.
3. The 2nd respondent is the complainant and he is the
Managing Director of a German Company "Bauer GmBH" ('the
Germany Company' for short). The Zonta Company and the
German Company establish a Joint Venture Company for setting up
manufacturing facility at Peenya Industrial Area for production of
underground waste containers by entering into a shareholding
agreement. On 21-02-2017, Zonta Company and the German
company - complainant further enter into equity subscription and
debt financing agreement, the second agreement. In furtherance of
aforesaid agreements, Zonta Company receives an investment from
the complainant through aforesaid agreement dated 21-02-2017, in
particular. Zonta Company then avails loan from Axis Bank for
expanding business even beyond the shores of the Nation for
which, the complainant furnishes a guarantee by way of a stand by
letter of credit for 2.28 million Euros. The Nation then engulfed
with COVID-19. Several transactions have happened between the
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parties. On 30-11-2021, Zonta Company holds its Annual General
Meeting which confirms certain new orders bagged by it at different
places. The father of the complainant who was also a Managing
Director of the German company causes a legal notice upon the
petitioners demanding certain payment. Disputes on those
payments arose. All the parties sit together and enter into a
settlement agreement on 06-10-2022. In terms of the settlement
agreement, Zonta Company makes part payment of 27,500 Euros
to the complainant. Pursuant to the said payment, certain disputes
arose with regard to interpretation of what would be the part
payment. Alleging violation of the settlement agreement, the
impugned complaint comes to be registered on 08-03-2023 in
Crime No.34 of 2023. Therefore, the entire issue has now sprung
from the breach of agreements.
4. Heard Sri Prabhuling K.Navadgi, learned senior counsel
appearing for the petitioners, Sri B.N. Jagadeesha, learned
Additional State Public Prosecutor appearing for respondent No.1
and Sri R.V.S. Naik, learned senior counsel appearing for Sri Nitin
Prasad, learned counsel for respondent No.2.
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5. The learned senior counsel appearing for the petitioners
would take this Court through the documents appended to the
petition and seeks to demonstrate that a seemingly civil dispute is
given a colour of crime. The complainant has set the criminal law
into motion on two counts - one breach of settlement agreement
and the other, recovery of money in terms of settlement
agreement. He would, therefore, contend that such misuse should
not be permitted and the complainant should be left with remedies
available in law.
6. Per contra, the learned senior counsel representing the 2nd
respondent would vehemently refute the submissions to contend
that a given case can raise both civil and criminal law. Therefore, it
is not a case where every crime registered which has a flavour of
civil law should be quashed. It is his submission that there is
undoubtedly a breach of settlement agreement and huge chunks of
Euros has not been paid in terms of the said agreement. He would,
therefore, contend that it is a matter of investigation in the least
and this Court should not interfere at this stage.
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7. The learned Additional State Public Prosecutor would also
toe the lies of the learned senior counsel appearing for the
complainant.
8. I have given my anxious consideration to the submissions
made by the respective learned senior counsel and have perused
the material on record.
9. The afore-narrated facts are not in dispute. Three
agreements are entered into between the Zonta Company and the
German Company. First, a Joint Venture Agreement. Certain
clauses of the said agreement are germane to be noticed. They
read as follows:
"...... ..... ....
5.4 The Shareholding of the Parties in the Company shall
be as follows:
ZHPL 50% (Fifty percent)
BAUER 50% (Fifty percent)
Any change in Shareholding shall be made in
accordance with the provisions of this Agreement.
The parties further agree that, subject always to the
approval of applicable Government Authorities and in
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compliance with the Applicable Laws, any further
issuance of Shares of Company shall be so made on a
rights basis unless otherwise provided for or agreed in
an approved Business Plan by the Board of Directors.
... ... ...
14.1 Any dispute, controversy or claim arising out of or in
relation to this Agreement or the breach, termination
or invalidity thereof, if the same cannot be settled
amicably among the Parties concerned, shall be
settled by final and binding arbitration in
accordance with the Arbitration and Conciliation
Act, 1996 by three arbitrators. Each party shall
appoint one Arbitrator and the appointed
arbitrators shall appoint a third arbitrator who
shall act as the presiding arbitrator. The
arbitration proceedings shall take place in
Bangalore, India and the proceedings shall be
conducted in English. The arbitral tribunal shall
make a written and reasoned award. The
tribunal shall also make an award as to costs."
(Emphasis added)
In terms of Clause 5.4 both the parties - Zonta Company and the
German Company have equal share holding in the Joint Venture
Company. Clause 14.1 mandates resolution of disputes in
accordance with the Arbitration and Conciliation Act. The second
agreement is on 21-02-2017. Certain clauses of this agreement
also assume significance. They read as follows:
"4. DEBT FINANCING
4.1 Apart from the subscription of Shares envisaged
herein above, the Company is desirous to avail
debt financing of 2.5 million (two and a half
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million) Euros ("Debt Facility") from the
Investor and the Investor has agreed to grant
the Debt Facility to the Company.
4.2. The interest rate applicable to the Debt Facility
shall be at the rate of 1.5% (one and half
percent) on the principal amount outstanding on the
date on which the payment of the interest is due. The
interest shall be payable on annual basis.
... ... ...
8. BOARD, MANAGEMENT AND RELATED MATTERS
8.1 Composition of the Board. The Board may have up
to such number of directors as may be permitted
under the Act from time to time.
8.1.1 On and from the Closing Date and till such time the
Investor holds at least the Minimum
Shareholding, the Investor shall have a right to
nominate and maintain 1 (one) Director to the
Board of the Company (the "Investor
Director"). The Investor shall be entitled to
appoint and remove the Investor Director by
Notice to the Company. The Company shall
following receipt of a Notice from the Investor in this
regard complete all corporate and regulatory
formalities regarding such appointment, removal or
substitution within the time period permitted under
the Act.
8.1.2 In the event a vacancy occurs on the Board for any
reason, each Shareholder agrees to cause the
Company to immediately convene a meeting of the
Board and endeavour to cause its representatives to
exercise their voting rights so as to appoint a
replacement to hold office until the date of the next
annual general meeting. The failure to do so shall
not constitute a waiver of such right nor shall it
prevent the exercise of such right prospectively.
Such vacancy shall be filled by an individual who is
nominated for appointment by the Shareholder that
nominated the appointment of the Person to be
replaced. The new appointee shall hold office up to
the date on which the director in whose place he is
appointed would have held office if it had not been
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vacated but would be subject to re-appointment on
the expiry of his office.
8.2 Investor Alternate Directors.
8.2.1 The Investor having the right to appoint an Investor
Director and shall be entitled to appoint, remove and
substitute an alternate Director to their Investor
Director ("Alternate Director") from time to time
and to act as an alternate Director to their Investor
Director during the absence of their Investor
Director, as permitted under the Applicable Law. The
Board shall ensure that the Person nominated by the
relevant Investor is appointed as the Alternate
Director immediately upon Notification by the
Investor. The Company shall within 10 (ten) days of
Notification in this regard complete all corporate and
regulatory formalities regarding the appointment,
removal or substitution of such Alternate Director."
(Emphasis added)
Taking forward the afore-quoted agreements, investment come into
Zonta Company. Disputes arose between the two. They sit
together and arrive at a settlement agreement on 06-10-2022.
Certain clauses of the settlement agreement are as follows:
"1) ZIPL shall reimburse the cost of renewal of SBLC
amounting to 110263 Euros (Euros One Hundred Ten
Thousand Two Sixty Three) in two trenches:
a. 27500 Euro will be paid upon signing this
Settlement Agreement, being 25% of the
outstanding amount whereby ZIPL will file
the necessary money transfer documents
with SBI on the same day for due transfer.
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b. The balance 82763 Euro being 75% of the
outstanding amount shall be paid on or
before 30th November, 2022.
... ... ...
3) ZIPL shall make every endeavour to
release the SBLC not later than 30th
November, 2022 by pledging the properties
of ZIPL or Mr. Rajkumar C Pillai or both
provided however Bauer, Patrick & Dennis
withdraw all complaints and legal notices
filed against ZIPL and its officers to Banks
and other authorities immediately upon
signing this Agreement and evidence of the
same is furnished to ZIPL. In any case it is
not the intention of ZIPL to seek renewal
of the SBLC.
... ... ...
5) ZIPL has agreed to repay the remaining
ECB in tranches not later than 30th
September 2023 as defined in Schedule-A
annexure hereto. ZIPL has agreed to pay
the interest towards the ECB not later than
31st December, 2023. ZIPL has agreed to
pay the interest in trenches as defined in
Schedule-A1 annexed hereto. Any increase
or decrease in the rate of interest
mentioned in the Equity Subscription and
Debt Financing Agreement dated 21st
February 2017 for the outstanding
principal of Euro 850,000 (Euros Eight
Hundred and Fifty Thousand) shall be
intimated in writing by Patrick providing
evidence of increase/decrease in rates
interest as per European Central Bank
rates basis which the ZIPL would adjust
and pay the rates of interest in line with
the norms of Reserve Bank of India &
FEMA Rules.
..... ..... .....
Schedule of Repayment of ECB Interest
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Date of Interest Repayment Balance Status of
repayment (in Euro) (In Euro) (In Euro) payment
(MM/DD/YYYY)
30-10-2023 40,000 85158 Payable"
30-11-2023 40,000 45158
30-12-2023 125158 45150 0
(Emphasis added)
Zonta Company agrees to pay the remaining amount in Euros in
separate transactions. The settlement agreement is breached by
making short payment. This results in registration of the complaint.
Certain paragraphs of the complaint are germane to be noticed.
They read as follows:
".... .... ....
4) Thereafter on 6 Oct 2022 a Settlement Agreement was
entered between Mr. Bauer GMBH through its Chief
Executive Officer Mr. Patrick Bauer And Between Mr.
Patrick Bauer And Between M/s Zonta Infratech Private
Limited Through its Managing Director Mr. Rajkumar Pillai
And Between Mr. Dennis Eapen Pulimittathu. The said
Settlement Agreement is attached below as (Annexure
B). According to the said Settlement Agreement it was
accepted by Managing Director of M/s Zonta Infratech
Private Limited, Mr. R Pillai that Mr. Bauer has extended
an amount of 2.28 Million Euros (Two Million and Two
Hundred Thousand Euros) in the form of Stand By Letter
of Credit (SBLC) to enable M/s Zonta Infratech Private
Limited to avail credit Mr. R Pillai is the Managing Director
of M/s Zonta Private Lhaited (Zonta) a company
registered under the Indian Companies Act, 1956/2013
having its registered office at 1st Floor, Reliable Phoenix
Tower #16 & 16. 1. Museum Rd, Bengaluru, Karnataka -
560001. M/sZonta is in the business of waste
management. Mr. Patrick Bauer is also a shareholder and
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Director of Zonta Infratech Private Limited. He has also
invested an amount of 1.5 million euros as Equity and 2.5
million euros by way of External Commercial Borrowing
(ECB) in Zonta. I state that Zonta approached Mr. Patrick
Bauer's company in the year 2018 to seek additional
finance worth Euros 2.28 million for their upcoming
Project in Bengaluru. This 2.28 million euros stand-by
letter of credit SBLC was in addition to earlier investment.
Mr. Rajkumar acquired trust and induced Mr. Patrick
Bauer's company into extending a stand-by letter of
credit (SBLC)worth 2.28 million Euros to Zonta.
Thereafter on 6-Oct 2022 a Settlement Agreement was
entered between Mr. Bauer GMBH through its Chief
Executive Officer Mr. Patrick BauerAnd Between Mr.
Patrick Bauer And Between M/s Zonta Infratech Private
Limited Through its Managing Director Mr. Rajkumar Pillai
And Between Mr. Dennis Eapen Pulimittathu. The said
Settlement Agreement is attached below as (Annexure
B). According to the said Settlement Agreement it was
accepted by Managing Director of M/s Zonta Infratech
Private Limited, Mr. R Pillai that Mr. Bauer has extended
an amount of 2.28 Million Euros (Two Million and Two
Hundred Thousand Euros) in the form of Stand By Letter
of Credit (SBLC) to enable M/s Zonta Infratech Private
Limited to avail credit facilities from State Bank of India.
According to the Settlement Agreement dated 6 Oct
2022, 27500 Euros were to be paid by Mr. R Pilla to Mr.
Patrick Bauer upon the signing the Settlement Agreement
and Balance of 82763 Euros to be paid before 30
November 2022. Along with it 10000 Euros were to be
paid to Mr.Patrick Bauer towards travel and
accommodation expenses and it was categorically
mentioned that M/s Zonta Infratech Private Limited shall
make every endeavor to release the SBLC not later than
30 November 2022.
It is pertinent to note that the said Settlement
Agreement dated 6 Oct 2022 was entered with the
sole intention to breach the trust of Mr. Patrick
Bauer as it evident through the conduct of Mr. R
Pillai. Till today SBLC is not released and he has
failed to pay the assured amounts mentioned in
Settlement Agreement. Mr. R Pillai gained the trust
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by entering into a Settlement Agreement with sole
intention to breach the trust and to cause wrongful
gain to himself and wrongful loss to Mr. Patrick
Bauer, thus clearly section 409 is attracted against
Mr. R Pillai. Mr Rajkumar Pillai being a director of
the company was in a fiduciary relationship with
the company as well as other directors. He had
dominion over the funds availed from enchashing
the SBLC. Mr. Pilla availed loan facility of 32 crores
using the said SBLC The SBLC was for Waste bin
projects and the 32 crores availed was supposed to
be used for bussiness purpose but Mr. R Pilla Used
The Said money for personal gain and buying
personal propertys thus he misused his position and
dominion over the property i.e the money availed
against SBLC for his personal gain. He has
misappropriated the said funds for his personal
gain which is evident from the bank statements, I
therefore urge to you on behalf of Mr.Patrick Bauer
to register a FIR under section 409 of Indian Penal
Code and investigate the offences committed by the
Accused Mr.R. Pillai Managing Director of Zonta
Company."
(Emphasis added)
The allegation in the complaint is that, Zonta Company has not paid
back the entire amount and, therefore, the complaint is registered.
This complaint becomes a crime in Crime No.34 of 2023 for
offences punishable under Sections 409 and 420 of the IPC. The
entire issue between the two has sprung only from agreements.
Therefore, the criminal law is set into motion for breach of
agreements. The breach of agreement has resulted in short
payment to the complainant. Therefore, the criminal law is set into
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motion for yet another fact of recovery of money, both of which are
clearly impermissible in law.
10. The criminal justice system should not be put into use for
the purpose of recovery of money, unless the facts are glaring and
make out a prima facie offence under the criminal law. It becomes
germane to notice the law laid down by the Apex Court in
entertaining a criminal case for recovery of money or breach of
agreements. The offences alleged are the ones punishable under
Sections 409 and 420 of the IPC. Section 420 of the IPC reads as
follows:
"420. Cheating and dishonestly inducing delivery
of property.--Whoever cheats and thereby dishonestly
induces the person deceived to deliver any property to any
person, or to make, alter or destroy the whole or any part of
a valuable security, or anything which is signed or sealed,
and which is capable of being converted into a valuable
security, shall be punished with imprisonment of either
description for a term which may extend to seven years, and
shall also be liable to fine."
Section 420 of the IPC has its ingredients in Section 415 of the IPC
to be met. Section 415 of the IPC reads as follows:
"415. Cheating.--Whoever, by deceiving any person,
fraudulently or dishonestly induces the person so deceived to
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deliver any property to any person, or to consent that any
person shall retain any property, or intentionally induces the
person so deceived to do or omit to do anything which he
would not do or omit if he were not so deceived, and which
act or omission causes or is likely to cause damage or harm
to that person in body, mind, reputation or property, is said
to "cheat".
Explanation.--A dishonest concealment of facts is a
deception within the meaning of this section.
Illustrations
(a) A, by falsely pretending to be in the Civil Service,
intentionally deceives Z, and thus dishonestly induces Z to
let him have on credit goods for which he does not mean to
pay. A cheats.
(b) A, by putting a counterfeit mark on an article,
intentionally deceives Z into a belief that this article was
made by a certain celebrated manufacturer, and thus
dishonestly induces Z to buy and pay for the
article. A cheats.
(c) A, by exhibiting to Z a false sample of an article,
intentionally deceives Z into believing that the article
corresponds with the sample, and thereby dishonestly
induces Z to buy and pay for the article. A cheats.
(d) A, by tendering in payment for an article a bill on a
house with which A keeps no money, and by which A expects
that the bill will be dishonoured, intentionally deceives Z, and
thereby dishonestly induces Z to deliver the article, intending
not to pay for it. A cheats.
(e) A, by pledging as diamonds articles which he
knows are not diamonds, intentionally deceives Z, and
thereby dishonestly induces Z to lend money. A cheats.
(f) A intentionally deceives Z into a belief
that A means to repay any money that Z may lend to him
and thereby dishonestly induces Z to lend him money, A not
intending to repay it. A cheats.
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(g) A intentionally deceives Z into a belief
that A means to deliver to Z a certain quantity of indigo plant
which he does not intend to deliver, and thereby dishonestly
induces Z to advance money upon the faith of such
delivery, A cheats; but if A, at the time of obtaining the
money, intends to deliver the indigo plant, and afterwards
breaks his contract and does not deliver it, he does not
cheat, but is liable only to a civil action for breach of
contract.
(h) A intentionally deceives Z into a belief that A has
performed A's part of a contract made with Z, which he has
not performed, and thereby dishonestly induces Z to pay
money. A cheats.
(i) A sells and conveys an estate to B. A, knowing that
in consequence of such sale he has no right to the property,
sells or mortgages the same to Z, without disclosing the fact
of the previous sale and conveyance to B, and receives the
purchase or mortgage money from Z. A cheats."
Section 415 of the IPC punishes a person who dishonestly, right
from the inception, lures the victim into a transaction and
misappropriates the money.
11. In the case at hand, there is no question of luring each
other. It is a business transaction by entering into agreements.
Breach of agreements are, therefore, projected to become a crime.
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In identical circumstances, the Apex Court in the case of VIJAY
KUMAR GHAI v. STATE OF WEST BENGAL1 has held as follows:
"27. Section 405 IPC defines "criminal breach
of trust" which reads as under:
"405. 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"."
The essential ingredients of the offence of criminal
breach of trust are:
(1) The accused must be entrusted with the property or with
dominion over it,
(2) The person so entrusted must use that property, or;
(3) The accused must dishonestly use or dispose of that
property or wilfully suffer any other person to do so in
violation,
(a) of any direction of law prescribing the mode in which such trust is to
be discharged, or;
(b) of any legal contract made touching the discharge of such trust.
28. "Entrustment" of property under Section
405 of the Penal Code, 1860 is pivotal to constitute
an offence under this. The words used are, "in any
manner entrusted with property". So, it extends to
entrustments of all kinds whether to clerks,
servants, business partners or other persons,
provided they are holding a position of "trust". A
person who dishonestly misappropriates property
entrusted to them contrary to the terms of an
obligation imposed is liable for a criminal breach of
1
(2022) 7 SCC 124
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trust and is punished under Section 406 of the
Penal Code.
29. The definition in the section does not
restrict the property to movables or immovables
alone. This Court in R.K. Dalmia v. Delhi
Admn. [R.K. Dalmia v. Delhi Admn., (1963) 1 SCR
253 : AIR 1962 SC 1821] held that the word
"property" is used in the Code in a much wider
sense than the expression "movable property".
There is no good reason to restrict the meaning of
the word "property" to movable property only when
it is used without any qualification in Section 405.
30. In Sudhir Shantilal Mehta v. CBI [Sudhir
Shantilal Mehta v. CBI, (2009) 8 SCC 1: (2009) 3 SCC
(Cri) 646] it was observed that the act of criminal breach
of trust would, inter alia mean using or disposing of the
property by a person who is entrusted with or has
otherwise dominion thereover. Such an act must not only
be done dishonestly but also in violation of any direction
of law or any contract express or implied relating to
carrying out the trust.
31. Section 415 IPC defines "cheating" which reads
as under:
"415. Cheating.--Whoever, by deceiving any person,
fraudulently or dishonestly induces the person so deceived to
deliver any property to any person, or to consent that any
person shall retain any property, or intentionally induces the
person so deceived to do or omit to do anything which he
would not do or omit if he were not so deceived, and which act
or omission causes or is likely to cause damage or harm to
that person in body, mind, reputation or property, is said to
"cheat"."
The essential ingredients of the offence of
cheating are:
1. Deception of any person
2. (a) Fraudulently or dishonestly inducing that
person--
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(i) to deliver any property to any person; or
(ii) to consent that any person shall retain any
property; or
(b) intentionally inducing that person to do or
omit to do anything which he would not do or
omit if he were no so deceived, and which act
or omission causes or is likely to cause
damage or harm to that person in body,
mind, reputation or property.
32. A fraudulent or dishonest inducement is an
essential ingredient of the offence. A person who
dishonestly induces another person to deliver any
property is liable for the offence of cheating.
33. Section 420 IPC defines "cheating and
dishonestly inducing delivery of property" which reads
as under:
"420. Cheating and dishonestly inducing
delivery of property.--Whoever cheats and thereby
dishonestly induces the person deceived to deliver any
property to any person, or to make, alter or destroy the
whole or any part of a valuable security, or anything which
is signed or sealed, and which is capable of being
converted into a valuable security, shall be punished with
imprisonment of either description for a term which may
extend to seven years, and shall also be liable to fine."
34. Section 420 IPC is a serious form of
cheating that includes inducement (to lead or
move someone to happen) in terms of delivery of
property as well as valuable securities. This
section is also applicable to matters where the
destruction of the property is caused by the way
of cheating or inducement. Punishment for
cheating is provided under this section which
may extend to 7 years and also makes the
person liable to fine.
35. To establish the offence of cheating in
inducing the delivery of property, the following
ingredients need to be proved:
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(i) The representation made by the person was
false.
(ii) The accused had prior knowledge that the
representation he made was false.
(iii) The accused made false representation with
dishonest intention in order to deceive the
person to whom it was made.
(iv) The act where the accused induced the
person to deliver the property or to perform
or to abstain from any act which the person
would have not done or had otherwise
committed.
36. As observed and held by this Court in R.K.
Vijayasarathy v. Sudha Seetharam [R.K.
Vijayasarathy v. Sudha Seetharam, (2019) 16 SCC
739 : (2020) 2 SCC (Cri) 454] , the ingredients to
constitute an offence under Section 420 are as
follows:
(i) a person must commit the offence of cheating under
Section 415; and
(ii) the person cheated must be dishonestly induced to:
(a) deliver property to any person; or
b) make, alter or destroy valuable security or
anything signed or sealed and capable of being
converted into valuable security. Thus, cheating
is an essential ingredient for an act to constitute
an offence under Section 420 IPC.
37. The following observation made by this
Court in Uma Shankar Gopalika v. State of Bihar [Uma
Shankar Gopalika v. State of Bihar, (2005) 10 SCC
336 : (2006) 2 SCC (Cri) 49] with almost similar facts
and circumstances may be relevant to note at this
stage : (SCC pp. 338-39, paras 6-7)
22
"6. Now the question to be examined by us is
as to whether on the facts disclosed in the petition of
the complaint any criminal offence whatsoever is
made out much less offences under Sections
420/120-BIPC. The only allegation in the complaint
petition against the accused persons is that they
assured the complainant that when they receive the
insurance claim amounting to Rs 4,20,000, they
would pay a sum of Rs 2,60,000 to the complainant
out of that but the same has never been paid. ... It
was pointed out on behalf of the complainant that
the accused fraudulently persuaded the complainant
to agree so that the accused persons may take steps
for moving the consumer forum in relation to the
claim of Rs 4,20,000. It is well settled that every
breach of contract would not give rise to an offence
of cheating and only in those cases breach of
contract would amount to cheating where there was
any deception played at the very inception. If the
intention to cheat has developed later on, the same
cannot amount to cheating. In the present case, it
has nowhere been stated that at the very inception
that there was intention on behalf of the accused
persons to cheat which is a condition precedent for
an offence under Section 420IPC.
7. In our view petition of complaint does not
disclose any criminal offence at all much less any
offence either under Section 420 or Section 120-
BIPC and the present case is a case of purely civil
dispute between the parties for which remedy lies
before a civil court by filing a properly constituted
suit. In our opinion, in view of these facts allowing
the police investigation to continue would amount to
an abuse of the process of court and to prevent the
same it was just and expedient for the High Court to
quash the same by exercising the powers under
Section 482CrPC which it has erroneously refused."
38. There can be no doubt that a mere
breach of contract is not in itself a criminal
offence and gives rise to the civil liability of
damages. However, as held by this Court
in Hridaya Ranjan Prasad Verma v. State of
Bihar [Hridaya Ranjan Prasad Verma v. State of
Bihar, (2000) 4 SCC 168 : 2000 SCC (Cri) 786] ,
23
the distinction between mere breach of contract
and cheating, which is criminal offence, is a fine
one. While breach of contract cannot give rise to
criminal prosecution for cheating, fraudulent or
dishonest intention is the basis of the offence of
cheating. In the case at hand, complaint filed by
Respondent 2 does not disclose dishonest or
fraudulent intention of the appellants."
(Emphasis supplied)
Later, the Apex Court in the case of MITESH
KUMAR J.SHA v. STATE OF KARNATAKA2 has
held as follows:
"Issues
24. Having perused the relevant facts and
contentions made by the appellants and the
respondents herein in our considered opinion, the
following three key issues require determination in the
instant case:
(i) Whether the necessary ingredients of the
offences punishable under Sections 406, 419
and 420 are prima facie made out?
(ii) Whether sale of excess flats, even if made,
amounts to a mere breach of contract or
constitutes an offence of cheating?
(iii) Whether the dispute is one of entirely civil nature
and therefore liable to be quashed?
Whether the necessary ingredients of offences
punishable under Sections 406, 419 and 420 are
prima facie made out?
25. In order to ascertain the veracity of
contentions made by the parties herein, it is
2
(2022)14 SCC 572
24
imperative to firstly examine whether the relevant
ingredients of offences which the appellants herein
had been charged with, are prima facie made out. The
relevant sections read as follows:
"405. 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 willfully suffers any other person so
to do, commits "criminal breach of trust".
Explanation 1.--A person, being an employer
of an establishment whether exempted under
Section 17 of the Employees' Provident Funds and
Miscellaneous Provisions Act, 1952 (19 of 1952), or
not who deducts the employee's contribution from
the wages payable to the employee for credit to a
Provident Fund or Family Pension Fund established
by any law for the time being in force, shall be
deemed to have been entrusted with the amount of
the contribution so deducted by him and if he makes
default in the payment of such contribution to the
said Fund in violation of the said law, shall be
deemed to have dishonestly used the amount of the
said contribution in violation of a direction of law as
aforesaid.
Explanation 2.--A person, being an employer,
who deducts the employees' contribution from the
wages payable to the employee for credit to the
Employees' State Insurance Fund held and
administered by the Employees' State Insurance
Corporation established under the Employees' State
Insurance Act, 1948 (34 of 1948), shall be deemed
to have been entrusted with the amount of the
contribution so deducted by him and if he makes
default in the payment of such contribution to the
said Fund in violation of the said Act, shall be
deemed to have dishonestly used the amount of the
25
said contribution in violation of a direction of law as
aforesaid.
***
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.
***
419. Punishment for cheating by
personation.--Whoever cheats by personation shall
be punished with imprisonment of either description
for a term which may extend to three years, or with
fine, or with both.
420. Cheating and dishonestly inducing
delivery of property.-- Whoever cheats and
thereby dishonestly induces the person deceived to
deliver any property to any person, or to make, alter
or destroy the whole or any part of a valuable
security, or anything which is signed or sealed, and
which is capable of being converted into a valuable
security, shall be punished with imprisonment of
either description for a term which may extend to
seven years, and shall also be liable to fine."
26. In the instant case, the complaint
levelled against the appellants herein is one
which involves commission of offences of
criminal breach of trust and cheating. While a
criminal breach of trust as postulated under
Section 405 of the Penal Code, 1860, entails
misappropriation or conversion of another's
property for one's own use, with a dishonest
intention, cheating too on the other hand as an
offence defined under Section 415 of the Penal
Code, 1860, involves an ingredient of having a
dishonest or fraudulent intention which is aimed
at inducing the other party to deliver any
property to a specific person. Both the sections
clearly prescribed "dishonest intention", as a
precondition for even prima facie establishing
the commission of the said offences. Thus, in
order to assess the relevant contentions made by
the parties herein, the question whether actions
26
of the appellants were committed in furtherance
of a dishonest or fraudulent scheme is one which
requires scrutiny.
27. Coming to the facts of the case at hands,
the contested contention between the parties is that
the builder company had sold four excess flats beyond
its share, in terms of the JDA and supplementary
agreement entered into between the parties.
Respondent 2 contends that builder company which
was entitled to sell only 9 flats in its favour, has
instead executed sale deed for 13 flats in total. Thus,
the company simply could not have sold the flats
beyond 9 flats for which it was authorised and
resultantly cannot evade criminal liability on a mere
premise that a civil dispute is already pending between
the parties.
28. The appellants on the other hand contend
that in terms of a subsequent MoU dated 19-2-2015, it
was mutually agreed between the parties, that partial
payment for a loan amount borrowed by Respondent 2
from Religare Finvest Ltd., would be paid out from the
sale proceeds of the said development project
undertaken by both the parties. Pursuant to this MoU,
the appellants had agreed to get an NOC for 15 flats
by making payment of Rs 40,00,000 for each flat.
29. The key contention, and also the central
point of dispute, made by the appellants is that, it was
specifically agreed between the parties that the
appellants would be entitled to sell additional flats
beyond their share, as adjustments for payment made
to Religare Finvest Ltd. on behalf of Respondent 2. It
is further contended that Respondent 2 had also
agreed to execute a ratification deed to the JDA and
GPA eventually, which would have formally authorised
the appellants to sell additional apartments.
30. Nonetheless, the ratification deed was
never made and Respondent 2 subsequently even
revoked the GPA unilaterally, contending that the
terms of JDA were not followed. It was only after
27
revocation of GPA that the company filed an
application for arbitration seeking interim orders to
restrain Respondent 2 from alienating the disputed
property. Simultaneously, while this dispute was
pending adjudication before the arbitrator Respondent
2 filed a criminal complaint against the appellants.
31. At this juncture, it further becomes
pertinent to mention that eventually though both
the parties partly succeeded before the
arbitrator, in terms of their respective claims,
the arbitrator observed that GPA indeed could
not have been revoked unilaterally at the
instance of Respondent 2. Aggrieved,
Respondent 2 thereafter even preferred a
challenge to the award passed by the arbitrator.
Moreover, pending arbitration proceedings issue
regarding selling of excess flats at the instance
of the appellants, was also withdrawn by
Respondent 2 seeking liberty to pursue his claim
with regard to selling of four excess flats in
pending civil proceedings.
32. Upon a careful assessment of such facts, by
no stretch can it be concluded that the appellants
herein have deceptively or intentionally tried to sell
excess flats if any, as contended by Respondent 2.
Here, it must also be borne in mind that subsequent to
the revocation of GPA, it was the appellants herein
who had first resorted to arbitration proceedings on 2-
3-2016 for redressal of dispute between the parties, to
which Respondent 2 had accordingly filed his
statement of objections dated 9-3-2016. It was only
on 29-3-2016 that Respondent 2 had filed the FIR in
question bearing Crime No. 185/2016 against the
appellants. Moreover, it was Respondent 2 who had
withdrawn his prayer with respect to selling of four
excess flats by the appellants, only to pursue the
same in civil proceedings.
33. At this stage, by placing reliance on the
judgment of this Court in Priti Saraf v. State (NCT of
Delhi) [Priti Saraf v. State (NCT of Delhi), (2021) 16
28
SCC 142 : 2021 SCC OnLine SC 206] and Sri Krishna
Agencies v. State of A.P. [Sri Krishna
Agencies v. State of A.P., (2009) 1 SCC 69 : (2009) 1
SCC (Civ) 18 : (2009) 1 SCC (Cri) 241] , it has been
further submitted by Respondent 2 that the appellants
cannot evade a criminal case by merely contending
that the person whose property has been sold has filed
a civil suit for recovery of the property, or that the
dispute had been referred to arbitration.
34. Although, there is perhaps not even an iota
of doubt that a singular factual premise can give rise
to a dispute which is both, of a civil as well as criminal
nature, each of which could be pursued regardless of
the other. In the instant case, the actual question
which requires consideration is not whether a criminal
case could be pursued in the presence of a civil suit,
but whether the relevant ingredients for a criminal
case are even prima facie made out. Relying on the
facts as discussed in previous paragraphs, clearly no
cogent case regarding a criminal breach of trust or
cheating is made out.
35. The dispute between the parties, could at
best be termed as one involving a mere breach of
contract. Now, whether and what, is the difference
between a mere breach of contract and an offence of
cheating has been discussed in the ensuing
paragraphs.
Whether sale of excess flats even if made
amounts to a mere breach of contract?
36. This Court in Hridaya Ranjan Prasad
Verma v. State of Bihar [Hridaya Ranjan Prasad
Verma v. State of Bihar, (2000) 4 SCC 168 : 2000
SCC (Cri) 786] , has observed : (SCC p. 177, para 15)
"15. ... that the distinction between mere
breach of contract and the offence of cheating is a
fine one. It depends upon the intention of the
accused at the time to inducement which may be
judged by his subsequent conduct but for this
29
subsequent conduct is not the sole test. Mere breach
of contract cannot give rise to criminal prosecution
for cheating unless fraudulent or dishonest intention
is shown right at the beginning of the transaction,
that is the time when the offence is said to have
been committed. Therefore it is the intention which
is the gist of the offence. To hold a person guilty of
cheating it is necessary to show that he had
fraudulent or dishonest intention at the time of
making the promise."
37. Applying this dictum to the instant factual
matrix where the key ingredient of having a dishonest
or fraudulent intent under Sections 405, 419 and 420
is not made out, the case at hand, in our considered
opinion is a suitable case necessitating intervention of
this Court.
Whether the dispute is one of entirely civil
nature and therefore liable to be quashed?
38. Having considered the relevant
arguments of the parties and decisions of this
Court we are of the considered view that
existence of dishonest or fraudulent intention
has not been made out against the appellants.
Though the instant dispute certainly involves
determination of issues which are of civil nature,
pursuant to which Respondent 2 has even
instituted multiple civil suits, one can by no
means stretch the dispute to an extent, so as to
impart it a criminal colour. As has been rightly
emphasised upon by this Court, by way of an
observation rendered in Indian Oil
Corpn. v. NEPC India Ltd. [Indian Oil
Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 :
(2006) 3 SCC (Cri) 188] , as under : (SCC p. 749,
para 14)
"14. While no one with a legitimate cause or
grievance should be prevented from seeking
remedies available in criminal law, a complainant
who initiates or persists with a prosecution, being
fully aware that the criminal proceedings are
30
unwarranted and his remedy lies only in civil law,
should himself be made accountable, at the end of
such misconceived criminal proceedings, in
accordance with law."
39. It was also observed : (Indian Oil Corpn.
case [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6
SCC 736 : (2006) 3 SCC (Cri) 188] , SCC pp. 748-49,
para 13)
"13. While on this issue, it is necessary
to take notice of a growing tendency in
business circles to convert purely civil disputes
into criminal cases. This is obviously on
account of a prevalent impression that civil law
remedies are time consuming and do not
adequately protect the interests of
lenders/creditors. ... There is also an
impression that if a person could somehow be
entangled in a criminal prosecution, there is a
likelihood of imminent settlement. Any effort to
settle civil disputes and claims, which do not
involve any criminal offence, by applying
pressure though criminal prosecution should be
deprecated and discouraged."
40. On an earlier occasion, in G. Sagar
Suri v. State of U.P. [G. Sagar Suri v. State of U.P.,
(2000) 2 SCC 636 : 2000 SCC (Cri) 513] , this Court
has also observed : (SCC p. 643, para 8)
"8. Jurisdiction under Section 482 of the
Code has to be exercised with great care. In
exercise of its jurisdiction the High Court is not
to examine the matter superficially. It is to be
seen if a matter, which is essentially of civil
nature, has been given a cloak of criminal
offence. Criminal proceedings are not a short
cut of other remedies available in law. Before
issuing process a criminal court has to exercise
a great deal of caution. For the accused it is a
serious matter. This Court has laid certain
principles on the basis of which the High Court
is to exercise its jurisdiction under Section 482
of the Code. Jurisdiction under this section has
to be exercised to prevent abuse of the process
31
of any court or otherwise to secure the ends of
justice."
41. Furthermore, in the landmark judgment
of State of Haryana v. Bhajan Lal [State of
Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 : 1992
SCC (Cri) 426] regarding exercise of inherent powers
under Section 482CrPC, this Court has laid down the
following categories of instances wherein inherent
powers of the Court can be exercised in order to
secure the ends of justice. These are : (SCC pp. 378-
79, para 102)
"102. ... (1) Where the allegations made in
the first information report or the complaint, even if
they are taken at their face value and accepted in
their entirety do not prima facie constitute any
offence or make out a case against the accused.
(2) Where the allegations in the first
information report and other materials, if any,
accompanying the FIR do not disclose a cognizable
offence, justifying an investigation by police officers
under Section 156(1) of the Code except under an
order of a Magistrate within the purview of Section
155(2) of the Code.
(3) Where the uncontroverted allegations
made in the FIR or complaint and the evidence
collected in support of the same do not disclose the
commission of any offence and make out a case
against the accused.
(4) Where, the allegations in the FIR do not
constitute a cognizable offence but constitute only a
non-cognizable offence, no investigation is permitted
by a police officer without an order of a Magistrate as
contemplated under Section 155(2) of the Code.
(5) Where the allegations made in the FIR or
complaint are so absurd and inherently improbable
on the basis of which no prudent person can ever
reach a just conclusion that there is sufficient ground
for proceeding against the accused.
(6) Where there is an express legal bar
engrafted in any of the provisions of the Code or the
32
Act concerned (under which a criminal proceeding is
instituted) to the institution and continuance of the
proceedings and/or where there is a specific
provision in the Code or the Act concerned, providing
efficacious redress for the grievance of the aggrieved
party.
(7) Where a criminal proceeding is manifestly
attended with mala fide and/or where the proceeding
is maliciously instituted with an ulterior motive for
wreaking vengeance on the accused and with a view
to spite him due to private and personal grudge."
42. Applying this dictum to the instant
factual matrix, it can be safely concluded that
the present case clearly falls within the ambit of
first, third and fifth category of the seven
categories enlisted in the abovesaid judgment.
The case therefore warrants intervention by this
Court, and the High Court has erred in dismissing
the petition filed by the appellants under Section
482CrPC. We find that there has been attempt to
stretch the contours of a civil dispute and
thereby essentially impart a criminal colour to
it."
(Emphasis supplied)
Following the aforesaid judgments, the Apex Court in
the case of KUNTI v. STATE OF UTTAR PRADESH3
has held as follows:
".... .... ....
6. Vide the impugned judgment dated 18-10-
2019 [Kunti v. State of U.P., 2019 SCC OnLine All
7183], the learned Single Judge dismissed the
application under Section 482CrPC, not accepting the
argument on the part of the appellant, that the present
Respondent 2 had an alternative remedy in the nature of
a civil suit for the execution of the sale agreement.
Relying on, in V. Ravi Kumar v. State [V. Ravi
3
(2023) 6 SCC 109
33
Kumar v. State, (2019) 14 SCC 568: (2020) 1 SCC (Cri)
401] , the prayer for quashing has been refused.
7. It has been urged by way of this appeal arising
out of SLP, that the agreement to sell was void ab initio,
in light of Section 157-A, Uttar Pradesh Zamindari
Abolition & Land Reforms Act, 1950, whereby a person
belonging to a Scheduled Caste cannot transfer property
to any person not of a Scheduled Caste without prior
permission of the Collector or District Magistrate
concerned. Further it has been urged that the instant
FIR has been lodged four years after the slated date of
the execution of the sale deed. It is also submitted that
the present agreement to sell is forged and in respect
thereof, a report to the Senior Superintendent of Police
stands filed.
8. We notice that the agreement to sell had
been duly registered at the office of the Deputy
Registrar, 1st, Office at Bulandshahr, and the
complaint filed by the appellant, purporting that
the same was forged, was filed on 11-5-2012,
which is, incidentally, the same as the date of the
reply to the legal notice sent by Respondent 2
herein, dated 8-5-2012, and is also four years
from the date of the agreement.
9. However, we do not find the need to
engage with the grounds as urged, because a
perusal of the record in no uncertain terms reflects
the dispute as being of a civil nature. This Court
recently, in Sarabjit Kaur v. State of
Punjab [Sarabjit Kaur v. State of Punjab, (2023) 5
SCC 360] , observed that : (SCC p. 363, para 13)
"13. A breach of contract does not give rise to
criminal prosecution for cheating unless fraudulent or
dishonest intention is shown right at the beginning of
the transaction. Merely on the allegation of failure to
keep up promise will not be enough to initiate criminal
proceedings."
10. A two-Judge Bench of this Court
in ARCI v. Nimra Cerglass Technics (P)
Ltd. [ARCI v. Nimra Cerglass Technics (P) Ltd., (2016)
34
1 SCC 348 : (2016) 1 SCC (Cri) 269] , while
deliberating upon the difference between mere breach
of contract and the offence of cheating, observed that
the distinction depends upon the intention of the
accused at the time of the alleged incident. If
dishonest intention on the part of the accused can be
established at the time of entering into the transaction
with the complainant, then criminal liability would be
attached.
11. In Vijay Kumar Ghai v. State of W.B. [Vijay
Kumar Ghai v. State of W.B., (2022) 7 SCC 124 :
(2022) 2 SCC (Cri) 787] , one of us, (Krishna Murari
J.) observed in reference to earlier decisions as under
: (SCC pp. 139-40, paras 24-25)
"24. This Court in G. Sagar Suri v. State of
U.P. [G. Sagar Suri v. State of U.P., (2000) 2 SCC
636 : 2000 SCC (Cri) 513] observed that it is the
duty and obligation of the criminal court to exercise
a great deal of caution in issuing the process,
particularly when matters are essentially of civil
nature.
25. This Court has time and again cautioned
about converting purely civil disputes into criminal
cases. This Court in Indian Oil Corpn. [Indian Oil
Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 :
(2006) 3 SCC (Cri) 188] noticed the prevalent
impression that civil law remedies are time
consuming and do not adequately protect the
interests of lenders/creditors. The Court further
observed that : (Indian Oil Corpn. [Indian Oil
Corpn. v. NEPC India Ltd., (2006) 6 SCC 736: (2006)
3 SCC (Cri) 188] , SCC p. 749, para 13)
'13. ... Any effort to settle civil disputes and
claims, which do not involve any criminal offence, by
applying pressure through criminal prosecution
should be deprecated and discouraged.' "
12. Having regard to the above well-
established principles and also noting that the
present dispute is entirely with respect to
property and more particularly buying and
35
selling thereof, it cannot be doubted that a
criminal hue has been unjustifiably lent to a civil
natured issue.
13. In view of the above, the impugned
judgment and order dated 18-10-2019 [Kunti v. State
of U.P., 2019 SCC OnLine All 7183] passed by the
High Court of Judicature at Allahabad, refusing to
quash the FIR in question and Case No. 6695 of 2012
arising out of Case Crime No. 421 of 2012 under
Sections 406, 420, 467, 468, 417 and 418IPC bearing
No. 32337 of 2013 is set aside. The appeal is allowed."
(Emphasis supplied)
The Apex Court in the case of VIJAY KUMAR GHAI
(supra) has held that breach of agreement can never be
a subject matter of criminal law set into motion, as such
cases would be unjustifiably of a civil nature. In the
light of the facts obtaining in the case at hand, as
narrated hereinabove and the judgments rendered by
the Apex Court quoted supra, if further proceedings are
permitted to continue, it would undoubtedly become an
abuse of the process of law and result in miscarriage of
justice. The issue would be whether a FIR without
permitting investigation could be quashed in such
cases. This is also answered by the Apex Court in the
case of MITESH KUMAR J.SHA (supra) holding that
where the dispute is one of entirely civil nature, the
crime should not be permitted to be investigated even."
The Apex Court later in the case of LALIT CHATURVEDI v. STATE
OF UTTAR PRADESH4 has held as follows:
4
2024 SCC OnLine SC 171
36
"5. This Court, in a number of judgments, has
pointed out the clear distinction between a civil wrong
in the form of breach of contract, non-payment of
money or disregard to and violation of the contractual
terms; and a criminal offence under
Sections 420 and 406 of the IPC. Repeated judgments
of this Court, however, are somehow overlooked, and
are not being applied and enforced. We will be referring
to these judgments. The impugned judgment dismisses the
application filed by the appellants under Section 482 of
the Cr. P.C. on the ground of delay/laches and also the
factum that the chargesheet had been filed on 12.12.2019.
This ground and reason is also not valid."
(Emphasis supplied)
Again, the Apex Court in the case of NARESH KUMAR v. STATE
OF KARNATAKA5 has held as follows:
".... .... ....
8. Essentially, the present dispute between the parties
relates to a breach of contract. A mere breach of contract, by
one of the parties, would not attract prosecution for criminal
offence in every case, as held by this Court in Sarabjit
Kaur v. State of Punjab, (2023) 5 SCC 360. Similarly, dealing
with the distinction between the offence of cheating and a
mere breach of contractual obligations, this Court, in Vesa
Holdings (P) Ltd. v. State of Kerala, (2015) 8 SCC 293, has
held that every breach of contract would not give rise
to the offence of cheating, and it is required to be
shown that the accused had fraudulent or dishonest
intention at the time of making the promise.
9. In the case at hand, the dispute between the
parties was not only essentially of a civil nature but in this
5
2024 SCC OnLine SC 268
37
case the dispute itself stood settled later as we have already
discussed above. We see no criminal element here and
consequently the case here is nothing but an abuse of
the process. We therefore allow the appeal and set aside
the order of the High Court dated 02.12.2020. The criminal
proceedings arising out of FIR No. 113 of 2017 will hereby
stand quashed."
(Emphasis supplied)
The Apex Court in the afore-quoted judgments clearly holds that
prosecution should not be permitted on allegations of breach of
contract for the purpose of recovery of money.
12. In the light of the afore-quoted judgments, the
registration of crime is rendered unsustainable. While it is correct
that in a given case, on a given set of facts both civil and criminal
laws could be set into motion as there would be common
ingredients, which has a flavour of civil law and which has a rigour
of criminal law. These judgments are all relied on by the learned
senior counsel for the respondents.
13. Today the Apex Court holds that in a petition under
Section 482 of the Cr.P.C., this Court is permitted to exercise its
38
jurisdiction by reading the complaint between the lines as abuse of
the process of law has become rampant. The Apex Court in the case
of MAHMOOD ALI v. STATE OF UTTAR PRADESH6 has held as
follows:
".... .... ....
13. At this stage, we would like to observe
something important. Whenever an accused comes
before the Court invoking either the inherent powers
under Section 482 of the Code of Criminal
Procedure (CrPC) or extraordinary jurisdiction under
Article 226 of the Constitution to get the FIR or the
criminal proceedings quashed essentially on the
ground that such proceedings are manifestly frivolous
or vexatious or instituted with the ulterior motive for
wreaking vengeance, then in such circumstances the
Court owes a duty to look into the FIR with care and a
little more closely. We say so because once the
complainant decides to proceed against the accused
with an ulterior motive for wreaking personal
vengeance, etc., then he would ensure that the
FIR/complaint is very well drafted with all the
necessary pleadings. The complainant would ensure
that the averments made in the FIR/complaint are
such that they disclose the necessary ingredients to
constitute the alleged offence. Therefore, it will not
be just enough for the Court to look into the
averments made in the FIR/complaint alone for the
purpose of ascertaining whether the necessary
ingredients to constitute the alleged offence are
disclosed or not. In frivolous or vexatious
proceedings, the Court owes a duty to look into many
other attending circumstances emerging from the
record of the case over and above the averments and,
if need be, with due care and circumspection try to
read in between the lines. The Court while exercising
its jurisdiction under Section 482 of the CrPC or
Article 226 of the Constitution need not restrict itself
only to the stage of a case but is empowered to take
6
2023 SCC OnLine SC 950
39
into account the overall circumstances leading to the
initiation/registration of the case as well as the
materials collected in the course of investigation.
Take for instance the case on hand. Multiple FIRs
have been registered over a period of time. It is in the
background of such circumstances the registration of
multiple FIRs assumes importance, thereby attracting
the issue of wreaking vengeance out of private or
personal grudge as alleged.
14. In State of Andhra Pradesh v. Golconda Linga
Swamy, (2004) 6 SCC 522, a two-Judge Bench of this Court
elaborated on the types of materials the High Court can
assess to quash an FIR. The Court drew a fine distinction
between consideration of materials that were tendered as
evidence and appreciation of such evidence. Only such
material that manifestly fails to prove the accusation in the
FIR can be considered for quashing an FIR. The Court
held:--
"5. ...Authority of the court exists for advancement
of justice and if any attempt is made to abuse that
authority so as to produce injustice, the court has power to
prevent such abuse. It would be an abuse of the process of
the court to allow any action which would result in injustice
and prevent promotion of justice. In exercise of the powers
court would be justified to quash any proceeding if it finds
that initiation or continuance of it amounts to abuse of the
process of court or quashing of these proceedings would
otherwise serve the ends of justice. When no offence is
disclosed by the complaint, the court may examine the
question of fact. When a complaint is sought to be
quashed, it is permissible to look into the materials
to assess what the complainant has alleged and
whether any offence is made out even if the
allegations are accepted in toto.
6. In R.P. Kapur v. State of Punjab, AIR 1960 SC
866 : 1960 Cri LJ 1239, this Court summarised some
categories of cases where inherent power can and should
be exercised to quash the proceedings : (AIR p. 869, para
6)
(i) where it manifestly appears that there is a legal bar
against the institution or continuance e.g. want of
sanction;
(ii) where the allegations in the first information report or
complaint taken at its face value and accepted in their
entirety do not constitute the offence alleged;
40
(iii) where the allegations constitute an offence, but
there is no legal evidence adduced or the evidence
adduced clearly or manifestly fails to prove the
charge.
7. In dealing with the last category, it is
important to bear in mind the distinction between a
case where there is no legal evidence or where there
is evidence which is clearly inconsistent with the
accusations made, and a case where there is legal
evidence which, on appreciation, may or may not
support the accusations. When exercising
jurisdiction under Section 482 of the Code, the High
Court would not ordinarily embark upon an enquiry
whether the evidence in question is reliable or not or
whether on a reasonable appreciation of it
accusation would not be sustained. That is the
function of the trial Judge. Judicial process, no doubt
should not be an instrument of oppression, or, needless
harassment. Court should be circumspect and judicious in
exercising discretion and should take all relevant facts and
circumstances into consideration before issuing process,
lest it would be an instrument in the hands of a private
complainant to unleash vendetta to harass any person
needlessly. At the same time the section is not an
instrument handed over to an accused to short-circuit a
prosecution and bring about its sudden death....."
(Emphasis supplied)
15. In the result, this appeal succeeds and is hereby
allowed. The impugned order passed by the High Court of
Judicature at Allahabad is hereby set aside. The criminal
proceedings arising from FIR No. 127 of 2022 dated
04.06.2022 registered at Police Station Mirzapur,
Saharanpur, State of U.P. are hereby quashed."
(Emphasis supplied)
This Court in the case of PATEL ENGINEERING LIMITED VS.
STATE7, following the judgments of the Apex Court, has held as
follows:
7
Criminal Petition No.6513 of 2024, disposed on 06th August, 2024
41
"14. .........
The Apex Court holds that when petitions are filed under
Section 482 of the Cr.P.C., or under Article 226 of the
Constitution to get the FIR quashed, essentially on the
ground that it is either frivolous, vexatious or
instituted with ulterior motives to wreak vengeance or
civil disputes or commercial transactions are projected
to be a crime, the Court while exercising its
jurisdiction under Article 482 of the Cr.P.C., should not
restrict itself only to such of the cases, but is
empowered to take into account overall circumstances
and answer whether the crime should be permitted to
be investigated into or not.
15. In the light of the afore-elucidated law by the Apex
Court, I deem it appropriate to exercise the jurisdiction
under Section 482 of the Cr.P.C. and obliterate the
Damocles sword that hangs on the head of these
petitioners, in the light of the fact that a pure
commercial transaction or breach of an agreement
between the parties is sought to be given a colour of
crime; added to the fact that the signatory to all the
documents, the 2nd petitioner is no more."
(Emphasis supplied)
14. For the aforesaid reasons, the following:
ORDER
(i) Writ Petition is allowed.
(ii) FIR in Crime No.34 of 2023, registered by Cubbon Park
Police Station, Bengaluru and pending before the III
42
Additional Chief Metropolitan Magistrate, Bengaluru
stands quashed.
(iii) It is made clear that the observations made in the
course of the order are only for the purpose of
consideration of the case of petitioners under Section
482 of Cr.P.C. and the same shall not bind or influence
the proceedings pending before any other fora between
the same parties.
Sd/-
(M.NAGAPRASANNA)
JUDGE
nvj
CT:MJ
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