Gujarat High Court
Zee Entertainment Enterprises Ltd vs State Of Gujarat on 6 August, 2025
NEUTRAL CITATION
R/CR.MA/12605/2013 ORDER DATED: 06/08/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 12605 of 2013
==========================================================
ZEE ENTERTAINMENT ENTERPRISES LTD & ANR.
Versus
STATE OF GUJARAT & ORS.
==========================================================
Appearance:
MR DIGANT M POPAT(5385) for the Applicant(s) No. 2
MR. AADIT R SANJANWALA(9918) for the Applicant(s) No. 1
MR DIPAN DESAI(2481) for the Respondent(s) No. 2
MR. SOAHAM JOSHI, APP for the Respondent(s) No. 1
RULE SERVED for the Respondent(s) No. 3
==========================================================
CORAM:HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 06/08/2025
ORAL ORDER
1. Heard learned advocate Mr. Aadit R. Sanjanwala for the
petitioner, learned advocate Mr. Dipan Desai for respondent No.2,
and the learned APP for the respondent-State.
2. By way of the present petition, petitioners have prayed for the
following reliefs:-
“a) YOUR LORDSHIPS may be pleased to exercise the
powers under Section 482 of Code of Criminal Procedure,
1973 and thereby be pleased to quash Private Criminal Case
No.1 of 2013 filed by the Respondent No.2 before the
learned Metropolitan Magistrate, Court No.2, Ahmedabad
(Annexure A to the present petition) as well as the order
dated 1.2.2013 passed by the learned Metropolitan
Magistrate, Court No.2, Ahmedabad directing inquiry under
Section 202 of the Code of Criminal Procedure, 1973;
(aa) YOUR LORDSHIPS may be pleased to quash and set
aside the order dated 2.8.2013 passed by the learned
Metropolitan Magistrate in Criminal Case No.85 of 2013Page 1 of 25
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whereby the learned Magistrate ordered issuance of Non-
Bailable Warrants against the applicants;
(b)During the pendency and final disposal of this
application, YOUR LORDSHIPS may be pleased to stay all
further proceedings in connection with Private Criminal
Case No.1 of 2013 filed by the Respondent No.2 before the
learned Metropolitan Magistrate, Court No.2, Ahmedabad,
and be further pleased to stay the operation, implementation
and execution of the order dated 1.2.2013 passed by the
learned Metropolitan Magistrate, Court No.2,
Ahmedabad;
bb) During the pendency and final hearing of this petition,
YOUR LORDSHIPS may be pleased to stay the operation,
implementation and execution of the order dated 2.8.2013
passed by the learned Metropolitan Magistrate in Criminal
Case No.85 of 2013 whereby the learned Magistrate ordered
issuance of Non-Bailable Warrants against the applicants in
the facts and circumstances of the case;”
BRIEF FACTS OF THE CASE ARE AS UNDER:-
3. The case has its genesis in an alleged purchase by Respondent
No.2 in November 1993 of 1,600 equity shares of ₹10 each of the
Applicant No.1 Company (subsequently subdivided into 16,000
shares of ₹1 each) through a stockbroker, Tradeco International. The
said shares, along with duly signed transfer deeds, were allegedly
lost in transit, leading the Complainant – Respondent No.2 to
institute Civil Suit No.451 of 1995 before the learned City Civil
Court, Ahmedabad, seeking an injunction restraining the Company
from transferring the shares. By order dated 14.07.1995, a permanent
injunction was granted. Notably, prior to the suit and the injunction
order, 100 of the said shares (post-subdivision, 1,000 shares of ₹1
each – “suit shares”) had already been transferred on 22.04.1994 to
Respondent No.3 on the basis of a transfer deed stamped on
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09.11.1993 and executed on 13.12.1993.
3.1. Subsequent proceedings ensued, including Civil Suit No.2215
of 1997 seeking issuance of duplicate shares, which was dismissed
for want of jurisdiction. The Complainant thereafter approached the
Company Law Board, Western Region Bench, Mumbai, culminating
in a consent order dated 10.02.2006 for issuance of 13,000 shares to
Respondent No.2, with 1,000 suit shares to remain in the safe
custody of the Company pending adjudication of ownership. The
petition filed by Respondent No.2 against Respondent No.3 in
respect of the suit shares was dismissed by the CLB on 20.06.2007.
The Complainant’s OJ Appeal No.202 of 2007 before the High
Court of Gujarat was withdrawn on 23.08.2012 to enable
proceedings before the Bombay High Court, with the interim
injunction continuing till 10.09.2012.
3.2. Upon expiry of the interim protection and no further appeal
being filed before the Bombay High Court, Respondent No.3 sought
release of the suit shares. The Applicant No.1 Company, following
due diligence, sought objections from Respondent No.2, who
objected while stating that further legal proceedings were being
initiated. When directed by the Company on 14.12.2012 to produce
an appropriate court order by 31.12.2012 failing which the suit
shares would be issued to Respondent No.3, Respondent No.2
instead lodged Criminal Case No.1 of 2013 on 01.01.2013 alleging
offences under Sections 406, 409, 420 and 120-B IPC. In the said
complaint, process was issued and even a non-bailable warrant came
to be passed, leading to the present petition under Section 482 CrPC
for quashing of the criminal proceedings.
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SUBMISSION OF THE PETITIONER:-
4. Learned advocate for the petitioner submitted that the dispute
in question is essentially a private civil dispute between respondent
No.2 and respondent No.3. According to the complaint filed by
respondent No.2 before the learned Trial Court, he had purchased
1,600 equity shares of ₹10 each of Zee Entertainment Enterprises
Ltd. & Anr. from open stock market. Subsequently, said shares,
which have since appreciated to 16,000 shares due to corporate
actions were sent for transfer with duly signed transfer form.
4.1. It was contended that during the course of the transaction, a
substantial portion of the shares were lost. Thereafter, a civil suit
being Civil Suit No. 451 of 1995 was instituted by the complainant
before the City Civil Court, Ahmedabad, seeking an injunction
against the transfer of the shares allegedly lost in the transaction.
The said court granted an interim injunction in favour of the
complainant. In addition, proceedings were also initiated before the
Company Law Board, Mumbai, being Company Petition No.
21/111A/CLB/WR/2006 for issuance of duplicate share certificates.
4.2. Learned advocate for the petitioner further submitted that a
settlement was arrived at between the parties, whereby it was agreed
that certain shares would be issued in favour of the petitioner as also
to keep 1000 share in abeyance till ownership issue is not resolved.
It is submitted that the entirety of the proceedings and documents on
record clearly reveal that the dispute, in substance, is of a civil
nature, and no element of criminality can be attributed to the
petitioner, who is a public limited company, not a party to the
original transaction, but merely a issuing company, shares of which
were traded by a respondent No.2 and respondent No.3 and now
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become pursuit of dispute.
4.3. It is further submitted that the transaction in question
essentially pertains to a commercial transfer of shares between
respondent No.2 and respondent No.3. As per the terms of the
settlement recorded before the Company Law Board, it was agreed
that 14,000 equity shares of ₹1 each would be issued, of which
13,000 shares were to be issued to the complainant, and 1,000 shares
were retained in custody due to objections raised by Homi Mehta
Sons Pvt. Ltd., claiming ownership of the shares. The retention of
these shares was subject to adjudication in ongoing litigation.
4.4. The learned advocate for the petitioner further referred to
Annexure-D to demonstrate that the petitioner’s claim was
subsequently denied by the Company Law Board. In nutshell it is
argued that petitioner company had not been entrusted any property
by the respondent dominance of which lying with petitioner
company. He would submit that on going dispute of ownership of
share is fairly going between private respondents, which does not
attract offence under Sections 406 and 420 of the IPC. In support of
his submissions, learned advocate placed reliance on the decision of
the Hon’ble Supreme Court in Delhi Race Club (1940) Ltd. v.
State of Uttar Pradesh [2024 INSC 626], and accordingly prayed
that the present petition be allowed and the impugned criminal
proceedings be quashed.
SUBMISSION OF THE RESPONDENTS:-
5. On the other hand, learned advocate Mr. Dipan Desai for
respondent No.2 opposed the submissions advanced on behalf of the
petitioner. He took this Court through the sequence of litigation
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between the parties and submitted that, as per the settlement deed,
the complainant was assured the allotment of 14,000 equity shares.
However, while 13,000 shares were admittedly issued, the remaining
1,000 shares were not allotted by Zee Entertainment Enterprises
Ltd., which reneged on the agreed terms.
5.1. It was further submitted that when the complainant approached
the Company Law Board seeking appropriate relief, he was
informed that his claim was barred by the law of limitation. It is
submitted that by settlement deed Zee Entertainment Enterprises
Ltd. since agreed to issue 14000 equity shares, fell short to its
promise by not issuing 1000 equity share, is an offence attracting
criminal breach of trust and cheating. In view of the aforesaid, the
learned advocate appearing for respondent No.2 urged that the
present petition deserves to be dismissed.
6. Learned APP for the State while adopting the submissions
advanced on behalf of respondent No.2, also prayed for dismissal of
the petition.
FINDINGS, ANALYSIS AND CONCLUSION OF THE
COURT:-
7. I have heard the learned advocates appearing for both sides
and, upon due consideration of the documents on record, the
following facts emerges. According to the complainant, he had
purchased 1,600 equity shares of ₹10/- each of Zee Entertainment
Enterprises Ltd. & Anr., which have since been apportioned into
16,000 equity shares of ₹1/- each, from the open market vide Bill
No. 61. These shares were sent for transfer along with signed
transfer form. However, they have been lost in transit
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7.1. Subsequently, Civil Suit No. 451 of 1995 came to be instituted
before the City Civil Court, Ahmedabad by the petitioner. In the said
proceedings, none appeared to contest the suit, and in the given facts
and circumstances, the Civil Court granted an injunction restraining
the transfer of the aforesaid 1,600 equity shares.
7.2. Another suit was unsuccessfully filed by respondent No.2 to
get back these shares. This suit is dismissed on the ground of lacking
inherent jurisdiction.
7.3. Being so advised, the complainant thereafter approached the
Company Law Board, Mumbai. During the proceedings before the
Company Law Board, a settlement came to be arrived at between
Zee Entertainment Enterprises Ltd. & Anr. and M/s. Mittal
Investment. Under the terms of the said settlement, it was agreed that
14,000 equity shares of ₹1/- each shall be allotted to the petitioners.
Of these, 13,000 shares were to be issued forthwith, whereas the
issuance of the remaining 1,000 shares was to be kept in abeyance
owing to a dispute regarding their ownership, an objection having
been raised by Homi Mehta Sons Pvt. Ltd.
8. The Indenture of Settlement, inter alia, stipulates as under:–
“1. ZTL has agreed to issue and MI has agreed to accept
duplicate share certificates for 14,000 Equity Shares of Re. 1
each of ZTL, including 1000 equity shares of Re.1 each on
which objection received from the one shareholder namely
M/s. Homi Mehta & Sons Pvt. Ltd., from ZTL as full and
final settlement of entire claims relating to lost shares being
1600 equity shares of ZTL of Rs. 10 each (which on sub-
division shall be converted to 16000 equity shares of Re. 1Page 7 of 25
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each) of whatsoever nature now or in future from ZTL to
MI. The Mi shall acknowledges and accepts that out of the
said. 14000 equity shares of Re. 1 each issued in its favor of
MI, ZTL shall retain custody of 1000 equity shares of Re. 1
each on which objections were raised by M/s. Homi Mehta
& Sons Pvt. Ltd and mark stop transfer thereon, to enable
MI and M/s and Homi Mehta & Sons Pvt. Ltd to file suits/
petition for obtaining order confirming their ownership
thereon.
2. MI has agreed to waive off all claims, rights
whatsoever in connection with with balance 2000 Equity
Shares of Re.1 each of 2TL and shall not have any claim
against the said 2000 Equity Shares of Re. 1 each of
whatsoeve nature in respect thereof now or in future.
3. MI further indemnifies ZTL for all liabilities, cost,
charges, expenses and claims of whatsoever nature, now or
in future, that it may have to bear in connection with issue of
duplicate certificate for 1000 shares of Re. 1 each of ZTL on
which objection has been raised by M/s. Homi & Sons Pvt.
Ltd MI shall immediately file consent terms/Withdrawal
Application and withdraw or get disposed off all the matters
filed before Hon’ble Company Law Board, Western Region
Bench; City Civil Court and High Court and /or any other
proceeding in any other Court, if pending on the same
subject matter. TL shall simultaneously upon the receipt of
the orders of withdrawal from all the concerned courts,
handover duplicate shares certificates for 13000 shares of
Re. 1 each along with dividends due thereon, not transferred
to Investor Education and Protection Fund in accordance
with the provisions of the Companies Act, 1956, to MI.
4. MI shall in accordance with terms of this agreement;
file consent terms/withdrawal application in Company Law
Board, City Civil Court, High Court and any other court
where proceedings have been initiated by MI and obtain
withdrawal orders or orders in accordance with. this consent
terms from Hon’ble Courts and Board. MI and his advocate
shall extend all their co-operation and support in disposing
off all the matters unconditionally.
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5. The issuance of the aforesaid Equity shares shall be in
satisfaction of all the costs, damages, interest, value of
shares and also the costs of filing the aforesaid
Suits/Petitions, if any, as claimed by MI against ZTL in any
suits)/ case(s)/ proceeding(s) and the same shall be waived
off by MI against ZTL on receipt of 14,000/- Equity Shares
of Re.1 each herein.
7. MI hereby agrees, assures and confirms TL that MI
shall not institute any further Suits(s), Petition(s),
Complaint(s), Appeal(s) or any legal proceeding(s) on
account of any claims or debts and / or damages, interest and
/ or for any other reason relating to the aforesaid lost shares
against ZTL.
8. MI hereby further represent, assure and confirm that
save and except the aforesaid Cases before Company Law
Board, City Civil Court and High Court mentioned in this
agreement, they have not filed / instituted any other suits(s),
Petition(s), complaint(s), Appeal(s) and / or any legal
proceedings of whatsoever and howsoever nature and /or
pending adjudication against ZTL before any court(s) /
Tribunal (s) /Forum (s) as on date of the execution of this
agreement.
9. On receipt of transfer of 14,000 equity shares of Re.1
each, MI shall release TL from and against any claims, dues,
if any, and no disputes and / or differences exist between the
parties hereto in respect of the shares under any Complaints),
Application(s), Petition(s), Suit(s),:Appeals) or any other
Proceeding(s) and all such claims dues, disputes and / or
differences shall be deemed to have been fully and finally
settled between the parties hereto and this Settlement
Agreement shall supersede all previous communication(s),
affidavit(s), application(s) & complaints) etc: taken place
between the parties:
10. The parties hereto do hereby agree to give full co-
operation and assistance to each other to give effect to the
terms and intents of this agreement and MI undertakes to
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sign / file the necessary Consent Terms/withdrawal
applications before the aforesaid Hon’ble Court(s) in
accordance with the provisions of law in the aforementioned
case beforeCompany Law Board for withdrawal of the case.”
9. The record indicates that since 1000 share kept in abeyance
was not issued in favour of petitioner, vide Annexure-D, Company
Petition No. 21/111A/CLB/WR/2006 came to be instituted by M/s.
Mittal Investment. In paragraph 5 thereof, the learned Member of the
Company Law Board has recorded the reasons for bringing the
proceedings to a close by dismissing the same, which are reproduced
hereinbelow:–
“5. The case of the petitioner in the present petition is that it sent
1600 shares (now 16,000 shares)to the Company alongwith the
transfer deed for transfer in its name. The said transfer deeds
alongwith the share certificates were lost in transit. However, the
petitioner was not able to produce any copy of the fiR loda
Wanteoice for lost in reque regarding purchase 1600 shares but
there is nothing mentioned in the Bill which can show that the
petitioner purchased the impugned shares since no distinctive
numbers have been mentioned in the Bill. In C.P.No.28/111A/2005
filed by the petitioner claiming over 2000 shares a consent term
was filed between the petitioner and the Company to settle the
dispute amicably. As per the settlement the Company was to issue
13,000 shares to the petitioner and the petitioner was to withdraw
the suit filed by it at Ahmedabad in the year 1995. As per the
settlement the Company issued 13,000 equity shares to the
petitioner and the petitioner withdrew all the proceedings against
the Company Though the petitioner had claimed that it had
purchased the impugned shares in T993 but it failed to file any
petition before the CLB under Sec. 111A of the Companies Act
within three years as provided under Article 137 of the Limitation
Act, from that date. The petitioner has also not filed any separate
application to condone the delay in filing the present petition. As
such I am of the view that the petition is barred by time. The
Company has transferred the impugned shares in the year 1994Page 10 of 25
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based on the transfer deed and other documents submitted by the
Respondent No.2. The petitioner has not challenged this transfer
for a long period. As such I am of the view that the Respondent No
2 is the rightful owner of the impugned shares. The petition is
accordingly dismissed and no order to cost.”
10. It is noteworthy that, apart from adverting to Article 137 of the
Limitation Act, the learned Member of the Company Law Board has
also dealt with certain factual aspects while closing the proceedings.
In the aforesaid backdrop, the private complaint came to be
instituted. Even if the averments made in the said complaint are
taken at their face value, they disclose nothing beyond a mere breach
of the terms and conditions of the agreement. Such a breach, by
itself, does not constitute a criminal offence so as to warrant the
invocation of criminal jurisdiction. At the most, it may give rise to
civil proceedings — a remedy which the complainant has, in fact,
already pursued.
10.1. It is noticeable that the order passed by Company Law Board
has been challenged by filing OJ Appeal No.202 of 2007 before
Gujarat High Court. This Court has not entertained petition on the
ground of lacking territorial jurisdiction. Petitioner thereafter did not
pursue his litigation / remedy elsewhere but chooses to file criminal
complaint. According to this Court, by filing criminal complaint,
petitioner has converted civil litigation into criminal action. Filing of
complaint by the petitioner is hopeless and malicious attempt after
loosing dispute at all civil front.
11. The Hon’ble Supreme Court in Radheshyam v. State of
Rajasthan, 2024 SCC OnLine SC 2311 observed that breach of
terms and conditions of agreement does not attract offence under
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Sections 406 and 420 of the IPC, held as under:-
“6. As already indicated above, a perusal of the complaint
which has been registered as the FIR does not spell out any
element or ingredient of cheating or breach of trust. Mere
non-performance of an Agreement to Sell by itself does not
amount to cheating and breach of trust. Respondent no. 2 has
adequate remedy of filing a Civil Suit for relief of specific
performance of a contract which he has already availed and
the suit is still pending. The FIR only appears to be an arm-
twisting mechanism to pressurise the appellants to execute
the Sale Deed or to extract money. Every civil wrong cannot
be converted into a criminal wrong. As we find in the
present case, respondent no. 2 is trying to abuse the criminal
machinery for ulterior motives. It is not his case that the
appellants duped him to pay the advance amount and entered
into an Agreement to Sell. The High Court fell in error in
recording a finding that the ingredients of offences under
sections 420 and 406 of IPC are present in the instant case.
7. Section 420, IPC provides that:
“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.”
For an offence under Section 420, IPC, the following
ingredients must be present:
i. Cheating as defined under Section 415, IPC, that is, there
should be a fraudulent or dishonest inducement of a person;
ii. An intention to deceive; and
iii. 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.
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8. Thus, cheating forms an essential ingredient to constitute
and offence under Section 420, IPC. Further, to constitute
cheating as defined under Section 415, IPC, it is necessary
that a fraudulent or dishonest inducement is done and the
deceived person is made to deliver any property owing to the
fraud. Section 415, IPC, defines’cheating’, as:
“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”.”
9. From the bare perusal of the FIR, it is evident that there
was no act of cheating, that is, the complainant was nowhere
fraudulently induced or dishonestly deceived by the
appellants. A commercial transaction took place between the
parties during which the parties consensually agreed for the
sale of the property of the appellants and respondent no. 2
paid the part consideration. The default in payment of their
loan dues on part of the appellants is not reflective of their
deceitful intention towards the complainant. Mere non-
registration of the sale or its refusal cannot amount to
cheating. The delivery of the advance payment towards
consideration was made in furtherance of an Agreement to
Sell and it is not the case of the respondent that he was in
anyway deceived or duped to make such payments to the
appellants. It is a civil dispute and gives rise to the
complainant’s right to resort to the remedies provided under
civil law by filing a suit for specific performance.
10. Additionally, the appellants have also been accused of
committing the offence of criminal breach of trust under
Section 406, IPC. This offence is defined under Section 405,
IPC as follows:
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“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 off 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”.”
11. For an offence punishable under Section 406, IPC, the
following ingredients must exist:
i. The accused was entrusted with property, or entrusted with
dominion over property;
ii. The accused had dishonestly misappropriated or
converted to their own use that property, or dishonestly used
or disposed of that property or wilfully suffer any other
person to do so; and
iii. Such misappropriation, conversion, use or disposal
should be in violation of any direction of law prescribing the
mode in which such trust is to be discharged, or of any legal
contract which the person has made, touching the discharge
of such trust.
12. In the present case, the appellants were not entrusted
with any property by respondent no. 2 – complainant. The
only delivery made was of part payment towards an
Agreement to Sell between the parties. The amount paid
towards consideration cannot be said to have been entrusted
with the appellants by respondent no. 2. Additionally,
merely because the appellants are refusing to register the
sale, it does not amount to misappropriation of the advance
payment. Since there was no entrustment of property, the
offence of misappropriation of such property and thereby
criminal breach of trust cannot be said to be made out.”
12. Hon’ble Apex Court recently examined the issue in the case of
Delhi Race Club (1940) Ltd. (supra). The finding and observation
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of Hon’ble Apex Court are in para 24 to 41, which reads as under :
“24. This Court in its decision in S.W. Palanitkar & Ors. v.
State of Bihar & Anr. reported in (2002) 1 SCC 241
expounded the difference in the ingredients required for
constituting an of offence of criminal breach of trust (Section
406 IPC) viz-a-viz the offence of cheating (Section 420).
The relevant observations read as under: –
“9. The ingredients in order to constitute a criminal breach of
trust are: (i) entrusting a person with property or with any
dominion over property, (ii) that person entrusted (a)
dishonestly misappropriating or converting that property to
his own use; or (b) dishonestly using or disposing of that
property or wilfully suffering any other person so to do in
violation (i) of any direction of law prescribing the mode in
which such trust is to be discharged, (ii) of any legal contract
made, touching the discharge of such trust.
10. The ingredients of an offence of cheating are: (i) there
should be fraudulent or dishonest inducement of a person by
deceiving him, (ii)(a) the person so deceived should be
induced to deliver any property to any person, or to consent
that any person shall retain any property; or (b) the person so
deceived should be intentionally induced to do or omit to do
anything which he would not do or omit if he were not so
deceived; and (iii) in cases covered by (ii)(b), the act
of omission should be one which causes or is likely to cause
damage or harm to the person induced in body, mind,
reputation or property.”
25. What can be discerned from the above is that the
offences of criminal breach of trust (Section 406 IPC) and
cheating (Section 420 IPC) have specific ingredients. In
order to constitute a criminal breach of trust (Section
406 IPC): –
1) There must be entrustment with person for property or
dominion over the property, and
2) The person entrusted: –
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a) dishonestly misappropriated or converted property to his
own use, or
b) dishonestly used or disposed of the property or willfully
suffers any other person so to do in violation of:
i. any direction of law prescribing the method in which the
trust is discharged; or ii. legal contract touching the
discharge of trust (see: S.W.P. Palanitkar (supra).
Similarly, in respect of an offence under Section 420 IPC,
the essential ingredients are: –
1) deception of any person, either by making a false or
misleading representation or by other action or by omission;
2) fraudulently or dishonestly inducing any person to deliver
any property, or
3) the consent that any persons shall retain any property and
finally intentionally inducing that person to do or omit to do
anything which he would not do or omit (see: Harmanpreet
Singh Ahluwalia v. State of Punjab, (2009) 7 SCC 712 :
(2009) Cr.L.J. 3462 (SC))
26. Further, in both the aforesaid sections, mens rea i.e.
intention to defraud or the dishonest intention must be
present, and in the case of cheating it must be there from the
very beginning or inception.
27. In our view, the plain reading of the complaint fails to
spell out any of the aforesaid ingredients noted above. We
may only say, with a view to clear a serious misconception
of law in the mind of the police as well as the courts below,
that if it is a case of the complainant that offence of criminal
breach of trust as defined under Section 405 of IPC,
punishable under Section 406 of IPC, is committed by the
accused, then in the same breath it cannot be said that the
accused has also committed the offence of cheating as
defined and explained in Section 415 of the IPC, punishable
under Section 420 of the IPC.
28. Every act of breach of trust may not result in a penal
offence of criminal breach of trust unless there is evidence of
manipulating act of fraudulent misappropriation. An act of
breach of trust involves a civil wrong in respect of which thePage 16 of 25
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person may seek his remedy for damages in civil courts but,
any breach of trust with a mens rea, gives rise to a criminal
prosecution as well. It has been held in Hari Prasad
Chamaria v. Bishun Kumar Surekha & Ors., reported in
(1973) 2 SCC 823 as under:
“4. We have heard Mr. Maheshwari on behalf of the
appellant and are of the opinion that no case has been made
out against the respondents under Section 420 Penal Code,
1860. For the purpose of the present appeal, we would
assume that the various allegations of fact which have been
made in the complaint by the appellant are correct. Even
after making that allowance, we find that the complaint does
not disclose the commission of any offence on the part of the
respondents under Section 420 Penal Code, 1860. There is
nothing in the complaint to show that the respondents had
dishonest or fraudulent intention at the time the appellant
parted with Rs. 35.000/- There is also nothing to indicate
that the respondents induced the appellant to pay them Rs.
35,000/- by deceiving him. It is further not the case of the
appellant that a representation was made, the respondents
knew the same to be false. The fact that the respondents
subsequently did not abide by their commitment that they
would show the appellant to be the proprietor of Drang
Transport Corporation and would also render accounts to
him in the month of December might create civil liability on
the respondents for the offence of cheating.”
29. To put it in other words, the case of cheating and
dishonest intention starts with the very inception of the
transaction. But in the case of criminal breach of trust, a
person who comes into possession of the movable property
and receives it legally, but illegally retains it or converts it to
his own use against the terms of the contract, then the
question is, in a case like this, whether the retention is with
dishonest intention or not, whether the retention involves
criminal breach of trust or only a civil liability would depend
upon the facts of each case.
30. The distinction between mere breach of contract and the
offence of criminal breach of trust and cheating is a fine one.
In case of cheating, the intention of the accused at the time
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of inducement should be looked into which may be judged
by a subsequent conduct, but for this, the subsequent
conduct is not the sole test. Mere breach of contract cannot
give rise to a criminal prosecution for cheating unless
fraudulent or dishonest intention is shown right from the
beginning of the transaction i.e. the time when the offence is
said to have been committed. Therefore, it is this intention,
which is the gist of the offence. Whereas, for the criminal
breach of trust, the property must have been entrusted to the
accused or he must have dominion over it. The property in
respect of which the offence of breach of trust has been
committed must be either the property of some person other
than the accused or the beneficial interest in or ownership’ of
it must be of some other person. The accused must hold that
property on trust of such other person. Although the offence,
i.e. the offence of breach of trust and cheating involve
dishonest intention, yet they are mutually exclusive and
different in basic concept. There is a distinction between
criminal breach of trust and cheating. For cheating, criminal
intention is necessary at the time of making a false or
misleading representation i.e., since inception. In criminal
breach of trust, mere proof of entrustment is sufficient. Thus,
in case of criminal breach of trust, the offender is lawfully
entrusted with the property, and he dishonestly
misappropriated the same. Whereas, in case of cheating, the
offender fraudulently or dishonestly induces a person by
deceiving him to deliver any property. In such a situation,
both the offences cannot co-exist simultaneously.
31. At the most, the court of the Additional Chief Judicial
Magistrate could have issued process for the offence
punishable under Section 420 of the IPC i.e. cheating but in
any circumstances no case of criminal breach of trust is
made out. The reason being that indisputably there is no
entrustment of any property in the case at hand. It is not even
the case of the complainant that any property was lawfully
entrusted to the appellants and that the same has been
dishonestly misappropriated. The case of the complainant is
plain and simple. He says that the price of the goods sold by
him has not been paid. Once there is a sale, Section 406 of
the IPC goes out of picture. According to the complainant,
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the invoices raised by him were not cleared. No case worth
the name of cheating is also made out.
32. Even if the Magistrate would have issued process for the
offence punishable under Section 420 of the IPC, i.e.,
cheating the same would have been liable to be quashed and
set aside, as none of the ingredients to constitute the offence
of cheating are disclosed from the materials on record.
33. It has been held in State of Gujarat v. Jaswantlal
Nathalal reported in (1968) 2 SCR 408, “The term
“entrusted” found in Section 405 IPC governs not only the
words “with the property” immediately following it but also
the words “or with any dominion over the property”
occurring thereafter–see Velji Raghvaji Patel v. State of
Maharashtra [(1965) 2 SCR 429]. Before there can be any
entrustment there must be a trust meaning thereby an
obligation annexed to the ownership of property and a
confidence reposed in and accepted by the owner or declared
and accepted by him for the benefit of another or of another
and the owner. But that does not mean that such an
entrustment need conform to all the technicalities of the law
of trust — see Jaswantrai Manilal Akhaney v. State of
Bombay [1956 SCR 483]. The expression “entrustment”
carries with it the implication that the person handing over
any property or on whose behalf that property is handed over
to another, continues to be its owner. Further the person
handing over the property must have confidence in the
person taking the property so as to create a fiduciary
relationship between them. A mere transaction of sale cannot
amount to an “entrustment””.
34. Similarly, in Central Bureau of Investigation, SPE,
SIU(X), New Delhi v. Duncans Agro Industries Ltd.,
Calcutta reported in (1996) 5 SCC 591 this Court held that
the expression “entrusted with property” used in Section
405 of the IPC connotes that the property in respect of which
criminal breach of trust can be committed must necessarily
be the property of some person other than the accused or that
the beneficial interest in or ownership thereof must be in the
other person and the offender must hold such property in
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trust for such other person or for his benefit. The relevant
observations read as under: –
“27. In the instant case, a serious dispute has been raised by
the learned counsel appearing for the respective parties as to
whether on the face of the allegations, an offence of criminal
breach of trust is constituted or not. In our view, the
expression “entrusted with property” or “with any dominion
over property” has been used in a wide sense in Section
405 IPC. Such expression includes all cases in which goods
are entrusted, that is, voluntarily handed over for a specific
purpose and dishonestly disposed of in violation of law or in
violation of contract. The expression ‘entrusted’ appearing
in Section 405 IPC is not necessarily a term of law. It has
wide and different implications in different contexts. It is,
however, necessary that the ownership or beneficial interest
in the ownership of the property entrusted in respect of
which offence is alleged to have been committed must be in
some person other than the accused and the latter must hold
it on account of some person or in some way for his benefit.
The expression ‘trust’ in Section 405 IPC is a
comprehensive expression and has been used to denote
various kinds of relationships like the relationship of trustee
and beneficiary, bailor and bailee, master and servant,
pledger and pledgee. When some goods are hypothecated by
a person to another person, the ownership of the goods still
remains with the person who has hypothecated such goods.
The property in respect of which criminal breach of trust can
be committed must necessarily be the property of some
person other than the accused or the beneficial interest in or
ownership of it must be in the other person and the offender
must hold such property in trust for such other person or for
his benefit. In a case of pledge, the pledged article belongs to
some other person but the same is kept in trust by the
pledgee. […]” (Emphasis supplied)
35. The aforesaid exposition of law makes it clear that there
should be some entrustment of property to the accused
wherein the ownership is not transferred to the accused. In
case of sale of movable property, although the payment may
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as per Sections 20 and 24 respectively of the Sale of Goods
Act, 1930.
“20. Specific goods in a deliverable state. — Where there is
an unconditional contract for the sale of specific goods in a
deliverable state, the property in the goods passes to the
buyer when the contract is made and it is immaterial whether
the time of payment of the price or the time of delivery of
goods, or both, is postponed.
xxx xxx xxx
24. Goods sent on approval or “on sale or return”. — When
goods are delivered to the buyer on approval or “on sale or
return” or other similar terms, the property therein passes to
the buyer–(a) when he signifies his approval or acceptance
to the seller or does any other act adopting the transaction;
(b) if he does not signify his approval or acceptance to the
seller but retains the goods without giving notice of
rejection, then, if a time has been fixed for the return of the
goods on the expiration of such time, and, if no time has
been fixed, on the expiration of a reasonable time.”
36. From the aforesaid, there is no manner of any doubt
whatsoever that in case of sale of goods, the property passes
to the purchaser from the seller when the goods are
delivered. Once the property in the goods passes to the
purchaser, it cannot be said that the purchaser was entrusted
with the property of the seller. Without entrustment of
property, there cannot be any criminal breach of trust. Thus,
prosecution of cases on charge of criminal breach of trust,
for failure to pay the consideration amount in case of sale of
goods is flawed to the core. There can be civil remedy for
the non-payment of the consideration amount, but no
criminal case will be maintainable for it. [See : Lalit
Chaturvedi and Others v. State of Uttar Pradesh and
Another : 2024 SCC OnLine SC 171 & Mideast Integrated
Steels Ltd. (MESCO Steel Ltd.) and Others v. State of
Jharkhand and Another :2023 SCC OnLine Jhar 301]
37. The case at hand falls in category No. 1 as laid in Smt.
Nagawwa (supra) referred to in para 7 of this judgment.
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38. If it is the case of the complainant that a particular
amount is due and payable to him then he should have filed a
civil suit for recovery of the amount against the appellants
herein. But he could not have gone to the court of Additional
Chief Judicial Magistrate by filing a complaint of cheating
and criminal breach of trust.
39. It appears that till this date, the complainant has not filed
any civil suit for recovery of the amount which according to
him is due and payable to him by the appellants. He seems to
have prima facie lost the period of limitation for filing such a
civil suit.
40. In such circumstances referred to above, the continuation
of the criminal proceeding would be nothing but abuse of the
process of law.
41. Before we close this matter, we would like to say
something as regards the casual approach of the courts
below in cases like the one at hand. The Indian Penal
Code (IPC) was the official Criminal Code in the Republic
of India inherited from the British India after independence.
The IPC came into force in the sub-continent during the
British rule in 1862. The IPC remained in force for almost a
period of 162 years until it was repealed and replaced by the
Bharatiya Nyaya Sanhita (“BNS”) in December 2023 which
came into effect on 1st July 2024. It is indeed very sad to
note that even after these many years, the courts have not
been able to understand the fine distinction between criminal
breach of trust and cheating.”
13. In the recent judgment in the case of Ashok kumar Jain v/s.
State of Gujarat [SLP Criminal No.1850 of 2020] while
discussing the essential ingredients of offence under Section 406,
420 of the IPC, the Hon’ble Apex Court has held as under:-
9.1 This court, while discussing the expression “entrustment” in
Rashmi Kumar v. Mahesh Kumar Bhada; (1997) 2 SCC 397,
observed that it carries with it the implication that the person
handing over any property or on whose behalf that property is
handed over to another, continues to be its owner. Entrustment isPage 22 of 25
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not necessarily a term of law. It may have different implications in
different contexts. In its most general significance, all its imports is
handing over the possession for some purpose which may not
imply the conferment of any proprietary right therein. The
ownership or beneficial interest in the property in respect of which
criminal breach of trust is alleged to have been committed, must be
in some person other than the accused and the latter must hold it on
account of some person or in some way for his benefit.
9.2 Further, in Hridaya Ranjan Prasad Verma v. State of Bihar;
(2000) 4 SCC 168, this court observed as follows:
“15. In determining the question it has to be kept in mind 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 of inducement which may be judged by his
subsequent conduct but for this 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. From
his mere failure to keep up promise subsequently such a
culpable intention right at the beginning, that is, when he made
the promise cannot be
presumed.”
(Emphasis supplied)
9.3 The ingredients to constitute an offence under sections 415 read
with 420 of IPC have been considered and laid down by this court
in Prof. R.K. Vijayasarathy and Anr v. Sudha Seetharam and
Anr.; (2019) 16 SCC 739, as under:
“16. The ingredients to constitute an offence of cheating are
as follows:
16.1. There should be fraudulent or dishonest inducement of a
person by deceiving him:
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16.1.1. The person so induced should be intentionally induced to
deliver any property to any person or to consent that any person
shall retain any property, or16.1.2. The person so induced should be intentionally induced to
do or to omit to do anything which he would not do or omit if he
were not so deceived; and16.2. In cases covered by 16.1.2. above, the act or omission should
be one which caused or is likely to cause damage or harm to the
person induced in body, mind, reputation or property.
17. 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.
18. xxx xxx xxx
19. The ingredients to constitute an offence under Section 420 are
as follows:
19.1 A person must commit the offence of cheating under
Section 415; and19.2 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.”
(Emphasis supplied)
14. Applying the ratio aforesaid what could be noticed that the
complainant lost the battle on civil side now chooses to fight the
battle on a criminal side against the petitioner. It is a vexatious
attempt on the part of the complainant to convert the civil litigation
into criminal litigation by filing a criminal complaint.
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15. In view of the foregoing discussion present petition deserves
consideration and is accordingly ALLOWED. The Criminal Case
No. 1 of 2013, before the Court of learned Metropolitan Magistrate,
Court No.2, Ahmedabad, together with all pre and consequential
proceedings arising therefrom, is hereby quashed and set aside. Rule
is made absolute. Direct service is permitted.
(J. C. DOSHI,J)
MANISH MISHRA
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