Gujarat High Court
Gumansing Prathvising Parmar vs State Of Gujarat on 2 April, 2025
NEUTRAL CITATION
R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025
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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 7029 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 17426 of 2019
With
R/CRIMINAL MISC.APPLICATION NO. 21737 of 2018
With
R/CRIMINAL MISC.APPLICATION NO. 445 of 2021
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE J. C. DOSHI
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Approved for Reporting Yes No
✔
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GUMANSING PRATHVISING PARMAR & ANR.
Versus
STATE OF GUJARAT & ANR.
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Appearance:
MR. KISHAN H DAIYA(6929) for the Applicant(s) No. 1,2
MR.KISHAN PRAJAPATI(7074) for the Applicant(s) No. 1
NOTICE SERVED for the Respondent(s) No. 2
MR. MANAN MAHETA, APP for the Respondent(s) No. 1
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CORAM:HONOURABLE MR. JUSTICE J. C. DOSHI
Date : 02/04/2025
ORAL JUDGMENT
1. I have heard learned advocates for the respective parties and learned APP Mr. Manan Maheta for the respondent-State.
2. Since the issues involved in all these three petitions are similar in nature and arise out of connected facts, they are heard together and are being disposed of by this common order. Learned Page 1 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined advocates appearing for the respective parties have independently advanced their submissions, whereas the learned Additional Public Prosecutor has appeared commonly for the respondent-State in all the petitions.
BRIEF FACTS OF CRIMINAL MISCELLANEOUS APPLICATION NO.70029 OF 2018.
a. The petitioners are arraigned as accused in connection with FIR No. CR No.I-127 of 2018 registered with Salabatpura Police Station, Surat, for offences punishable under Sections 406, 420, 120(B), 114 of the Indian Penal Code, 1860 (for brevity, 'the IPC'). The complainant, Aadarsh Rakumar Choradiya, a saree businessman in Surat, alleged that in 2014, Gumansing Parmar, introduced as a broker, purchased goods worth Rs.50,000/- in cash. Later, he introduced Ramsing Dasa, who placed further orders, resulting in goods worth Rs.16,17,119/- being sent to Ramsing and Rs.3,03,705/- to Gumansing from 2014 to 2015. Payments were not made, and cheques issued by both individuals bounced due to insufficient funds. Upon inquiry, Ramsing's shop was found closed, and both individuals avoided repayment.
b. The petitioners claim innocence, asserting that the matter involves a business transaction rather than a criminal offence. They argue that continuing legal proceedings against them would constitute an abuse of the legal process and have approached the Hon'ble Court seeking to quash the FIR and subsequent proceedings in the interest of justice.
c. The alleged incidents occurred between 2014 and 2015, but Page 2 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined the FIR was lodged only on 28.03.2018, suggesting undue delay aimed at harassing the petitioners. The petitioners request the Hon'ble Court to quash the complaint and related proceedings, citing the belated nature of the allegations.
BRIEF FACTS OF CRIMINAL MISCELLANEOUS APPLICATION NO.17426 OF 2019.
a. The petitioners are arraigned as accused in connection with FIR No. I-369 of 2019 registered with Salabatpura Police Station, Surat, for offences punishable under Sections 406, 420, 120(B), 506(2), and 114 of the IPC. As per the FIR, the first informant is engaged in the textile business under the name " Milani Knitters" in the name of his wife, Shipra Agrawal, but the business is managed by him. Approximately four years prior to the incident, accused no.3 (a broker named Vinod Bohra) approached the first informant and proposed a trading arrangement with several buyers, assuring prompt payments.
b. Relying on the representations made by accused no.3, the first informant initially dealt with other traders introduced by the broker and received timely payments. Subsequently, on 1.4.2018, accused no.3 introduced the present petitioners to the first informant, identifying them as reputed father-son businessmen engaged in the cloth trade with longstanding market credibility. The petitioners represented that they purchase knitting cloth for supply to dyeing mills in Kolkata and Hyderabad and assured payment within 35 days. Based on this assurance, the first informant delivered goods worth Rs. 5,84,039/- to the petitioners between 9.5.2018 and 1.6.2018.
Page 3 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined c. It is further alleged that despite repeated demands, the petitioners failed to make the payment and instead demanded additional supply of 5000 meters of gray knit cloth, which was denied. Repeated attempts to contact accused no.3 were also unsuccessful. The first informant further alleges that he was subjected to verbal abuse and threats, leading to the registration of the FIR. The present petitioners have therefore approached this Hon'ble Court seeking quashing of the FIR and all consequential proceedings.
BRIEF FACTS OF CRIMINAL MISCELLANEOUS APPLICATION NO.445 of 2021.
a. The present petition has been filed by the petitioner seeking quashing of FIR bearing C.R. No. 11210046201496 registered with Puna Police Station. The petitioner contends that the FIR is a clear abuse of the process of law, lodged with an ulterior motive to defame and harass the petitioner. The petitioner submits that the dispute is purely civil in nature, arising from a commercial transaction relating to the purchase and supply of sarees, and does not disclose any criminal offence.
b. It is the case of the petitioner that he is engaged in the business of sarees in Patna and other parts of Bihar and has been conducting such business with the complainant since January 2019. The petitioner asserts that his family has been in this business for over three decades with a clean record and regular dealings with traders in Surat. Initially, the business relationship with the Page 4 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined complainant was cordial, and regular payments were made. However, due to the complainant allegedly supplying inferior quality goods, the petitioner returned such goods and faced challenges in making timely payments owing to post-COVID financial constraints.
c. The petitioner submits that despite financial difficulties, he has made consistent efforts to pay the complainant, including issuing multiple cheques--one of which was dishonoured due to poor financial conditions. It is further contended that the petitioner is yet to recover over Rs. 17 crores from his debtors, which has delayed his own payments. The petitioner also points to the complainant's ledger showing regular payments and alleges that the complainant has suppressed material facts while filing a false FIR. On these grounds, the petitioner prays for quashing of the FIR, which he claims is devoid of ingredients under Sections 406 and 420 IPC.
SUBMISSION OF THE PETITIONERS:-
3. Learned counsel for the petitioners submits that, upon a plain reading of the FIR, it becomes evident that the dispute arises out of a civil transaction, and no prima facie case of criminal offence is made out. It is further contended that the essential ingredients constituting the offences of criminal breach of trust and cheating, as alleged in the FIR, are conspicuously absent.
3.1. The learned counsel emphasizes that mens rea, which is a sine qua non for the offence of criminal breach of trust, is not discernible from the averments made in the FIR. It is further submitted that the matter essentially pertains to a commercial Page 5 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined transaction involving sale of goods on credit, where the consideration allegedly remains unpaid. As such, it is not a case attracting the provisions of criminal law but, at the most, may give rise to a civil liability for breach of contract.
3.2. In light of the above submissions and the attending facts and circumstances of the case, the learned counsel prays that the present petitions be allowed and the impugned FIRs, being an abuse of the process of law and a misuse of the provisions of the IPC, be quashed with costs.
3.3. In support of the aforesaid contention, reliance has been placed upon a judgment of the Hon'ble Supreme Court in Vijay Kumar Ghai v. State of West Bengal, reported in 2022 (0) AIJEL-SC 68564, wherein the Court has categorically held that mere non-
payment of dues arising out of a commercial transaction, in the absence of any fraudulent or dishonest intention from the inception, does not ipso facto constitute a criminal offence and such disputes are predominantly civil in nature.
4. SUBMISSION OF THE RESPONDENTS:-
4.1 Per contra, the learned counsel for the respondents contends that the offence was committed through a calculated and deceitful modus operandi. Initially, the accused purchased goods in small quantities and made timely payments, thereby gaining the trust of the complainant. Subsequently, however, the accused purchased goods of higher value and deliberately failed to repay the outstanding amounts. This sequence of conduct, it is argued, clearly Page 6 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined demonstrates the fraudulent intent of the accused from the very inception, thereby attracting the provisions of Sections 406 and 420 of the IPC.
4.2. It is further submitted that, against certain accused persons, multiple FIRs have been registered for similar offences, indicating a habitual pattern of engaging in fraudulent activities. Therefore, considering the peculiar facts and circumstances of the present case, and the apparent dishonest intention of the accused, it is submitted that the petitioners are not entitled to the relief of quashing.
Accordingly, the learned counsel prays for dismissal of the present petitions.
4.3. On the other hand, learned Additional Public Prosecutor, Mr. Manan Maheta, appearing for the respondent-State, placed on record the report submitted by the Police Commissioner, Surat, pursuant to the directions issued by this Hon'ble Court in the earlier proceedings. He submitted that, although certain aspects of the case may prima facie bear a civil colour, the element of criminality cannot be ruled out.
4.4. He further submitted that the factual matrix reveals a well- orchestrated modus operandi adopted by the accused. Initially, the accused purchased goods in small quantities and made prompt payments, thereby earning the confidence of the complainant. Subsequently, they procured goods in large quantities on credit and absconded after shutting down their business premises. This conduct, it is argued, prima facie establishes a dishonest intention to defraud innocent traders, right from the inception of the transaction.
Page 7 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 4.5. Accordingly, learned APP submits that the present petitions are devoid of merit and deserve to be rejected in limine.
FINDINGS OF THE COURT:-
5. I have heard learned advocates for the respective parties and also perused the records of each case. At the outset, the modus oprandi submitted by the Police Commissioner, Surat states as under:-
• Generally, in the instances, out of which such applications arise, the accused traders would first purchase goods from a trader and remit payments within time and thereby wining trust and confidence of the seller and thereafter, they would purchase goods in a huge quantity within a short period of time and in a pre-planned manner and thereafter, they would default in making payment and would lock their shop/ house, switch their phones off and become untraceable.
• In some instances, the accused traders appoint many brokers and thereafter, order goods in a huge quantity from various sellers through such brokers and then they would default in payment and thus, they commit cheating.
• In most of the cases, the accused traders would take a shop on rent, would incorporate a firm, would trade in a huge quantity of goods and thereafter, with a view to default payments due, would discontinue the firm and evacuate the rented premises and later, they would incorporate a new firm in name of any family member/ acquaintance/ friend/ employee, Page 8 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined would obtain a new GST number, would take a shop on rent again and begin trading for committing the above stated fraud and cheating in repetitive manner.
• As the accused traders are native of other states, they continue to change their rented shops as well as accommodations in a planned manner.
• Ordinarily, a buyer is given a 60 day credit for making payments. Taking a disadvantage thereof, the accused traders procure a huge quantity of textiles from the complainant traders and thereafter, they sell the goods in the market and appropriate the proceeds thereof, however, without settling their dues with the creditor traders under the pretexts that they had incurred some losses in business or the goods were of inferior quality or under any other pretext, after lapse of the credit period, and they would not even return the goods.
• At times, when a complainant trader or his agent goes to the place of business of an accused trader for recovery of payments after lapse of credit period, the accused would hurl abusive words, threaten the complainant for his life or would threaten to make payments only after receiving further goods on credit and thus, they commit frauds.
• The accused traders continue to change their mobile numbers in a planned manner, so that the complainant traders could not approach them for recovery of dues.
5.1. The pivotal issue arising for consideration is whether the Page 9 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined aforesaid modus operandi adopted by the accused can be construed as constituting the offence of criminal breach of trust or cheating under the IPC.
5.2. At the outset, it would be apposite to refer to Sections 405 and 415 of the IPC, which define the offences of criminal breach of trust and cheating, respectively. The corresponding penal provisions are encapsulated under Sections 406 and 420 IPC, which prescribe the punishment for the said offences. The relevant statutory provisions are reproduced hereinbelow:
SECTION 405 OF THE IPC:-
"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".
SECTION 415 OF THE IPC:-
"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, is said to cheat"
5.3. A careful reading of Section 405 of the IPC reveals that the offence of criminal breach of trust comprises the following essential ingredients:-Page 10 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025
NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined
(i) Entrustment, and
(ii) Whether the accused was actuated by the dishonest intention or not; misappropriated it or converted it to his own use to the detriment of the persons who entrusted it- Kailash Kumar Sanwatia v. State of Bihar, (2003) 7 SCC 399.
5.4. Thus, in order to attract the provisions of Section 405 IPC, the prosecution must establish, cumulatively, the following essential elements:-
(i) Entrustment of property or dominion over property to the accused, and
(ii) Dishonest intention on the part of the accused, evidenced by misappropriation, conversion to his own use, or disposal of the property in violation of any legal contract, to the detriment of the person who entrusted the property.
5.5. In Chelloor Mankkal Narayan Ittiravi Nambudiri v. State of Travancore-Cochin, AIR 1953 SC 478, the Hon'ble Supreme Court laid down the following proposition of law:-
"to constitute an offence of criminal breach of trust it is essential that the prosecution must prove first of all that the accused was entrusted with some property or with any dominion or power over it. It has to be established further that in respect of the property so entrusted, there was dishonest misappropriation or dishonest conversion or dishonest use or disposal in violation of a direction of law or legal contract, by the accused himself or by someone else which he willingly suffered to do."Page 11 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025
NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 5.6. Mens rea is an essential ingredient of the offence of criminal breach of trust. Therefore, in the absence of any evidence indicating a fraudulent or dishonest intention, or a corresponding mental element demonstrating misappropriation, a mere breach of trust would not ipso facto amount to a criminal offence under Section 405 IPC.
5.7. Therefore, the offence of criminal breach of trust, as defined under Section 405 of the IPC, necessitates the presence of mens rea. Mere failure to return the entrusted property or a breach of contract, without establishing the requisite dishonest or fraudulent intent, does not fulfill the ingredients of a criminal offence.
5.8. The term dishonestly is defined under Section 24 of the IPC, which is as under:-
SECTION 24 OF THE IPC:-
"Whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person, is said to do that thing "dishonestly."
5.9. Thus, an act done with an intention to cause wrongful gain can be said to be dishonest. Wrongful gain is defined under Section 23 of the IPC, which reads as under:-
SECTION 23 OF THE IPC:-
"Wrongful gain" is gain by unlawful means of property to which the person gaining isnot legally entitled."Page 12 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025
NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 5.10. The most essential ingredient required to establish the offence of criminal breach of trust is misappropriation accompanied by a dishonest intention. It is noteworthy that a mere breach of trust simpliciter does not constitute a criminal offence unless it is associated with a dishonest intent. The term "dishonestly", as defined under Section 24 of the Indian Penal Code, means doing an act with the intention of causing wrongful gain to one person or wrongful loss to another.
5.11. Thus, the offence under Section 405 would be completed when misappropriation of the property has been made dishonestly.
5.12. Similarly, the essence of the offence of cheating, as defined under Section 415 of the IPC, lies in the act of deception whether through express words, implied representations, or conduct either directly or indirectly, depending upon the facts and circumstances of each case. However, the act of deceiving a person is a sine qua non for constituting the offence of cheating.
5.13. Section 415 of the IPC requires deception of any person -
(a) including that person to:
(i) to deliver any property to any person; or
(ii) to consent that any person shall retain any property; or
(b) Intentionally including that person 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 likely to cause damage or harm to that person, anybody's mind, reputation or property.
5.14. Once again, mens rea plays a crucial role in establishing the offence of cheating under Section 415 of the IPC. The Hon'ble Page 13 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined Supreme Court, in the case of G.V. Rao v. L.H.V. Prasad and Others, (2000) 3 SCC 693, while elucidating the concept of mens rea in the context of cheating, observed in paragraph 7 as under:-
"7. As mentioned above, Section 415 has two parts. While in the first part, the person must "dishonestly" or "fraudulently" induce the complainant to deliver any property; in the second part, the person should intentionally induce the complainant to do or omit to do a thing. That is to say, in the first part, inducement must be dishonest or fraudulent. In the second part, the inducement should be intentional. As observed by this Court in Jaswantrai Manilal Akhaney vs. State of Bombay, a guilty intention is an essential ingredient of the offence of cheating. In order, therefore, to secure conviction of a person for the offence of cheating, "mens rea" on the part of that person, must be established. It was also observed in Mahadeo Prasad vs. State of West Bengal, that in order to constitute the offence of cheating, the intention to deceive should be in existence at the time when the inducement was offered."
6. Reverting to the facts of the present case, what is notably discernible is that the FIRs have been lodged after an inordinate delay. A plain reading of the FIRs reveals that the transactions in question primarily pertain to the sale of goods on credit to the accused. In several instances, the accused allegedly assured repayment of the outstanding dues but failed to honour their commitments. Consequently, FIRs came to be registered under Sections 406 and 420 of the IPC. In some of the FIRs, it is further alleged that post-dated cheques were issued towards payment of the outstanding amounts.
6.1. Learned counsel appearing for the complainants, as well as Page 14 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined the learned APP, have argued that the accused adopted a systematic modus operandi, prevalent in a particular locality of Surat, wherein they procured goods from traders after building trust and subsequently defaulted on payments.
6.2. However, upon careful examination, the essential ingredients required to constitute offences under Sections 405 (criminal breach of trust) and 415 (cheating) IPC appear to be conspicuously absent. The allegations, at best, disclose a breach of contractual obligation, which may give rise to civil liability, but do not prima facie attract the criminal provisions invoked in the FIRs. A plain reading of the FIR suggests that what is essentially a civil dispute has been cloaked in criminality, giving the impression that a plaint which ought to have been instituted before a competent Civil Court for recovery of dues, has instead been converted into a criminal proceeding.
6.3. The complainants, having failed to secure payment for goods sold on credit, appear to have resorted to criminal prosecution as a tool of coercion, rather than pursuing the appropriate civil remedy. This clearly amounts to an abuse of the criminal justice system, whereby the criminal process is being misused as a weapon to exert pressure in a purely civil dispute.
6.4. The essential elements of criminal intent, namely, dishonest intention and deception are conspicuously absent in the FIR. As a result, the matter does not disclose the commission of any cognizable offence under Sections 406 or 420 IPC, but instead reflects a contractual breach, falling squarely within the domain of civil law.
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7. This Court, in the case of Vicky M. Ailani v. State of Gujarat & Another, rendered in Special Criminal Application No. 5279 of 2014, dealt with a similar issue. The relevant observations made in the judgment are reproduced hereunder:-
"8. Punishment of criminal breach of trust and cheating are slated in section 406 and 420. If any person has been dominion over the property or entrustment with property, dishonestly misappropriated or converted property to his own use or dishonestly used or disposed of the property or willfully suffers any other person so to do in violation of any direction of law prescribing the method in which the trust is discharged but someone violates trust and dishonestly misappropriated or converted property to his own can be said that he has committed criminal breach of trust.
9. In background of above provision of law, if we again see contents of FIR, at no point of time, it appears that accused has dishonestly misappropriated or converted property to his own use or dishonestly used or disposed of the property for obtaining such property or cheated first informant by fraudulently or dishonestly including any person to deliver any property. FIR demonstrates simply civil transaction between two traders. First informant on his own on multiple times sold goods / clothes on credit and when amount was not paid by the petitioner, FIR is filed giving color of criminality. It is significant to note that first informant feels duped, he could have filed civil suit for recovery of outstanding amount.
10. What could be noticed that police authorities have misused powers and added section 406 and 420 of IPC for the purpose of recovery of outstanding amount which alleged to have been due in commercial transaction. This Court has time and again deprecated approach of police authorities for filing such kind of FIR whereby civil dispute has been converted into criminal proceedings. Even highest police officer of State in the rank of DGP has issued circular to police personnel for not registering FIR where civil dispute are given color of criminal proceedings. But for the reason best known to the police officers concerned without following those circulars, FIR of such kind are registered.
11. Hon'ble Apex Court recently examined the issue in the case of Delhi Race Club (1940) Ltd. (supra). The finding and observation of Hon'ble Apex Court are in para 24 to 41, which reads as under :
Page 16 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined "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: -
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 Page 17 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 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 the 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 Page 18 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 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 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 Page 19 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 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, 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 Page 20 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 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 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 Page 21 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 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 be deferred yet the property in the goods passes on delivery 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 Page 22 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 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.
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."
12. Applying aforesaid ratio, in the present case, FIR appears to be complete misuse of power."
Page 23 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined 7.1 After applying the aforesaid ratio, to the case on hand, upon perusal of the FIR and other material on record, it prima facie emerges that the transaction in question pertains to the sale of goods on credit. In such transactions, property in the goods passes from the seller to the purchaser upon sale, and once the purchaser takes possession or acquires dominion over the goods, it cannot be presumed that the purchaser induced the seller to part with the goods by deception or fraudulent means. Therefore, such conduct does not satisfy the requirements of criminal breach of trust under Section 405 IPC.
7.2. It is well settled that, in cases alleging cheating, the element of dishonest or fraudulent intention must exist at the inception of the transaction. As stated earlier, in the present case, the seller sold goods to the purchaser on credit based on a promise of future payment. The subsequent failure of the purchaser to fulfill this promise does not ipso facto amount to criminal breach of trust.
7.3. The distinction between a mere breach of contract and the offences of criminal breach of trust or cheating is indeed subtle but significant. A simple breach of contractual obligations cannot give rise to criminal prosecution, unless it is demonstrated that the accused had a dishonest intention from the very beginning of the transaction. It is the intention at the inception that constitutes the crux (or gist) of the offence.
7.4. Though the learned advocate for the complainant and the learned APP for the respondent-State have attempted to establish that the accused had a fraudulent intention from the outset, the Page 24 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined material on record does not convincingly support such a conclusion in the present case. The modus operandi, as described by the Superintendent of Police, Surat and reproduced hereinabove, must be evaluated in light of the foregoing discussion. It is evident that such modus operandi, by itself, does not satisfy the essential ingredients required to establish an offence under Sections 405 or 415 of the IPC. A more nuanced and contextual analysis is therefore warranted.
8. In the case of Vijay Kumar Ghai (supra), the Hon'ble Supreme Court, after examining the statutory definitions of criminal breach of trust, entrustment, and cheating as contained in Sections 405 and 415 of the IPC, made the following observations:-
"36. Having gone through the complaint/FIR and even the chargesheet, it cannot be said that the averments in the FIR and the allegations in the complaint against the appellant constitute an offence under Section 405 & 420 IPC, 1860. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making promise being absent, no offence under Section 420 IPC can be said to have been made out. In the instant case, there is no material to indicate that Appellants had any malafide intention against the Respondent which is clearly deductible from the MOU dated 20.08.2009 arrived between the parties."
CONCLUSION:-
9. The observations made by the Hon'ble Supreme Court in the case of Vesa Holdings Pvt. Ltd. & Another v. State of Kerala & Others, (2015) 8 SCC 293, also merit serious consideration in the present context. Applying the principles laid down therein to the Page 25 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025 NEUTRAL CITATION R/CR.MA/7029/2018 JUDGMENT DATED: 02/04/2025 undefined facts of the present case, it becomes evident that the genesis of the dispute lies in a commercial transaction between the parties. The parties, being traders, entered into a sale and purchase agreement for goods on credit, in accordance with mutually agreed terms.
Subsequently, one party allegedly failed to make payment of the sale consideration, thereby giving rise to a dispute. However, such conduct, in the absence of any element of fraudulent or dishonest intention from the inception, does not prima facie constitute an offence under Sections 406 or 420 of the IPC.
9.1 Furthermore, in some of the FIRs, offences under Sections 504 and 506 IPC have also been alleged. However, the requisite ingredients of these provisions, namely, criminal intimidation and intentional insult with intent to provoke breach of the peace are conspicuously absent in the factual matrix. As such, the invocation of these penal provisions appears unsustainable in law.
ORDER:-
10. In view of the foregoing discussion, the Court is of the considered opinion that the allegations made in the FIRs do not disclose the commission of any cognizable offence, and the continuation of criminal proceedings would amount to an abuse of the process of law. Accordingly, the present petitions are allowed, and all impugned FIRs along with all consequential proceedings arising therefrom are hereby quashed and set aside qua the petitioners herein.
(J. C. DOSHI,J) MANISH MISHRA Page 26 of 26 Uploaded by MANISH MISHRA(HC01776) on Wed Apr 09 2025 Downloaded on : Wed Apr 09 21:20:41 IST 2025