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
undefined
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 2013 Page 1 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 Page 2 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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.
Page 3 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 Page 4 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 Page 5 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 Page 6 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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. 1 Page 7 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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.
Page 8 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined
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 Page 9 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 1994 Page 10 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 Page 11 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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.Page 12 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025
NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined
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:
Page 13 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined "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 Page 14 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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: -Page 15 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025
NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined
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 the Page 16 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 Page 17 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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, Page 18 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 Page 19 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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 be deferred yet the property in the goods passes on delivery Page 20 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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.
Page 21 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined
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 is Page 22 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025 NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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:Page 23 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025
NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined 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, or 16.1.2. 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; and 16.2. 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; and 19.2 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.
Page 24 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025NEUTRAL CITATION R/CR.MA/12605/2013 ORDER DATED: 06/08/2025 undefined
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 Page 25 of 25 Uploaded by MANISH MISHRA(HC01776) on Thu Aug 14 2025 Downloaded on : Fri Aug 15 23:29:12 IST 2025