Karnataka High Court
Sri. Vilas Deore vs State Of Karnataka on 15 July, 2022
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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CRL.P No. 4346 of 2022
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF JULY, 2022 R
BEFORE
THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CRIMINAL PETITION NO. 4346 OF 2022
BETWEEN:
SRI. VILAS DEORE
S/O SRI. SUBHASH DEORE
AGED ABOUT 44 YEARS
MANAGING DIRECTOR OF
M/S SHRIGANESH TEXTILES AND
INFRASTRUCTURE (INDIA) PRIVATE LIMITED
R/AT RAMI POST, DHULE DISTRICT
MAHARASHTRA 424 307.
...PETITIONER
(BY SRI SANDESH J.CHOUTA, SR.ADVOCATE FOR
SRI MADHUKAR DESHPANDE, ADVOCATE)
AND:
1. STATE OF KARNATAKA
BY HASSAN RURAL POLICE STATION,
HASSAN - 573 201
Digitally signed
by PADMAVATHI REPRESENTED BY
BK
THE STATE PUBLIC PROSECUTOR.
Location: HIGH
COURT OF
KARNATAKA 2. SRI. GANAPATI C.B.,
S/O SRI C.M. BOPAIAH
OCCU.: EXECUTIVE VICE-PRESIDENT
AUTHORIZED SIGNATORY OF
M/S HIMATSINGKA COMPANY,
PLOT NO.1, KIADB AREA, GORUR ROAD,
HANUMANTHAPURA POST,
HASSAN DISTRICT - 573 201.
...RESPONDENTS
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CRL.P No. 4346 of 2022
(BY SRI K.S.ABHIJITH, HCGP FOR R1;
SRI C.V.NAGESH, SR.ADVOCATE A/W
SRI SANDEEP S.PATIL., ADVOCATE FOR R2)
THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF CR.P.C., PRAYING TO QUASH THE FIR IN CR.NO.100/2022
(ANNEXURE-A) REGISTERED BY THE RESPONDENT NO.1
(HASSAN RURAL P.S.,) FOR THE OFFENCE P/U/S 406, 409,
418, 420 OF IPC AGAINST THE PETITIONER.
THIS CRIMINAL PETITION HAVING BEEN HEARD AND
RESERVED FOR ORDERS ON 08.07.2022, COMING ON FOR
PRONOUNCEMENT THIS DAY, THE COURT MADE THE
FOLLOWING:-
ORDER
The petitioner in this petition calls in question registration of crime in Crime No.100 of 2022 for offences punishable under Sections 406, 409, 418 and 420 of the Indian Penal Code.
2. Brief facts leading to the filing of the present petition, as borne out from the pleadings are, as follows:-
Petitioner is the Managing Director of one M/s Shriganesh Textiles and Infrastructure (India) Private Limited. The complainant is the Vice-President of M/s Himatsingka Company.
Both M/s Shriganesh Textiles and Infrastructure (India) Private Limited and M/s Himatsingka Company are incorporated under the provisions of Companies Act, 1956. The -3- CRL.P No. 4346 of 2022 petitioner/Company is in the business of conversion of cotton into cotton yarn and supplying it to the customers who deliver cotton bales to them. In the year 2021 the petitioner and the 2nd respondent/complainant entered into certain understanding with regard to supply of cotton and the petitioner agreed to convert such supplied cotton into yarn. It was agreed that the complainant would supply certain chunk of cotton bales for the petitioner to convert them into yarn and supply them back. This was the broad understanding between the petitioner and the complainant.
3. In the month of October, 2021 certain dispute arose between the petitioner and the complainant with regard to the yarn being produced and them not being lifted from the premises of the petitioner. Several meetings were held between the parties but disputes remained with regard to payment, retention and delivery of yarn and became an issue between the two. Correspondences by way of electronic mail were also exchanged between the parties from 16-01-2022 to 14-02-2022. When no consensus was arrived at with regard to their disputes, a legal notice was caused by the complainant -4- CRL.P No. 4346 of 2022 upon the petitioner invoking the provisions of the Insolvency and Bankruptcy Code, 2016 ('the Code' for short) indicating that proceedings under the Code would be initiated and a corporate resolution process would be put into force, if the amount that is indicated in the notice would not be paid.
4. For the notice that was sent on 09-03-2022, the petitioner/Company herein replied on 23.03.2022 answering to the disputed questions of fact or the amount that was sought in the notice. The matter did not attain any finality therein. The complainant on 08-04-2022 approached the Superintendent of Police, Hassan by registering a complaint against the petitioner alleging that an amount of Rs.9,01,07,640.43 with respect to 519.80 tonnes of cotton fiber was yet to be made good by the petitioner. On the same day, a complaint was made to the Officer-in-charge of the jurisdictional police station which then becomes crime in Crime No.100 of 2022 for offences punishable under Sections 406, 409, 418, 420 of the IPC. On registration of crime. The petitioner has knocked the doors of this Court in the subject petition calling in question the very registration of crime on 08-04-2022 making the petitioner an accused.
-5- CRL.P No. 4346 of 20225. Heard learned senior counsel Sri Sandesh J.Chouta appearing for Sri Madhukar Deshpande, learned counsel for the petitioner, Sri K.S.Abhijith, learned High Court Government for respondent No.1 and learned senior counsel Sri C.V.Nagesh, representing Sri Sandeep Patil, learned counsel for respondent No.2.
6. The learned senior counsel representing the petitioner would urge the following contentions:
(1) The matter arises out of an understanding between the petitioner and the 2nd respondent/complainant and is purely civil in nature.
(2) The complainant having invoked the provisions of the Code could not have scuttled the process and set the criminal law in motion.
(3) The understanding was between the petitioner/ Company and the complainant/Company, but the crime is registered only against the petitioner who is the Managing Director of the Company, without the Company being made an accused.
7. On the other hand, the learned senior counsel Sri C.V. Nagesh refuting the submissions would contend that even if the matter is purely civil in nature, if the act of the accused would amount to breach of trust or cheating, both civil and criminal -6- CRL.P No. 4346 of 2022 proceedings are maintainable, as it is the action of the accused that requires scrutiny and trial. Since complaint is against both the petitioner and his Company, the said submission that the Company is not made an accused is untenable.
8. In the light of the submissions made by the respective learned senior counsel, the issue that arises for my consideration is:
'Whether the transaction between the parties is purely civil in nature or the petitioner is prima facie guilty of criminal breach of trust and cheating as is alleged?
9. To answer the said issue, it is germane to notice certain communication between the petitioner/Company and the complainant/Company.
10. Certain terms were drawn between the parties which were communicated through e-mails on 16-10-2021 and 17-10-2021 and the same read as follows:
-7- CRL.P No. 4346 of 2022"On Sat, 16 Oct 2021 at 18:56, Ravi Kabbur <ravi.kabbur@himat singka.com> wrote:
Dear Sir, Please note the following answers from our side, Your acceptance of proposal will helps to maintain our long term relations. Kindly proceed with mixing as soon as possible and release two trucks of 12 KW from your stock.
1. Payment to be made day to day against packed production.
Ok payment will be organize against lifting (Saturday and Sunday will not be any payment plans)
2. Minimum cotton stock to be maintained 1500+at any moment.
We intend to maintain 1500 Bales at all the time, however given the market situation we will allow the stock to go less than 1000 bales at any poi8nt of time.
3. Need a spin plan for one month production in advance.
Ok, we will organize production plan as per your request.
4. Need to accommodate our combed production (Approx min 1.00 lac kg per month) We don't have any requirement in Combed Yarns at present.
5. Need a cotton in flow chart in advance at least one month before.
Ok, we will arrange Cotton flow Chart in advance.
6. If the min. Stock is reduced less than 1500 bales, need a written confirmation from your side, that we can raise a debit note of Rs.5,50,000 (Five lacs fifty thousand rupees)/day, As a compensation of -8- CRL.P No. 4346 of 2022 non-maintenance of cotton stock till the stock reaches 1500+ The debit note is not acceptable. As we will maintain 1000 bales stock at any point of time & we will ensure that their will not be any shortage or machine stoppage due to non-availability of cotton. We will intimate 15 days in advance if any changes in our plan so that you can start planning your own production."
"Dear Sir, We would like to bring the following points to your kind attention, Why we are very particular about this points to be fulfilled is mandatory for us to proceed business in the long term.
It is better for both to sign a contract which detailly explain How long the Period of business, Quality of cotton & yarn, Quantity Yarn requirement (Count wise), Spin Plan, Cotton Flow, Minimum cotton stock, Combed yarn production, Payment Terms, compensation & termination etc. PAYMENT TERMS - REG.
Actually assured to lift the goods continuously against payment. But in reality some counts are not at all lifted even after one month. The stock you kept in our mills are gradually increased from 50000 Kgs to 110000 Kgs within 3 weeks time. No response from your end.
In your reply response also simply quoted payment against lifting. When the packed goods will lift? How long it will take? No Clarity.
That's why required payment against our packed production on day to day basis.
MINIMUM STOCK OF 1500+ BALES AT ANY MOMENT When you start the business with us promised to process GIZA continuously during Aug 1st week, As per -9- CRL.P No. 4346 of 2022 your commitment started the production on 5th of Aug'21. suddenly stop the supply of GIZA. After th repeated request then supplied on 12 some few bales & abruptly stop the supply of GIZA. Then informed we will supply Indian cotton for the remaining ordered Qty. Parallelly you start the supply of Indian cotton continuously approx 3000 bales till Aug end. Once again abruptly stopped the supply, over & above you have given hope over phone & mails that goods are moved, in transit like that. At last we came to understand that all are false commitments.
Due to the above we incurred a loss of approx. 70 lacks to cover the cotton. We forced to procure cotton with the additional cost Rs.6000/ candy. Price was increased Rs 6000 + when we start procurement. Otherwise we could have been procured at the lowest price.
For that we raised a Debit note of Rs.5.50 Lacs / day for 2 weeks. This also not at all compensated so far.
If the stock is maintained you will get the consistent quality yarn without any shade variation & continuous production.
If you are not maintain stock & stopped abruptly, we are the direct looser financially. You are in safe.
SPIN PLAN From the past experience if we are correct no one is not clear about the monthly requirement for our unit.
Day to day requirement & count changes. Kindly go through our mails you may understand. If the changes are like we could not have enough time to prove the consistency & to prove our improvements.
Who is going to compensate the loss of utilisation & productivity losses.
So insisting to freeze the count pattern one month in advance.
COMBED YARN REQUIREMENT
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You have committed to give order of 1.00 lac Kgs of combed yarn / month. Initially ordered for 11 CW & 9 CW. After approx. 64 tons stopped the 11 CW & informed 9 CW not required. By keeping the comber mcs IDLE which are giving higher value addition than the Carded yarn is meaning less. If you are ready to compensate the Value addition loss, then there is no issue about combed yarn order.
COTTON FLOW To know the status of your planning of cotton supply in written for our unit, one month advance.
COMPENSATION FOR NON MAINTAINING THE COTTON STOCK As we are the sufferer, insisting you to allow us to raise a debit note of Rs.5.50 Lacs / day till you maintain the committed stock. This will arise if the stock is goes less than the committed. The way you are given assurance why you are not accept this request. It makes doubt on this issue of maintaining stock. Like us at what way you are financially affected due to this issue. No one is ready to commit in this issue. It seems that we are not in safer zone.
Always you are in safe side. It seems to be one side bond. At any business deal will be always on both sides. No one will be biased. That's why since form the beginning insisted for the contact.
We would like to share in few words about our experience with your concern for the past 2 months.
Before start the Indian cotton process we met your officials Mr.Bopanna, Mr.Ramesh & Mr.Jayesh in your office at Bangalore 1st week of Aug'21. During our meeting we clearly explained the same points & written in mails about the MOM. During this 2 months periods nothing was maintained. We are in DARK to whom we have contact to know the real picture. No one the above was not at all directly approached to close this issues. Mr.Jayesh also helpless. Over & Above we we lost our regular customers those are since from the beginning.
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Now you are 4th official to discuss about this issues. Hope you may close it amicably at the earliest time.
Our expectations are not much. If you sit in our side then only you may understand our feelings & requirements what we are demanding.
Still we are in hope, by understanding the above you may come forward with the fruitful solution which are beneficial of both & for healthier relation in future.
Expecting your favorable response."
In terms of the afore-quoted communications between the parties, cotton was supplied to the petitioner by the complainant for its conversion into yarn. On 19-10-2021 a communication is sent by the complainant/Company which reads as follows:
"To, Shri Ganesh Textile & infrastructure (India) Pvt Ltd. Gat No.220/3, A/p.Rami Ta & Dist. - Dhule 424 307 Dear Sir, We would like to assure the following points, kindly proceed with the mixing plan.
1. We would like to maintain minimum 6 months as a period of business. If anyone of the parties wish for exiting can do so prior 1 month Notice.
2. As a corporate procedure we cannot go for contract with immediate effect.
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3. Payment of 7 days packed production of Monday to Sunday will be splitted and made between Monday to Friday equally, if any spill over in payment can be cleared in next week Monday. We are looking approximate quantity of 8 Tonne to 13 Tonne / day as per our quality standards.
4. Cotton Flow will be given every 25th of the Month & will be followed.
5. Comber Production orders cannot be given, as on date no orders in Hand. If any combed order received we will give priority to give orders to you.
6. We will maintain the bales required minimum 800- 1000 bales and maximum 1500 bales will be replenished in such way that your production will not be hampered. We will ensure that at no point the situation arises that your production stops."
(Emphasis added) When the ready product which was converted from the raw material was not picked up by the complainant, a communication was sent by the petitioner to the complainant on 2-11-2021 which reads as follows:
"Dear Sir, We regret informing you that you have not given the cotton flow so far even though we requested so many times & also you are not sticking with your cotton flow chart. On faith in your commitment we could not cover the cotton this time also. Once again cotton price increased to Rs.7000/ candy. If we could have covered at that time we can save Rs 7000/candy. Due to this we incurred an additional cost of Rs65.0 lacs to cover 2000 bales. For this we will raise a debit note against you for the non supply of cotton bales.
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You are also not sticking with your payment terms as you committed. We have sent so many reminders & requisition reg. payment. But all are vain. Due to the above last 10 days we are struggling for regular cash flow to face the expenses like salary, wages & Bonus etc. to our employees. Due to the above, to overcome these financial issues we are forced to sell your processed goods. Currently not having a stock of processed goods in our hand.
For your kind information & do the needful to streamline the above issues at the earliest time.
(Emphasis added)
.... .... .... ....
Dear Sir,
We regret informing you still have not received the cotton flow & spin plan for the month of Nov'21.
Payment also not followed as per our terms.
Still it comes to regular plz. Don't send trucks for lifting.
Even after so many reminders, if you don't react fast we are not having any option other than to hold your process.
Hope you may understand."
(Emphasis added) To all these communications the complainant/Company replies on 29-11-2021 which reads as follows:
"From:Bopanna PK Sent:29 November 2021 14:47
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To: 'TEXTILE SHRIGANESH'<salesshriganesh 1001 @gamil.com>; Vilas deore <[email protected] Cc:[email protected]; RameshN <[email protected]>; Jayesh Kakkad <[email protected]>; Lakshman <[email protected]> ; Shanmuga Sundaram <[email protected] > ; Srinath Chandran < [email protected]> Subject: Request for continuation of business | Shriganesh Textiles & Infrastructre (India) Pvt Ltd.
Kind Attn: Mr.Vila Deore / Mr.Muthu Kumar, Thank you for having waited late and spared the time to meet me on Friday 25th November. Further to the discussion, understand that you have had a bitter experience with us and completely understand the situation. As explained, I will personally take the responsibility of setting the matters in order to your satisfaction, you will see it in our action and for this we request you to give us one more opportunity.
Please consider resuming at least a small quantity of the production for us, as the quantity of our cotton with you is substantial and will hold up our purchase plans and pay-out.
In the meanwhile, please also check and dispatch if any quantity 12sKW or 16sKW can be shipped in this week.
We hope you will consider our request favourably and accept the same."
(Emphasis added)
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CRL.P No. 4346 of 2022On a conjoint reading of the afore-quoted correspondences between the parties it would indicate that the contract between the parties was delivery of cotton bales to the petitioner, the petitioner would convert them in to yarn and would be lifted by the complainant/Company. The lifting of yarn and non-payment leads to certain communications. In one of the communications dated 02-11-2021 the petitioner/Company has clearly indicated that despite several requests the yarn has not been lifted and for such act, the petitioner is struggling for cash flow for instances like salary, wages and bonus to the employees and to overcome financial issues, they would be forced to sell the processed goods of the complainant/Company for meeting those contingencies. To this, a reply is given by the complainant/Company admitting the fault and also seeking to re-consider sending atleast a small quantity of the production.
The said communication was carried forward later on 16-01- 2022 and 14-02-2022. It ultimately boils down that the petitioner/Company sold the yarn for lesser price to meet all the contingencies and returned the finished yarn whatever was left with them.
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CRL.P No. 4346 of 202211. Upon this, the complainant causes a legal notice on 9.03.2022. The notice was a demand notice under the Code demanding payment of unpaid operational debt. Terming the complainant to be corporate debtor and the petitioner to be an operational creditor, the notice is issued. The details of transactions and the amounts due as found in the notice are as follows:
"PARTICULARS OF OPERATIONAL DEBT
1. TOTAL AMOUNT Amounts Due -
OF DEBT, DETAILS OF The Total Amount Of Debt Due And TRANSACTIONS Payable by the Corporate Debtor to the ON ACCOUNT OF Operational Creditor towards supply of cotton WHICH DEBT fibre is INR 9,01,07,640.43 (Rupees Nine FELL DUE AND Crores One Lakh Seven Thousand Six THE DATE FROM Hundred and Forty and Forty Three Paise WHICH SUCH Only) towards the principal along with DEBT FELL DUE interest at the rate of 18% p.a. from the date of default for each invoice till the date of this notice amounting to INR 9,45,75,178 (Rupees Nine Crores Forty Five Lakhs Seventy Five Thousand One Hundred and Seventy Eight Only) Details of transactions on account of which the debt has fallen due -
(i) The Operational Creditor is in the business of designing, developing, manufacturing and distributing textile products.
(ii) The Operational Creditor and Corporate Debtor had a business relationship wherein Operational Creditor supplies cotton fibre and Corporate Debtor is required to convert the
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cotton fibre into yarn and the resultant yarn is returned to Operational Creditor. The Operational Creditor pays conversion cost as consideration to Corporate Debtor for converting the cotton fibre into yarn.
(iii) While the supply of cotton fibre and yarn are two distinct and separate transactions, in the usual course of business the amounts due under the invoices raised by Operational Creditor for the cotton fibre supplied are set off against the payments due from the Corporate Debtor for the yarn supplied by the Corporate Debtor.
However, the Corporate Debtor has retained the cotton fibre and has neither converted the cotton fibre into yarn nor has returned the same. Therefore, the Corporate Debtor is obligated to pay the amount under the invoices as detailed above towards the cotton fibre supplied by the Operational Creditor along with 18% interest per annum.
(iv) The Operational Creditor has supplied a total of 1327.84 tonnes of cotton fibre from 30.06.2021 till 29.11.2021 to the Corporate Debtor receipt of which has been acknowledged by the Corporate Debtor. The Corporate Debtor has accepted the supply of the said cotton fibre without demur. Out of 1327.84 tonnes of cotton fibre supplied by the Operational Creditor, 808.04 tonnes of cotton firbre has been adjusted by the Operational Creditor against the yarn supplied by the Corporate Debtor, receipt of which is
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CRL.P No. 4346 of 2022acknowledged by the Operational Creditor. Upon adjusting the yarn supplied by the Corporate Debtor, balance of 519.80 tonnes of cotton fibre aggregating to INR 9,01,07,640.43 (Rupees Nine Crores One Lakh Seven Thousand Six Hundred and Forty and Forty Three Paise Only) is the outstanding principal amount.
(v) The Operational Creditor has raised nine (9) invoices from 05.10.2021 to 10.12.2021 against the cotton fibre supplied to the Corporate Debtor as detailed above which are due and payable within 30 days of the said invoices. The Corporate Debtor has failed to make payment under the said invoices of a sum of INR 9,01,07,640.43 (Rupees Nine Crores One Lakh Seven Thousand Six Hundred and Forty and Forty Three Paise Only)(without interest calculation ).
(vi) Despite repeated requests and reminders, the Corporate Debtor has failed and refused to make payment on the outstanding invoices or return the cotton fibre. The Corporate Debtor has also failed to supply any converted yarn in respect of the 519.80 tonnes of cotton fibre supplied to the Corporate Debtor.
(vii) The amount of INR 9,01,07,640.43 (Rupees Nine Crores One Lakh Seven Thousand Six Hundred and Forty and Forty Three Paise Only) is admittedly payable to the Operational Creditor and the Operational Creditor is entitled to interest at the rate of 18% p.a on
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CRL.P No. 4346 of 2022the said amount and consequently the total amount due along with interest aggregates to INR 9,45,75,178 (Rupees Nine Crores Forty Five Lakhs Seventy Five Thousand One Hundred and Seventy Eight Only).
(viii) As on the date of the invoices, the cotton fibre was sold at the rate of Rs.166.99/Kg. The price of cotton fibre has increased substantially since then and is presently at Rs.216.524/Kg as per the information available on the official website of the Cotton Association of India at https:///www.caionline.in/site/spot _rates. Apart from the amount payable on the invoices, the Operational Creditor has claims towards damages for breach of contract, unsupplied yarn, increase in price of cotton fibre and other heads towards which they reserve their rights to file appropriate legal proceedings."
The petitioner/Company gives a detailed reply to the said notice on 23-03-2022 indicating that the very issuance of notice under the Code was unfounded and disputed the alleged liability that was projected in the notice caused by the complainant. It was also admitted at paragraphs 16, 17 and 18 of the reply that to meet the contingencies they had sold the yarn for a lesser price which was communicated to the
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CRL.P No. 4346 of 2022complainant. Paragraphs 16 to 18 of the reply which are germane read as follows:
".... .... .... ....
16. Our client states that despite of so many requests for maintaining cotton flow the Operational Creditor were not sticking to their commitment of arranging and supplying cotton bales to our client. Also, keeping faith in Operational Creditor and to maintain healthy business relations, our client procured the cotton at higher prices which cost our client additional Rs.7000/- per candy, hence the total cost increased to Rs.65,00,000/- (Rupees Sixty-Five Lakhs Only) to cover 2000 Bales. Also, the Operational Creditor despite of so many requestswere not making payment on day-to-day basis as agreed to maintain our client's cash flow in order to streamline the production process and also to make payment of salary, wages and bonuses to their employees on time, which is always due in 1st week of every month. Therefore, our client was forced and constrained to sell the realized the yarn in open market at lower prices to overcome these financial issues and the said fact was informed to the Operational Creditor via email dated 02.11.2021.
17. Our client states that on certain occasions our client had procured the cotton bales for production of yarn for the Operational Creditor so that the production process would go on smoothly and the said fact was also informed to the Operational Creditor and despite of the same the Operational Creditor had failed to make payment of the realized yarn as well as not ready to lift the said realized yarn and therefore, our client to recover the losses had to sell off the said realized yarn in the market.
18. Our client states that since inception of business transaction with the Operational Creditor our client
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CRL.P No. 4346 of 2022had suffered losses of more than Two Crores as utilisation process loss because of non-availability of Cotton Bales during production process of the Operational Creditor."
(Emphasis added) Having received the reply from the hands of the petitioner, the complainant who had initiated process under the Code did not take it further and chose an easier route. The complainant approaches the Superintendent of Police, Hassan District and registers a complaint which is endorsed on 8-04-2022 and on the very same day approached the jurisdictional Officer-in-
charge of the Police Station and registers a complaint which becomes crime in Crime No.100 of 2022 for offences punishable under Sections 406, 409, 418 and 420 of the IPC.
12. In the teeth of the afore-narrated facts and correspondences between the parties, what is necessary to be considered at this juncture is, whether further investigation or proceedings should be permitted to be continued, as what is sought in the crime so registered and what is found in the notice issued under the Code are the same and the demand of the complainant is recovery of money. Therefore, it becomes
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CRL.P No. 4346 of 2022germane to notice the law laid down by the Apex Court from time to time with regard to complainants wanting to set the criminal law in motion in a purely civil liability, breach of agreement between the parties and for recovery of money.
The Apex Court right from the year 2000 in the case of HRIDAYA RANJAN PRASAD VERMA v. STATE OF BIHAR1 has held as follows:-
"14. On a reading of the section it is manifest that in the definition there are set forth two separate classes of acts which the person deceived may be induced to do. In the first place he may be induced fraudulently or dishonestly to deliver any property to any person. The second class of acts set forth in the section is the doing or omitting to do anything which the person deceived would not do or omit to do if he were not so deceived. In the first class of cases the inducing must be fraudulent or dishonest. In the second class of acts, the inducing must be intentional but not fraudulent or dishonest.
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 1 (2000) 4 SCC 168
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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) Later, in the case of UMA SHANKAR GOPALIKA v. STATE OF BIHAR2 the Apex Court has held as follows:
"6. Now the question to be examined by us is as to whether on the facts disclosed in the petition of complaint any criminal offence whatsoever is made out much less offences under Sections 420/120-B IPC. The only allegation in the complaint petition against the accused persons is that they assured the complainant that when they receive the insurance claim amounting to Rs 4,20,000, they would pay a sum of Rs 2,60,000 to the complainant out of that but the same has never been paid. Apart from that there is no other allegation in the petition of complaint. It was pointed out on behalf of the complainant that the accused fraudulently persuaded the complainant to agree so that the accused persons may take steps for moving the Consumer Forum in relation to the claim of Rs 4,20,000. It is well settled that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to 2 (2005) 10 SCC 336
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cheating. In the present case it has nowhere been stated that at the very inception there was any intention on behalf of the accused persons to cheat which is a condition precedent for an offence under Section 420 IPC."
(Emphasis supplied) In the case of V.Y.JOSE v. STATE OF GUJARAT3 the Apex Court holds as follows:
"14. An offence of cheating cannot be said to have been made out unless the following ingredients are satisfied:
(i) deception of a person either by making a false or misleading representation or by other action or omission;
(ii) fraudulently or dishonestly inducing any person to deliver any property; or to consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit.
For the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. 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 initial promise being absent, no offence under Section 420 of the Penal Code can be said to have been made out.
28. A matter which essentially involves dispute of a civil nature should not be allowed to be the subject-matter of a criminal offence, the latter being not a short cut of executing a decree which is non-
3(2009) 3 SCC 78
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CRL.P No. 4346 of 2022existent. The superior courts, with a view to maintain purity in the administration of justice, should not allow abuse of the process of court. It has a duty in terms of Section 483 of the Code of Criminal Procedure to supervise the functionings of the trial courts."
(Emphasis supplied) In VESA HOLDINGS (P) LIMITED v. STATE OF KERALA4 the Apex Court has held as follows:
"12. From the decisions cited by the appellant, the settled proposition of law is that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In other words for the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. 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 initial promise being absent, no offence under Section 420 of the Penal Code, 1860 can be said to have been made out."
(Emphasis supplied) In the case of SATISCHANDRA RATANLAL SHAH v. STATE OF GUJARAT5 the Apex Court has held as follows:
4(2015) 8 SCC 293 5 (2019) 9 SCC 148
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"11. Having observed the background principles applicable herein, we need to consider the individual charges against the appellant. Turning to Section 405 read with Section 406 IPC, we observe that the dispute arises out of a loan transaction between the parties. It falls from the record that Respondent 2 knew the appellant and the attendant circumstances before lending the loan. Further it is an admitted fact that in order to recover the aforesaid amount, Respondent 2 had instituted a summary civil suit which is still pending adjudication. The law clearly recognises a difference between simple payment/ investment of money and entrustment of money or property. A mere breach of a promise, agreement or contract does not, ipso facto, constitute the offence of the criminal breach of trust contained in Section 405 IPC without there being a clear case of entrustment.
12. In this context, we may note that there is nothing either in the complaint or in any material before us, pointing to the fact that any property was entrusted to the appellant at all which he dishonestly converted for his own use so as to satisfy the ingredients of Section 405 punishable under Section 406 IPC. Hence the learned Magistrate committed a serious error in issuing process against the appellant for the said offence. Unfortunately, the High Court also failed to correct this manifest error.
13. Now coming to the charge under Section 415 punishable under Section 420 IPC. In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. (See Hridaya Ranjan Prasad Verma v. State of Bihar [Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168: 2000 SCC (Cri) 786].) In the case before us, admittedly the appellant was trapped in economic crisis and therefore, he had approached Respondent
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2 to ameliorate the situation of crisis. Further, in order to recover the aforesaid amount, Respondent 2 had instituted a summary civil suit seeking recovery of the loan amount which is still pending adjudication. The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.
14. Moreover, this Court in a number of cases has usually cautioned against criminalising civil disputes, such as breach of contractual obligations (refer to Gian Singh v. State of Punjab [Gian Singh v. State of Punjab, (2012) 10 SCC 303: (2012) 4 SCC (Civ) 1188: (2013) 1 SCC (Cri) 160: (2012) 2 SCC (L&S) 988] ). The legislature intended to criminalise only those breaches which are accompanied by fraudulent, dishonest or deceptive inducements, which resulted in involuntary and inefficient transfers, under Section 415 IPC.
15. However, the High Court appears to have been carried away by the moral element involved in the breach of promise and made certain observations. Being a policy consideration, such suggestions need to be restricted. The aforementioned observations of the High Court were not only unnecessary for the adjudication of this matter, but the same could have been understood as casting some kind of aspersions on the accused. This clearly reflected a loaded dice situation against the appellant herein."
(Emphasis supplied)
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CRL.P No. 4346 of 202213. Considering the entire spectrum of law earlier laid down, the Apex Court in the case of R.K. VIJAYASARATHY v.
SUDHA SEETHARAM6 holds as follows:
"11. The first respondent has alleged in the complaint that the appellants have committed offences under Sections 405, 406, 415 and 420 read with Section 34 of the Penal Code. It would thus be necessary to examine the ingredients of the above offences and whether the allegations made in the complaint, read on their face, attract those offences under the Penal Code.
12. Section 405 of the Penal Code reads thus:
"405. Criminal breach of trust.--Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits "criminal breach of trust"."
13. A careful reading of Section 405 shows that the ingredients of a criminal breach of trust are as follows:
13.1. A person should have been entrusted with property, or entrusted with dominion over property;
13.2. That person should dishonestly misappropriate or convert to their own use that property, or dishonestly use or dispose of that property or willfully suffer any other person to do so;
and 6 (2019) 16 SCC 739
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CRL.P No. 4346 of 202213.3. That 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.
14. Entrustment is an essential ingredient of the offence. A person who dishonestly misappropriates property entrusted to them contrary to the terms of an obligation imposed is liable for a criminal breach of trust and is punished under Section 406 of the Penal Code. [406. Punishment for criminal breach of trust.-- Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.]
15. Section 415 of the Penal Code reads thus:
"415. Cheating.--Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat"."
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:
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
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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. Section 420 of the Penal Code reads thus:
"420. Cheating and dishonestly inducing delivery of property.--Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine."
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.
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CRL.P No. 4346 of 202220. Cheating is an essential ingredient for an act to constitute an offence under Section 420.
... ... ... ...
28. The jurisdiction under Section 482 of the Code of Criminal Procedure has to be exercised with care. In the exercise of its jurisdiction, a High Court can examine whether a matter which is essentially of a civil nature has been given a cloak of a criminal offence. Where the ingredients required to constitute a criminal offence are not made out from a bare reading of the complaint, the continuation of the criminal proceeding will constitute an abuse of the process of the court."
(Emphasis supplied) The afore-quoted judgments of the Apex Court were also interpreting offences punishable for criminal breach of trust as obtaining in Section 406 of the IPC, cheating as obtaining in Section 420 of the IPC and offences punishable under Sections 409 and 418 of the IPC which would be ancillary to Sections 406 and 420 of the IPC. Sections 406, 409, 418 and 420 of the IPC are the offences alleged in the case at hand.
14. Taking a little further, the Apex Court at a later point in time in RANDHEER SINGH v. STATE OF U.P. AND OTHERS7 has held as follows:
72021 SCC OnLine SC 942
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"33. In this case, it appears that criminal proceedings are being taken recourse to as a weapon of harassment against a purchaser. It is reiterated at the cost of repetition that the FIR does not disclose any offence so far as the Appellant is concerned. There is no whisper of how and in what manner, this Appellant is involved in any criminal offence and the charge sheet, the relevant part whereof has been extracted above, is absolutely vague. There can be no doubt that jurisdiction under Section 482 of the Cr.P.C. should be used sparingly for the purpose of preventing abuse of the process of any court or otherwise to secure the ends of justice. Whether a complaint discloses criminal offence or not depends on the nature of the allegation and whether the essential ingredients of a criminal offence are present or not has to be judged by the High Court. There can be no doubt that a complaint disclosing civil transactions may also have a criminal texture. The High Court has, however, to see whether the dispute of a civil nature has been given colour of criminal offence. In such a situation, the High Court should not hesitate to quash the criminal proceedings as held by this Court in Paramjeet Batra (supra) extracted above."
(Emphasis supplied) Again, the Apex Court in the case of MITESH KUMAR J.SHA v. STATE OF KARNATAKA AND OTHERS8 while answering the question whether the dispute was entirely civil in nature and, therefore, proceedings were liable to be quashed, answers as follows:
"Whether the dispute is one of entirely civil nature and therefore liable to be quashed?8
2021 SCC OnLine SC 976
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41. Having considered the relevant arguments of the parties and decisions of this court we are of the considered view that existence of dishonest or fraudulent intention has not been made out against the Appellants. Though the instant dispute certainly involves determination of issues which are of civil nature, pursuant to which Respondent No. 2 has even instituted multiple civil suits, one can by no means stretch the dispute to an extent, so as to impart it a criminal colour. As has been rightly emphasised upon by this court, by way of an observation rendered in the case of Indian Oil Corporation v. NEPC India Ltd., as under:--
"14. While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, in accordance with law."
42. It was also observed:--
"13. While on this issue, it is necessary to take notice of a growing tendency in business circles to convert purely civil disputes into criminal cases. This is obviously on account of a prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors....There is also an impression that if a person could somehow be entangled in a criminal prosecution, there is a likelihood of imminent settlement. Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure though criminal prosecution should be deprecated and discouraged."
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CRL.P No. 4346 of 202243. On an earlier occasion, in case of G. Sagar Suri v. State of UP, this Court has also observed:--
"8. Jurisdiction under Section 482 of the Code has to be exercised with a great care. In exercise of its jurisdiction High Court is not to examine the matter superficially. It is to be seen if a matter, which is essentially of civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal court has to exercise a great deal of caution. For the accused it is a serious matter. This Court has laid certain principles on the basis of which High Court is to exercise its jurisdiction under Section 482 of the Code. Jurisdiction under this Section has to be exercised to prevent abuse of the process of any court or otherwise to secure the ends of justice."
44. Furthermore, in the landmark judgment of State of Haryana v. Ch. Bhajan Lal regarding exercise of inherent powers under section 482 of CrPC, this Court has laid down following categories of instances wherein inherent powers of the can be exercised in order to secure the ends of justice. These are:--
"(1) where the allegations made in the First Information Report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused;
(2) where the allegations in the First Information Report and other materials, if any, accompanying the F.I.R. do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code;
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CRL.P No. 4346 of 2022(3) where the uncontroverted allegations made in the FIR or 'complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused;
(4) where the allegations in the FIR do not constitute a cognizable offence but constitute only a non-cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code;
(5) where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused;
(6) where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party;
(7) where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."
45. Applying this dictum to the instant factual matrix, it can be safely concluded that the present case clearly falls within the ambit of first, third and fifth category of the seven categories enlisted in the above said judgment. The case therefore warrants intervention by this Court, and the High Court has erred in dismissing the petition filed by the
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CRL.P No. 4346 of 2022Appellants under section 482 CrPC. We find that there has been attempt to stretch the contours of a civil dispute and thereby essentially impart a criminal color to it.
46. Recently, this Court in case of Randheer Singh v. The State of U.P., has again reiterated the long standing principle that criminal proceedings must not be used as instruments of harassment. The court observed as under:--
"33. ....There can be no doubt that jurisdiction under Section 482 of the Cr.P.C. should be used sparingly for the purpose of preventing abuse of the process of any court or otherwise to secure the ends of justice. Whether a complaint discloses criminal offence or not depends on the nature of the allegation and whether the essential ingredients of a criminal offence are present or not has to be judged by the High Court. There can be no doubt that a complaint disclosing civil transactions may also have a criminal texture. The High Court has, however, to see whether the dispute of a civil nature has been given colour of criminal offence. In such a situation, the High Court should not hesitate to quash the criminal proceedings as held by this Court in Paramjeet Batra (supra) extracted above."
47. Moreover, this Court has at innumerable instances expressed its disapproval for imparting criminal color to a civil dispute, made merely to take advantage of a relatively quick relief granted in a criminal case in contrast to a civil dispute. Such an exercise is nothing but an abuse of the process of law which must be discouraged in its entirety."
(Emphasis supplied) Yet again, the Apex Court in the case of VIJAY KUMAR GHAI AND OTHERS v. STATE OF WEST BENGAL AND OTHERS9 9 2022 SCC OnLine SC 344
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CRL.P No. 4346 of 2022reiterated the entire spectrum of law with regard to criminal breach of trust and cheating and has held as follows:
"46. This Court in G. Sagar Suri v. State of UP observed that it is the duty and obligation of the criminal court to exercise a great deal of caution in issuing the process, particularly when matters are essentially of civil nature.
47. This Court has time and again cautioned about converting purely civil disputes into criminal cases. This Court in Indian Oil Corporation (Supra) noticed the prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. The Court further observed that:--
"13. ...any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged."
48. At the outset, Respondent No. 2/Complainant alleged that the Appellants were responsible for the offence punishable under Section 420, 405, 406, 120B IPC. Therefore, it is also imperative to examine the ingredients of the said offences and whether the allegations made in the complaint, read on their face, attract those offences under the Penal Code.
49. Section 405 of IPC defines Criminal Breach of Trust which reads as under:--
"405. Criminal breach of trust.--Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust".
50. The essential ingredients of the offense of criminal breach of trust are:--
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(1) The accused must be entrusted with the property or with dominion over it, (2) The person so entrusted must use that property, or;
(3) The accused must dishonestly use or dispose of that property or wilfully suffer any other person to do so in violation,
(a) of any direction of law prescribing the mode in which such trust is to be discharged, or;
(b) of any legal contract made touching the discharge of such trust.
51. "Entrustment" of property under Section 405 of the Penal Code, 1860 is pivotal to constitute an offence under this. The words used are, 'in any manner entrusted with property'. So, it extends to entrustments of all kinds whether to clerks, servants, business partners or other persons, provided they are holding a position of 'trust'. A person who dishonestly misappropriates property entrusted to them contrary to the terms of an obligation imposed is liable for a criminal breach of trust and is punished under Section 406 of the Penal Code.
52. The definition in the section does not restrict the property to movables or immoveable alone. This Court in R K Dalmia v. Delhi Administration held that the word 'property' is used in the Code in a much wider sense than the expression 'moveable property'. There is no good reason to restrict the meaning of the word 'property' to moveable property only when it is used without any qualification in Section 405.
53. In Sudhir Shantilal Mehta v. CBI it was observed that the act of criminal breach of trust would, Interalia mean using or disposing of the property by a person who is entrusted with or has otherwise dominion thereover. Such an act must not only be done dishonestly but also in violation of any direction of law or any contract express or implied relating to carrying out the trust.
54. Section 415 of IPC define cheating which reads as under:--
"415. Cheating.--Whoever, by deceiving any person, fraudulently or dishonestly induces the
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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"."
55. The essential ingredients of the offense of cheating are:
1. Deception of any person
2. (a) Fraudulently or dishonestly inducing that person-
(i) to deliver any property to any person : or
(ii) to consent that any person shall retain any property; or
(b) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were no so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property.
56. 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.
57. Section 420 IPC defines cheating and dishonestly inducing delivery of property which reads as under:--
"420. Cheating and dishonestly inducing delivery of property.--Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine."
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CRL.P No. 4346 of 202258. Section 420 IPC is a serious form of cheating that includes inducement (to lead or move someone to happen) in terms of delivery of property as well as valuable securities. This section is also applicable to matters where the destruction of the property is caused by the way of cheating or inducement. Punishment for cheating is provided under this section which may extend to 7 years and also makes the person liable to fine.
59. To establish the offence of Cheating in inducing the delivery of property, the following ingredients need to be proved:--
1. The representation made by the person was false
2. The accused had prior knowledge that the representation he made was false.
3. The accused made false representation with dishonest intention in order to deceive the person to whom it was made.
4. The act where the accused induced the person to deliver the property or to perform or to abstain from any act which the person would have not done or had otherwise committed.
60. As observed and held by this Court in the case of Prof. R.K. Vijayasarathy v. Sudha Seetharam, the ingredients to constitute an offence under Section 420 are as follows:--
i) a person must commit the offence of cheating under Section 415; and
ii) the person cheated must be dishonestly induced to;
a) deliver property to any person; or
b) make, alter or destroy valuable security or anything signed or sealed and capable of being converted into valuable security. Thus, cheating is an essential ingredient for an act to constitute an offence under Section 420 IPC.
61. The following observation made by this Court in the case of Uma Shankar Gopalika v. State of Bihar with
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CRL.P No. 4346 of 2022almost similar facts and circumstances may be relevant to note at this stage:--
"6. Now the question to be examined by us is as to whether on the facts disclosed in the petition of the complaint any criminal offence whatsoever is made out much less offences under Section 420/120- B IPC. The only allegation in the complaint petitioner against the accused person is that they assured the complainant that when they receive the insurance claim amounting to Rs. 4,20,000, they would pay a sum of Rs. 2,60,000 to the complainant out of that but the same has never been paid. It was pointed out that on behalf of the complainant that the accused fraudulently persuaded the complainant to agree so that the accused persons may take steps for moving the consumer forum in relation to the claim of Rs. 4,20,0000. It is well settled that every breach of contract would not give rise to an offence of cheating and only in those cases of breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In the present case, it has nowhere been stated that at the very inception that there was intention on behalf of the accused person to cheat which is a condition precedent for an offence under 420 IPC.
"7. In our view petition of complaint does not disclose any criminal offence at all much less any offence either under Section 420 or Section 120-B IPC and the present case is a case of purely civil dispute between the parties for which remedy lies before a civil court by filing a properly constituted suit. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse of the process of court and to prevent the same it was just and expedient for the High Court to quash the same by exercising the powers under Section 482 Cr.P.C which it has erroneously refused."
62. There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. However, as held
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CRL.P No. 4346 of 2022by this court in Hridaya Ranjan Prasad Verma v. State of Bihar26, the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one. While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by the Respondent No. 2 does not disclose dishonest or fraudulent intention of the appellants.
63. In Vesa Holdings Pvt. Ltd. v. State of Kerala27, this Court made the following observation:--
"13. It is true that a given set of facts may make out a civil wrong as also a criminal offence and only because a civil remedy may be available to the complainant that itself cannot be ground to quash a criminal proceeding. The real test is whether the allegations in the complaint disclose the criminal offence of cheating or not. In the present case, there is nothing to show that at the very inception there was any inception on behalf of an accused person to cheat which is a condition precedent for an offence u/s 420 IPC. In our view, the complaint does not disclose any criminal offence at all. Criminal proceedings should not be encouraged when it is found to be mala fide or otherwise an abuse of the process of the courts. Superior courts while exercising this power should also strive to serve the ends of justice. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse of the process of the court and the High Court committed an error in refusing to exercise the power under Section 482 Cr.P.C to quash the proceedings."
64. 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 Penal Code, 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
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CRL.P No. 4346 of 2022IPC can be said to have been made out. In the instant case, there is no material to indicate that Appellants had any mala fide intention against the Respondent which is clearly deductible from the MOU dated 20.08.2009 arrived between the parties."
(Emphasis supplied) On a coalesce of the afore-quoted judgments of the Apex Court what would unmistakably emerge is, for an offence punishable under Section 406 of the IPC which deals with criminal breach of trust, the ingredients as obtaining in Section 405 of the IPC should necessarily be present which are, the accused must be entrusted with the property or with any dominion over it. The person so entrusted must use that property dishonestly and dispose of that property which would result in willful suffering to the other person upon whom a legal contract is made in discharge of such trust. Entrustment or dishonest misappropriation of property which is entrusted to the accused is the soul of the said provision.
15. The allegation against the petitioner is that he had sold the yarn which was kept in trust with the petitioner by the complainant with a dishonest intention and has misappropriated the same. The contention of the complainant on the face of it
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CRL.P No. 4346 of 2022is unacceptable, as the petitioner, not once, but twice has clearly indicated in the mails that if the yarn is not lifted and payment is not made, they would sell it in the open market to meet their contingencies. It is only after the said communication, the auction sale to meet their contingencies was taken up by the petitioner. Therefore, there can be no case of misappropriation with a dishonest intention which would result in breach of trust, as the complainant was very well aware of their default and the action that the petitioner would take if the yarn is not lifted.
16. The other allegation is under Section 420 of the IPC which deals with cheating and for which, ingredients as found in Section 415 of the IPC is required to be present. This again, hinges upon the communications between the parties. There was absolutely no inducement with a dishonest intention by the petitioner right from the inception. It was a contract either oral or written between the parties for receipt of cotton bales for conversion into yarn and supplying it back. The sale of the yarn was also made aware to the complainant. Therefore, the ingredients of Section 415 of the IPC which are deception, fraudulent or dishonest inducement for delivery of any property
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CRL.P No. 4346 of 2022to the detriment of the victim is not at all present in the case at hand. Therefore, the offence under Section 420 of the IPC also cannot be laid against the petitioner.
17. The other offences are under Sections 409 and 418 of the IPC, which are also alleged as criminal breach of trust and cheating. The answer to these offences would be the same as is answered for Sections 406 and 420 of the IPC.
18. The complainant initiated proceedings by invocation of the Code seeking recovery of money and that should have been taken to its logical end. Scuttling the said process and setting the criminal law in motion for recovery of the disputed money, is not what the criminal law should be used for, as it would amount to misuse of criminal law as a shortcut to seek recovery of money, that too without there being any ingredients of either Section 406 or 420 of the IPC existing.
19. There has been a deluge of criminal cases brought before Courts alleging offences of criminal breach of trust or cheating, in purely commercial transactions, which arise out of breach of agreements or otherwise, without any ingredients of
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CRL.P No. 4346 of 2022either of them and without taking recourse to any civil proceedings available for recovery of such money. Merely because civil proceedings would take a greater length of time for their conclusion, cannot mean the easier route of setting the criminal law in motion, for recovery of such money can be entertained or permitted to be entertained and continued.
20. Therefore, in the light of the judgments rendered by the Apex Court and the facts obtaining in the case at hand, none of the offences that are alleged, on the bare perusal of the complaint can be laid against the petitioner. Permitting further proceedings to continue against the petitioner would amount to an abuse of the process of law and run foul of the postulates laid down by the Apex Court in the case of STATE OF HARYANA v. BHAJAN LAL - (1992) SCC (Crime) 426.
21. Insofar as the contention of the learned senior counsel representing the 2nd respondent/complainant that both suit for recovery and registration of crime can be maintained, there can be no qualm about the said principles enunciated by the Apex Court in the case of VEENA MITTAL v. STATE OF UTTAR PRADESH AND OTHERS - Criminal Appeal No.122
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CRL.P No. 4346 of 2022of 2022 decided on 24.01.2022 and in the case of ARUN BHANDARI v. STATE OF UTTAR PRADESH AND OTHERS -
(2013) 2 SCC 801. But, the finding in those cases was that ingredients of breach of trust or cheating were prima facie met.
Therefore, the Apex Court holds that even if it is a matter which is purely civil in nature, criminal proceedings can be initiated in the facts obtaining in those cases. Those judgments are distinguishable without much ado, as the facts obtaining in the case at hand are entirely different than those obtaining in the case before the Apex Court and the answer qua the facts as observed hereinabove is that it does not meet the ingredients of Sections 405 or 415 of the IPC for it to become an offence under Sections 406 and 420 or even Sections 409 and 418 of the IPC.
22. The other submission made by the learned senior counsel appearing for the petitioner need not be gone into as this Court finds that the very registration of crime is to be obliterated on the ground that it is a matter which is purely civil in nature and criminal law cannot be set in motion for recovery of money except in cases where ingredients of Section 406 and 420 of the IPC are present, which are conspicuously absent in
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CRL.P No. 4346 of 2022the case at hand. Therefore, this becomes a fit case to exercise the jurisdiction of this Court under Section 482 of the Cr.P.C. to take off the Damocles sword hanging on the head of the petitioner, annihilate the very crime registered against him, in order to prevent the issue degenerating into harassment, becoming an abuse of the process of the law and eventually resulting in miscarriage of justice.
23. For the aforesaid reasons, I make the following:
ORDER
(i) The Criminal Petition is allowed and the FIR registered in Crime No.100 of 2022 by the Hassan Rural Police Station is quashed.
(ii) The observations made in the course of this order are only for the purpose of consideration of the case of the petitioner under Section 482 of the Cr.P.C. The same would not bind any pending proceedings or any proceeding that the parties
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would seek to initiate against each other except the aforesaid crime.
Consequently, I.A.No.3/2022 also stands disposed.
Sd/-
JUDGE bkp CT:MJ