Karnataka High Court
Sri. Vilas Deore vs State Of Karnataka on 15 July, 2022
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
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
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.
CRL.P No. 4346 of 2022
5. 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
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:
CRL.P No. 4346 of 2022
"On Sat, 16 Oct 2021 at 18:56, Ravi Kabbur <[email protected]
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
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
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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CRL.P No. 4346 of 2022
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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CRL.P No. 4346 of 2022
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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CRL.P No. 4346 of 2022
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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CRL.P No. 4346 of 2022
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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CRL.P No. 4346 of 2022
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 2022
On 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 2022
11. 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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CRL.P No. 4346 of 2022
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 2022
acknowledged 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 2022
the 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
- 20 -
CRL.P No. 4346 of 2022
complainant. 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 2022
had 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 2022
germane 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
(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
(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-
(2009) 3 SCC 78
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existent. 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:
(2015) 8 SCC 293
(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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13. 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
(2019) 16 SCC 739
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13.3. 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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20. 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:
2021 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?
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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43. 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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(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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Appellants 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
2022 SCC OnLine SC 344
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reiterated 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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58. 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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almost 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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by 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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IPC 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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is 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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to 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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either 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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of 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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the 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
