Mere Existence Of Civil Remedy For Breach Of Contract No Grounds To Quash Cheating Case In Absence Of Mala Fides: J&K High Court

“.. mere fact that complaint relates to a commercial transaction or breach of contract, for which a civil remedy is available, is not by itself a ground to quash the criminal proceedings. It is only if it is shown that the complaint even if taken at its face value does not disclose commission of any offence or if it is found that criminal proceedings have been initiated with mala fides/malice for wreaking vengeance that the same can be quashed”, Justice Sanjay Dhar observed.

These observations came in a matter that arose from a complaint lodged by one respondent, who along with the petitioner served in the police department. According to the complainant, in 2019, the petitioner along with other petitioners, visited his village residence and offered him an investment opportunity promising an 18% annual return. Relying on this, he transferred substantial amounts totaling Rs. 96,49,980 to a specified bank account over time.

While Rs. 37,50,700 was later repaid, a sum of Rs. 58,99,280 remained unpaid, leading the complainant to allege misappropriation and breach of trust.

On his application under Section 156(3) CrPC, the Magistrate directed registration of the FIR. However, police delayed its registration, prompting the complainant to file a contempt petition. During its pendency, a compromise was reportedly entered into on 29.01.2023, where the complainant agreed to withdraw all proceedings. The FIR was eventually registered, and the petitioners approached the High Court seeking its quashing under Section 482 CrPC.

Justice Dhar extensively examined the scope of the High Court's power under Section 482 CrPC to quash proceedings at the initial stage, relying on the Supreme Court's guidance in Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre (1998) and others. He noted that a case may be quashed if the uncontroverted allegations do not make out any offence or if the complaint has been lodged maliciously.

The Court noted that for an offence under Section 420 IPC, the complainant must demonstrate dishonest or fraudulent intention at the inception of the transaction. Relying on Hridaya Rangan Prasad Verma v. State of Bihar and Alpic Finance Ltd. v. P. Sadasivan, the Court reiterated that mere breach of contract does not amount to cheating unless fraudulent intent is proven at the time of making the promise. Similarly, for criminal breach of trust under Section 406 IPC, dishonest misappropriation or conversion of property must be established, as defined in Section 405 IPC, the bench underscored.

The Court observed that the petitioners had initially honored their commitment by repaying a substantial amount (Rs. 37.50 lakh), which negated the allegation of dishonest intent at the outset. Citing Anil Mahajan v. Bhor Industries Ltd., the Court held that subsequent default does not ipso facto prove criminal liability unless the accused's fraudulent intent at the inception is established.

The Court also took note of the compromise deed and the complainant's statement before the police, wherein he had acknowledged the settlement and withdrawn his claims. Though the complainant later alleged fraud, the Court found his belated challenge to the compromise filed only after the accused failed to repay the balance indicative of a civil dispute masquerading as a criminal case.

“.. The material on record shows that the parties had tried to settle the matter amicably without resorting to criminal prosecution… The dispute between the parties was with regard to recovery of outstanding amount, which is purely of civil nature.”, Justice Dhar stated.

He further noted that the FIR seemed to have been lodged as a tool to recover the unpaid dues, observing,

“The purpose of lodging the impugned FIR was to ensure recovery… which appears did not fructify, perhaps due to the inability of the petitioners to repay.”

The Court heavily relied on the ruling in Mitesh Kumar J. Sha v. State of Karnataka (2021), where the Supreme Court had disapproved attempts to give a criminal colour to civil disputes simply to obtain quicker relief.

Holding that the complaint lacked the essential ingredients of criminal offences and appeared to be an abuse of the process of law, the court quashed the FIR.

Case Title: Susheel Kumar Rana and others Vs UT Of J&K

Citation: 2025 LiveLaw (JKL) 143

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