Mere Breach Of Contract Cannot Give Rise To Criminal Prosecution For Cheating: Supreme Court

The Supreme Court reiterated that a mere breach of contract cannot give rise to criminal prosecution for cheating.

The court observed that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages.

"Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making promise being absent, no offence under Section 420 IPC can be said to have been made out.", the bench comprising Justices S. Abdul Nazeer and Krishna Murari said.

In this case, an investment was made by the complainant amounting to Rs. 2.5 crores in lieu of which 2,50,000/- equity shares were issued. This finally culminated into a Memorandum of Understanding. Alleging that the accused breached this MoU, three complaints were filed. First one, a private complaint u/s 156(3) Cr.P.C with CJM, Tis Hazari Court Delhi for registration of FIR was withdrawn. Second one is a Complaint u/s 68 of the companies act r/w section 200 CrPC filed before the CMM, Tis Hazari Courts at Delhi; which is pending. Third, a complaint was made to the P.S Bowbazar, Central Division, Kolkata which was eventually registered as FIR No. 168 u/s 406, 420, 120B IPC, 1860. The accused challenged the FIR registered in Kolkata before the Calcutta High Court. The High Court dismissed the said petition.

Before the Apex Court, it was contended on behalf of the accused that the transaction in question between the parties as revealed from the F.I.R was purely a sale transaction or what may be called as a commercial transaction, therefore the question of cheating does not arise at all. On the other hand, the complainant said that he has made a specific allegation that on inducement of the accused persons, he had parted with 2.50 crore on a false promise that they would be allotted shares in the company. On 29.02.2008, a false statement was made by the accused persons that the complainant had been allotted the shares, whereas it.

Taking note of the essential ingredients for Section 406 (Criminal Breach of Trust) and 420 (Cheating), the bench observed:

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 by this court in Hridaya Ranjan Prasad Verma & Ors. Vs. State of Bihar & Anr., 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.... Having gone through the complaint/FIR and even the chargesheet, it cannot be said that the averments in the FIR and the allegations in the complaint against the appellant constitute an offence under Section 405 & 420 IPC, 1860. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making promise being absent, no offence under Section 420 IPC can be said to have been made out. In the instant case, there is no material to indicate that Appellants had any malafide intention against the Respondent which is clearly deductible from the MOU dated 20.08.2009 arrived between the parties.

Allowing the appeal, the bench also observed that registering a complaint in Kolkata was a way of harassing the accused as a complaint has already been filed in Delhi with all the necessary facts, apart from the jurisdictional issue at Kolkata.

Case details

Vijay Kumar Ghai vs State of West Bengal | 2022 LiveLaw (SC) 305 | CrA 463 OF 2022 | 22 March 2022

Coram: Justices S. Abdul Nazeer and Krishna Murari

Counsel: Sr. Adv Menaka Guruswamy and Advocate Arundhati Katju for appellants, Sr. Adv Anjana Prakash for respondents

Headnotes

Indian Penal Code, 1860 ; Sections 415,420- Breach of contract cannot give rise to criminal prosecution for cheating - Fraudulent or dishonest intention is the basis of the offence of cheating - A mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. [Referred to Hridaya Ranjan Prasad Verma & Ors. Vs. State of Bihar & Anr. (2000) 4 SCC 168 ] (Para 34)

Indian Penal Code, 1860 ; Sections 406,420 - In order to attract the ingredients of Section of 406 and 420 IPC it is imperative on the part of the complainant to prima facie establish that there was an intention on part of the petitioner and/or others to cheat and/or to defraud the complainant right from the inception. Furthermore it has to be prima facie established that due to such alleged act of cheating, the complainant  had suffered a wrongful loss and the same had resulted in wrongful gain for the accused.  (Para 42, 23-36)

Indian Penal Code, 1860 ; Section 405 -"Entrustment" - It extends to entrustments of all kinds whether to clerks, servants, business partners or other persons, provided they are holding a position of 'trust'. (Para 24)

Indian Penal Code, 1860 ; Section 405 - "Property" - The definition in the section does not restrict the property to movables or immoveable alone - 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. [Referred to R K Dalmia vs Delhi Administration (1963) 1 SCR 253 ] (Para 25)

Code of Criminal Procedure, 1973 ; Section 154 - There can be no second FIR where the information concerns the same cognisable offence alleged in the first FIR or the same occurrence or incident which gives rise to one or more cognizable offences - Once an FIR has been recorded, any information received after the commencement of investigation cannot form the basis of a second FIR - Barring situations in which a counter case is filed, a fresh investigation or a second FIR on the basis of the same or connected cognizable offence would constitute an "abuse of the statutory power of investigation". (Para 12)

Practice and Procedure - Forum shopping - Forum shopping has been termed as disreputable practice by the courts and has no sanction and paramountcy in law. (Para 7-10)

Code of Criminal Procedure, 1973 ; Section 202- 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. [Referred to G. Sagar Suri & Anr. Vs. State of UP (2000) 2 SCC 636 and Indian Oil Corpn. v NEPC India Ltd. (2006) 6 SCC 736 ] 

Code of Criminal Procedure, 1973 ; Section 482 - Scope of inherent power to quash FIR/Criminal proceedings discussed. (Para 14-20)

Summary : Appeal against the judgment of the Calcutta High Court refusing to quash an FIR registered against appellant - Allowed - Two simultaneous proceedings, arising from the same cause of action amounted to an abuse of the process of the law which is barred - It cannot be said that the averments in the FIR and the allegations in the complaint against the appellant constitute an offence under Section 405 & 420 IPC.

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