2025 INSC 430
SUPREME COURT OF INDIA
(HON’BLE
PAMIDIGHANTAM SRI NARASIMHA, J. AND HON’BLE JOYMALYA BAGCHI, JJ.)
MANISH
Petitioner
VERSUS
STATE OF MAHARASHTRA
Respondent
Criminal Appeal No. OF 2025 (Arising out
of SLP (Criminal) No. 10931 OF 2022)-Decided on 02-04-2025
Criminal, Quashing
Criminal Procedure
Code, 1973, Section 482 – Penal Code, 1860, Section 420 – Quashing of criminal
proceedings – Quashed -
Materials collected during investigation do not show the present case falls in
the category of commercial disputes which would attract penal consequences
- Investigating officer recorded
statements of two bankers and a builder - The bankers disclosed the appellant
and his relations had substantial landed properties which had been mortgaged to
them in 2014 - Appellant had repaid the loan regularly till 2016 thereafter
defaulted - Notwithstanding default, in 2018 an additional loan was also
sanctioned to him – Held that these materials support the appellant’s
representation that he was a businessman of substance and as late as on
2018, his bankers reposed confidence in his financial liquidity to extend
additional loans - Nothing is placed on record to disclose utter insolvency or
bankruptcy of the appellant, which he had knowingly suppressed and persuaded
the 2nd non-applicant to enter into the commercial arrangement - High Court
erred in not taking into consideration these relevant aspects, which shows the
representation of the appellant that he was a creditworthy businessman cannot
be labelled as ‘deception’ merely on the ground that the appellant had failed
to honour the terms of the subsequent agreement - Mere breach of promise to
repay per se does not infer dishonest intention - In order to attract the penal provision, the
uncontroverted allegations including material collected during investigation
must disclose that pursuant to the assurance in the subsequent agreement, the
2nd non applicant had parted with property, that is to say made further
supplies and suffered wrongful loss - It is nobody’s case after the
subsequent agreement further supplies had been made or the 2nd non- applicant
had been subjected to wrongful loss - On
the contrary, appellant had clarified he had suffered continuous business
setbacks - Due to losses, he was unable to pay the 2nd non-applicant - He had
sold the coal to a brick manufacturer and suffered losses thereto - Failure to
pay due to unfortunate business losses cannot be clothed with culpability and
the process of criminal law utilized to recover outstanding dues - Impugned order liable to be set
aside and the proceeding arising out of FIR under Section 420 IPC
liable to be quashed.
(Para
16 to 23)
JUDGMENT
Joymalya Bagchi, J. :-
Leave granted.
2.
The appeal is directed against judgment and order dated 27th September, 2022,
passed by the High Court of Judicature at Bombay at Nagpur in Criminal
Application (APL) No. 506 of 2022, whereby the appellant’s prayer for quashing
of FIR No. 80/2022, dated 11th February, 2022, registered under
Section 420 of the Indian Penal Code, 1860, (for short the ‘IPC’) at
Police Station Lakadganj, Nagpur, was refused.
Genesis
of the case:
3.
The 2nd non-applicant (respondent no.2 herein) – Nitin, S/o Murlidhar Agrawal,
took out an application under Section 156(3) of the Code of Criminal
Procedure, 1973, before the Judicial Magistrate First Class (Nagpur) alleging
as follows:-
a) The
appellant/accused approached the 2nd non-applicant and represented himself as a
‘reputed, trustworthy and creditworthy’ businessman. On such representation,
between 20th November, 2015 and 02nd June, 2017, the 2nd non-applicant sold
coal to the appellant and raised invoices, which carried a credit period of 15
days. In respect of the few initial invoices, the appellant made payments.
Subsequently, he
failed to make payments and a large amount became due.
b) On 06th March,
2019, the 2nd non-applicant issued notice to the appellant claiming a sum of
Rs.76,82,883/- along with interest payable within 15
days of notice. Appellant failed to pay and pursuant to negotiations, on 23rd
July, 2020, a notarized agreement was executed, by and between the
parties, wherein it was agreed between 01st August, 2020 and 31st January,
2021, the appellant would repay the sum of Rs.80,00,000/-
in five installments to the 2nd non- applicant, failing which the latter would
be at liberty to initiate civil and criminal proceedings.
c) The appellant paid
Rs.5,00,000/- as per the agreement, but failed to pay
the remaining sum.
d) Under such
circumstances, the 2nd non-applicant approached Lakadganj Police Station on
28th June, 2021 for registration of a criminal case. Police did not take
action, which constrained the 2nd non-applicant to approach the Magistrate
concerned for direction to register FIR.
4.
After considering the averments in the application and report from the Police
Station, the Magistrate directed registration of FIR.
5.
In course of investigation, police recorded further statement of the 2nd
non-applicant. Other witnesses were also examined. Notarized agreement,
invoices and bank statements were seized. In his further statement, the 2nd
non-applicant reiterated the allegations. He further disclosed he had
lodged
a prior complaint at
Lakadganj Police Station and the Crime Branch had started investigation
thereon. At that stage, the appellant had met him in his office and the
notarized agreement came to be signed, which has not been honoured by the
appellant.
6.
In conclusion of investigation, a charge-sheet came to be filed against the
appellant alleging commission of offence punishable under Section
420 IPC.
Proceeding
before the High Court:
7.
The appellant assailed the charge-sheet before the High Court in Criminal
Application (APL) No. 506 of 2022. The High Court refused to quash the
proceeding inter alia holding the allegations prima facie divulging ingredients
of offence under Section 415 IPC.
8.
The High Court held the case did not divulge a purely commercial dispute and
the 2nd non-applicant had not given the dispute a cloak of criminality. What
primarily persuaded the High Court to come to such conclusion are the averments
in the notarized agreement, wherein the appellant admitted that he had induced
the 2nd non-applicant to sell coal by projecting himself as a reputed,
trustworthy and creditworthy party. It is trite, the
High Court would sparingly exercise its inherent powers to interdict a criminal
proceeding. Relevant Law:
9.
The principles circumscribing the power of the High Court to quash a criminal
proceeding are succinctly laid down in State of Haryana vs. Bhajan Lal[1992 Supp (1) SCC 335.] :-
“(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 FIR 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 Sec- tion 155(2) of
the Code.
(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 ag- grieved 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.”
Analysis
and Findings:
10.
The trajectory of events narrated earlier would reveal a continuing business
transaction between 2015 and 2017 between parties. During this period, the 2nd
non-applicant supplied coal in tranches under various invoices with a credit
limit of 15 days. Though the appellant had breached the credit limit and failed
to pay the 2nd non-applicant, the latter continued to supply coal irrespective
of such breach. A sum of Rs.76,82,883/- became due and
payable.
11.
On 23rd July, 2020, a notarized agreement was executed wherein the appellant
agreed to liquidate the dues between 1st August, 2020 and 31st January, 2021 in
five installments. The schedule was not adhered to. The High Court referring to
the recitals in the subsequent agreement held the appellant had
acknowledged that he had induced the 2nd non-applicant to supply coal on the
false representation and thereby had cheated the latter.
12.
It is strenuously argued at the inception of the transaction the appellant had
dishonestly portrayed himself as a ‘reputed, trustworthy and creditworthy’
businessman and thereby induced the 2nd non-applicant to supply coal which the
appellant had no intention to pay.
13.
In support of his argument, Mr. Subramoniam refers to illustration (f)
of Section 415 of IPC which reads as follows:
“(f) A Intentionally
deceives Z into a belief that A means to repay any money that Z may lend to him
and thereby dishonestly induces Z to lend him money, A not intend- ing to repay
it. A cheats.”
14.
There is no cavil that in some cases a commercial dispute may give rise to a
criminal offence in addition to a civil cause of action. The test to determine
whether a case would attract penal consequences is as follows:-
“Did the offending
party make dishonest representation at the inception of the transaction and
induce the other party to part with property, or act in a manner which but
for such representation, the latter would not have done[Hridaya Ranjan Prasad Verma and Ors vs State of Bihar and Anr, (2000)
4 SCC 168 (Para 13-15); Satishchandra Ratanlal Shah vs State of Gujarat
and Anr., (2019) 9 SCC 148 (Para 13); Delhi Race Club (1940) Ltd and Ors
vs State of Uttar Pradesh and Anr, (2024) 10 SCC 690 (Para 41).].”
15.
This fine distinction is brought out in illustration (g) of Section
415 of IPC which reads as follows:-
“(g) A intentionally
deceives Z into a belief that A means to deliver to Z a certain quantity of
indigo plant which he does not intend to deliver, and thereby dishonestly in-
duces Z to advance money upon the faith of such delivery. A cheats; but if A,
at the time of obtaining the money, in- tends to deliver the indigo plant, and
afterwards breaks his contract and does not deliver it, he does not cheat, but
is liable only to a civil action for breach of contract.”
16.
Materials collected during investigation do not show the present case falls in
the category of commercial disputes which would attract penal consequences.
Investigating officer had recorded statements of two bankers and a builder. The
bankers disclosed the appellant and his relations had substantial landed
properties which had been mortgaged to them in 2014.
The
appellant had repaid the loan regularly till 2016 thereafter defaulted.
Notwithstanding default, in 2018 an additional loan was also sanctioned to him.
17.
These materials support the appellant’s representation that he was a
businessman of substance and as late as on 2018, his bankers reposed
confidence in his financial liquidity to extend additional loans. Nothing is
placed on record to disclose utter insolvency or bankruptcy of the appellant,
which he had knowingly suppressed and persuaded the 2nd non-applicant to enter
into the commercial arrangement. The High Court erred in not taking into
consideration these relevant aspects, which shows the representation of the
appellant that he was a creditworthy businessman cannot be labelled as
‘deception’ merely on the ground that the appellant had failed to honour the terms
of the subsequent agreement. The High Court came to the conclusion that the
appellant had intention to deceive from the inception of the transaction. This
reasoning is wholly fallacious. Mere breach of promise to repay per se does not
infer dishonest intention[Hari Prasad Chamaria vs Bishun Kumar Surekha
and others, (1973) 2 SCC 823 (Para 4).].
18. In
order to attract the penal provision, the uncontroverted allegations including
material collected during investigation must disclose that pursuant to the
assurance in the subsequent agreement, the 2nd non applicant had parted with
property, that is to say made further supplies and suffered wrongful loss.
It is nobody’s case after the subsequent agreement further supplies had been
made or the 2nd non- applicant had been subjected to wrongful loss.
19.
On the contrary, appellant had clarified he had suffered continuous business
setbacks. Due to losses, he was unable to pay the 2nd non-applicant. He had
sold the coal to a brick manufacturer and suffered losses thereto. Vicissitudes
in the commercial market are well known. Failure to pay due to unfortunate
business losses cannot be clothed with culpability and the process of criminal
law utilized to recover outstanding dues[Sarabjit
Kaur vs State of Punjab & Anr., (2023) 5 SCC 360 (Para 13).] .
20.
The proposition of law declared in Mohsinbhai Fateali vs Emperor[1931 SCC OnLine Bom 55.] does not help the 2nd non applicant. In
the said case, the Bench held merely because the accused had subsequently filed
for insolvency, it cannot be held that he had no reasonable expectation to pay
for the goods on the date of contract.
21. Beaumont J. opined to prove the offence of
cheating, the prosecution must establish:-
“……at the date of the
contract the circumstances of the accused were such that he must have known
that it was practically impossible that he would be able to pay for the goods”
Nothing has been placed on record to demonstrate the appellant was in dire
financial straits at the time when the 2nd non-applicant had supplied coal.
22.
In Khoda Bakhsh vs Bakeya Mundari[1905 SCC OnLine Cal
170.], the accused had deceived the complainant to part with money on the
assurance to liquidate a mortgage debt and utilized the money to repay another
debt which he had suppressed. No such divergence of funds/ goods is made out in
the factual matrix to show ‘deception’ by the appellant.
23.
For the aforesaid reasons, the impugned order is set aside and the proceeding
arising out of FIR No. 80/2022, dated 11th February, 2022, registered
under Section 420 IPC, at the Police Station Lakadganj, Nagpur is
hereby quashed.
24.
The appeal is allowed. Pending applications, if any, shall stand disposed of.
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