MITESH KUMAR J. SHA versus THE STATE OF KARNATAKA & ORS.

[2021] 8 S.C.R. 875

MITESH KUMAR J. SHA

THE STATE OF KARNATAKA & ORS.

(Criminal Appeal No. 1285 of 2021)

OCTOBER 26, 2021

[S. ABDUL NAZEER AND KRISHNA MURARI, JJ.]

Code of Criminal Procedure, 1973: s.482 – Complaint byrespondent no.2 against appellant alleging that the appellant-buildercompany had sold four excess flats beyond its share, in terms of theagreements entered into between them – Appellant filed s.482application before High Court which was dismissed – Hence instantappeal – Held: The facts did not show that appellants deceptivelyor intentionally tried to sell excess flats as contended by respondentNo. 2 – Although, there is no doubt that singular factual premisecan give rise to dispute which is both, of civil as well as criminalnature, each of which could be pursued regardless of the other – Inthe instant case, the actual question which required considerationwas not whether criminal case could be pursued in the presenceof civil suit, but whether the relevant ingredients for criminalcase were even prima facie made out – Based on the facts, clearlyno cogent case regarding criminal breach of trust or cheatingwas made out – Dispute could at best be termed as one involvingbreach of contract – Mere breach of contract cannot give rise tocriminal prosecution for cheating unless fraudulent or dishonestintention is shown right at the beginning of the transaction, that isthe time when the offence is said to have been committed – Therefore,it is the intention which is the gist of the offence – Applying thisdictum to the instant factual matrix, the key ingredient of having adishonest or fraudulent intent under ss.405, 419 and 420 was notmade out – Criminal proceedings initiated against appellant quashed– Penal Code, 1860 – ss.405, 419 and 420.

Abuse of the process of law: Imparting criminal color to acivil dispute, made merely to take advantage of relatively quickrelief granted in criminal case in contrast to civil dispute – Suchan exercise is nothing but an abuse of the process of law whichmust be discouraged in its entirety – Code of Criminal Procedure,1973 – s.482.

876SUPREME COURT REPORTS

AAllowing the appeal, the Court

HELD: 1.1 The complaint levelled against the appellantsis one which involves commission of offences of criminal breachof trust and cheating. While criminal breach of trust as postulatedunder section 405 of the Indian Penal Code, entailsBmisappropriation or conversion of another’s property for one’sown use, with dishonest intention, cheating too on the otherhand as an offence defined under section 415 of the Indian PenalCode, involves an ingredient of having dishonest or fraudulentintention which is aimed at inducing the other party to deliverany property to specific person. Both the sections clearlyCprescribed ‘dishonest intention’, as pre-condition for even primafacie establishing the commission of said offences. Thus, in orderto assess the relevant contentions made by the parties, thequestion whether actions of the appellants were committed infurtherance of dishonest or fraudulent scheme is one whichDrequires scrutiny. [Para 28][888-C-E]

1.2 Upon careful assessment of such facts, by no stretchcan it be concluded that the Appellants have deceptively orintentionally tried to sell excess flats if any, as contended byRespondent No. 2. Subsequent to the revocation of GPA, it wasEthe Appellants who had first resorted to arbitration proceedingson 02.03.16 for redressal of dispute between the parties, to whichRespondent No 2 had accordingly filed his statement of objectionsdated 09.03.16. It was only on 29.03.16 that Respondent No. 2had filed the FIR in question bearing Crime No. 185/2016 againstthe Appellants. Moreover, it was Respondent No. 2 who hadFwithdrawn his prayer with respect to selling of four excess flatsby the Appellants, only to pursue the same in civil proceedings.[Para 35][889-F-H]1.3 Although, there is perhaps not even an iota of doubtthat singular factual premise can give rise to dispute which isGboth, of civil as well as criminal nature, each of which could bepursued regardless of the other. In the instant case, the actualquestion which requires consideration is not whether criminalcase could be pursued in the presence of civil suit, but whether

the relevant ingredients for criminal case are even prima faciemade out. Relying on the facts clearly no cogent case regarding acriminal breach of trust or cheating is made out. The disputebetween the parties, could at best be termed as one involving amere breach of contract. [Paras 37, 38][890-B-D]

2. This Court in the case of Hridaya Ranjan Prasad Verma& Ors. v. State of Bihar has observed that mere breach of contractcannot give rise to criminal prosecution for cheating unlessfraudulent or dishonest intention is shown right at the beginningof the transaction, that is the time when the offence is said tohave been committed. Therefore it is the intention which is thegist of the offence. Applying this dictum to the instant factualmatrix where the key ingredient of having dishonest orfraudulent intent under sections 405, 419 and 420 is not madeout, the case at hand, is suitable case necessitating interventionof this Court. [Paras 39, 40][890-E-H; 891-A-B]

*Hridaya Ranjan Prasad Verma & Ors. v. State of Bihar& Anr. (2000) 4 SCC 168 : [2000] 2 SCR 859 – reliedon

3. Existence of dishonest or fraudulent intention has notbeen made out against the Appellants. Though the instant disputecertainly involves determination of issues which are of civil nature,pursuant to which Respondent No. 2 has even instituted multiplecivil suits, one can by no means stretch the dispute to an extent,so as to impart it criminal colour. There has been attempt tostretch the contours of civil dispute and thereby essentiallyimpart criminal color to it. This Court has at innumerableinstances expressed its disapproval for imparting criminal colorto civil dispute, made merely to take advantage of relativelyquick relief granted in criminal case in contrast to civil dispute.Such an exercise is nothing but an abuse of the process oflaw which must be discouraged in its entirety. [Paras 41, 45,47][891-B-C; 893-F; 894-C-D]

M/s Indian Oil Corporation v. M/s. NEPC India Ltd &Ors. (2006) 6 SCC 736 : [2006] 3 Suppl. SCR 704; G.Sagar Suri and Anr. v. State of UP and Ors. (2000) 2SCC 636 : [2000] 1 SCR 417; State of Haryana & Ors.

[2021] 8 S.C.R.

Av. Ch. Bhajan Lal and Ors. (1992) SCC (Cri) 426;Randheer Singh v. The State of U.P. & Ors. 2021(12)SCALE 55 – relied on.

Prof. R. K. Vijayasarathy & Anr. v. Sudha Seetharam &Anr. (2019) SCC Online SC 208; State of Karnataka v.BM. Devendrappa & Anr. (2002) 3 SCC 89 : [2002] 1SCR 27; Priti Saraf & Anr. v. State of NCT of Delhi &Anr. 2021 SCC Online SC 206; Sri Krishna Agenciesv. State of Andhra Pradesh & Anr. (2009) 1 SCC 69 :[2008] 16 SCR 20 – referred to.

Case Law Reference

CRIMINAL APPELLATE JURISDICTION: Criminal AppealNo.1285 of 2021

From the Judgment and Order dated 13.08.2019 of the High Courtof Karnataka at Bengaluru in Criminal Petition No.2691 of 2016.

Shailesh Madiyal, Sudhanshu Prakash, Ms. Rakhi M., VaibhavSabharwal, Ms. Sruthi Iyer, Ms. Neha Jain, Advs. for the Appellant.

V. N. Raghupathy, Md. Apzal Ansari, Advs. for the Respondents.The Judgment of the Court was delivered by

KRISHNA MURARI, J.

1. Leave granted.

2. This appeal is directed against the judgment and order dated13.08.2019 passed by the High Court of Karnataka at Bengaluru inCriminal Petition No. 2691 of 2016, filed by the Appellants under Section482 of the Code of Criminal Procedure (hereinafter referred to as

‘CrPC’) challenging the FIR No. 185/2016 dated 29.03.2016 implicatingthe appellants for offences under Section 420 read with Section 34 IPCand to quash the proceedings in C.C. No. 20609 of 2017 on the file of VIAdditional CMM, Bengaluru, initiated pursuant to charge sheet dated29.03.2017 against the appellants for offences punishable under Sections406, 419, 420 read with Section 34 of IPC. The High Court vide orderimpugned herein dismissed the same.

3. Pending instant appeal before this Court, Appellant No. 1 hasdied and his name has been deleted vide order dated 29.09.2021. Theterm ‘Appellants’ used herein should thus be construed to include onlyAppellant No. 2.

Facts

4. On 07.08.13 Respondent No. 2 had initially executed JointDevelopment Agreement (JDA) for developing particular propertywith the company of the Appellants (The Appellants being directors inthis company), i.e., Rajarajeshwari Buildcon Private Ltd. (hereinafterreferred to as ‘the builder company’). The property was to be developedeither entirely as residential apartments, or as residential apartmentswith commercial complex. In furtherance of the Joint DevelopmentAgreement, General Power of Attorney (GPA) was also executed onthe same date. Respondent No. 2 thereafter also entered into aSupplementary Agreement with the Appellants specifying their respectiveshares in undivided area and super built up area.

5. Further, on 19.02.15 Memorandum of Understanding (MoU)was entered into by Respondent No. 2 with the builder company, wherebythe company was authorized to sell 8000 sq. ft out of respondent No.2’sshare in the undivided area and super built up area. The MoU was enteredinto by Respondent No. 2 for the purpose of making partial payment ofa loan borrowed by him from one Religare Finvest Ltd. Pursuant to theMoU, Appellants had to obtain NOC for 15 flats by making payment ofRs. 40,00,000/- for each flat.

6. The Appellants herein contend at this juncture, that it wasverbally agreed between the parties, that the company would be entitledto adjust the payments made to Religare Finvest Ltd., by way of sellingadditional flats beyond its share, i.e., an additional 8000 sq.ft of built uparea would be allotted to the company’s share in lieu of the partial paymentof loan borrowed by Respondent No. 2 from Religare Finvest Ltd.

7. Eventually, at the instance of Respondent no. 2, the saiddeveloper company thereby executed sale-deeds for two flats, Flat No.202 & 203 in favour of the daughter and son-in-law of Respondent No.2. The company further executed sale deed for another flat bearingNo. 301 in favour of one Smt. Yashoda Sundararajan on 27.08.15.

B8. Thereafter, vide an email the company informed Respondentno. 2 to execute and register the above said flats comprising 6821 sq. ft.(out of the 8000 sq. ft. given to the company as per the MoU dated19.02.15) in favour of the relevant purchasers and to further makepayments to Religare Finvest Ltd. At this juncture, Respondent no. 2issued letter to the Appellants contending that the company had notCadhered to the terms of the JDA, and consequently revoked the GPA.

9. Aggrieved, the company filed an application for arbitration undersection 9 of the Arbitration Act, praying for injunction restrainingRespondent No. 2 from alienating or creating third party rights over theproperty. Respondent No. 2 on the other hand filed police complaintDclaiming that the sale of flats was in excess of the share agreed betweenthe parties. The complaint (Respondent No.2), inter-alia, had twocontentions-

•First, that the GPA was not executed in favour of thecompany, therefore, company could not have sold the saidEapartments.

•Secondly, flats sold by the company belonged to Respondentno. 2’s share. Flats alleged to have been sold in excessbearing No. 002, 301, 304, 404.

10. Pursuant to this complaint, FIR No. 185/2016 dated 29.03.2016,Fwas registered against Appellant No. 1 and 2 for offences punishableunder section 420 read with 34 of Indian Penal Code. Appellants herein,thereby approached the High Court of Karnataka seeking quashing ofthe said FIR invoking Section 482 of CrPC. Further on 29.03.17 chargesheet was filed against the appellants for offences under sections 406,G419, 420 read with Section 34 of the Indian Penal Code, which was alsosought to be quashed in the said proceedings.

11. Meanwhile, in the arbitration proceedings, the arbitrator partlyallowed the claims of the Appellants as well as Respondent No. 2. Thearbitrator held that unilateral revocation of GPA by Respondent no. 2Hwas illegal and that the company had the right to effectuate sale

agreements/sale deeds in terms of MoU. Furthermore, regarding thequestion of sale of four excess flats by the Appellants, the question wasleft unanswered in the arbitral award as Respondent No. 2 had withdrawnhis claim prayed for in paras (e), (f) and (g) of the written submissions inlight of pending civil proceedings, with liberty to pursue the issue in thoseproceedings. Prayer in para (f) in particular being:-

“directing the Applicant/Developer to evict and remove thepresent occupants of Flat No. 002, 301, 304 & 404 and deliverpossession of the said Flats, redoing and refurbishing theinteriors, as if it was new Flat, with Occupancy Certificatein respect of the said Flats.”

12. Aggrieved by the award, Respondent no. 2 preferred achallenge to the said award under section 34 of the Arbitration Act.

13. Eventually, the quashing petition also came up before the HighCourt, which was disposed of by observing that dispute regardingalienation of flats by the Appellants herein has not been answered by thearbitrator and was not subject matter of the arbitration suit pendingbetween the parties. It was further observed that since there areallegations against the Appellants for having sold the flats contrary tothe terms of MoU, there were no grounds to interfere with the matter.The Appellants herein, thereby approached this court by way of thepresent Special Leave Petition.

Contentions made on behalf of the Appellant

14. The Appellants herein have contended that the sequence ofevents in the instant case do not fulfill the necessary ingredients of analleged offence, therefore Respondent No. 2 has been simply trying toimpart criminal color to civil dispute. It is contended that the issue ofalienation of flats had not been responded to by the arbitrator sinceRespondent No. 2 had withdrawn his claim in respect of the said flatsfrom arbitral proceedings with liberty to pursue his case in pending civilproceedings. Furthermore, since Respondent No. 2 had decided to pursuehis claim by way of civil suit, therefore criminal complaint on the sameissue should be quashed.

15. It is further submitted that the entire dispute between the partiespertains to an alleged sale of flats in excess of the share agreed betweenthe parties, and that the complaint is filed by Respondent No. 2 for settlingscores in dispute which is entirely of civil nature.

16. The Appellants placed reliance on the judgment of this Courtin case of Prof. R. K. Vijayasarathy & Anr. Vs. Sudha Seetharam &Anr.[1], to substantiate the above stated argument. The relevant parasreferred are as hereunder:-

“23. The jurisdiction under Section 482 of the Code ofBCriminal Procedure has to be exercised with care. In theexercise of its jurisdiction, High Court can examine whethera matter which is essentially of civil nature has been givena cloak of criminal offence. Where the ingredients requiredto constitute criminal offence are not made out from bareCreading of the complaint, the continuation of the criminalproceeding will constitute an abuse of the process of the court.

24. In the present case, the son of the appellants has instituteda civil suit for the recovery of money against the firstrespondent. The suit is pending. The first respondent has filedDthe complaint against the appellants six years after the dateof the alleged transaction and nearly three years from thefiling of the suit. The averments in the complaint, read on itsface, do not disclose the ingredients necessary to constituteoffences under the Penal Code. An attempt has been madeby the first respondent to cloak civil dispute with criminalEnature despite the absence of the ingredients necessary toconstitute criminal offence. The complaint filed by the firstrespondent against the appellants constitutes an abuse ofprocess of court and is liable to be quashed.”

17. Learned counsel for the appellant further submits thatFRespondent No. 2 has neither denied execution of MoU nor grant ofmarketing rights to the company of the Appellants. It is further submittedthat since variation in supplementary agreement, allotting an additionalarea of 8000 sq. ft to the Petitioner Company in lieu of partial paymentmade to Religare Finvest Ltd. was not made in writing, therefore,GRespondent No. 2 has made an attempt to cloak the transactions of theAppellants as criminal offence. It is also contended that since thedispute between the parties had any way been adjudicated by thearbitrator therefore the existing criminal complaint is liable to be quashed.

Contentions made by Respondent No. 2 appearing in person

18. Respondent No. 2 who appeared in person on the contrarysubmits that the developer company of the Appellants being entitled tosell only 9 flats has executed sale deed for 13 flats in all. Further thesale of 4 flats (flat nos. 002, 301, 304 & 404) beyond the 9 flats is inexcess of the Appellants company’s share and therefore RespondentNo. 2 has been constrained to lodge complaint for cheating against theAppellants.

19. Respondent No. 2 in his objection to the contention of theAppellants that civil dispute is being given criminal color, relying uponthe dictum in State of Karnataka Vs. M. Devendrappa & Anr.[2],submitsthat reliance must be placed on whether the complaint spells out theingredients of criminal offence or not, and not on the defenses availableto an accused, which if established in trial may lead to his acquittal.

20. It is further submitted that the Appellants after selling propertywhich they were unauthorized to sell cannot evade criminal case merelyon the contention that the person whose property has been sold has fileda civil suit for recovery of the said property. The Respondent furtherrelies upon the judgment of this Court in Priti Saraf & Anr. Vs. State ofNCT of Delhi & Anr.[3], wherein it was observed that :-

“32. In the instant case, on careful reading of the complaint/FIR/charge-sheet, in our view, it cannot be said that thecomplaint does not disclose the commission of an offence.The ingredients of the offences under Sections 406 and 420IPC cannot be said to be absent on the basis of the allegationsin the complaint/FIR/charge-sheet. We would like to add thatwhether the allegations in the complaint are otherwise corrector not, has to be decided on the basis of the evidence to beled during the course of trial. Simply because there is remedyprovided for breach of contract or arbitral proceedingsinitiated at the instance of the appellants, that does not byitself clothe the court to come to conclusion that civil remedyis the only remedy, and the initiation of criminal proceedings,in any manner, will be an abuse of the process of the courtfor exercising inherent powers of the High Court under Section482 CrPC for quashing such proceedings.

2 (2002) 3 SCC 89

3 2021 SCC Online SC 206

A33. We have perused the pleadings of the parties, the complaint/FIR/charge-sheet and orders of the Courts below and havetaken into consideration the material on record. After hearinglearned counsel for the parties, we are satisfied that the issueinvolved in the matter under consideration is not case inwhich the criminal trial should have been short-circuited. TheBHigh Court was not justified in quashing the criminalproceedings in exercise of its inherent jurisdiction. The HighCourt has primarily adverted on two circumstances, (i) that itwas case of termination of agreement to sell on account ofan alleged breach of the contract and (ii) the fact that theCarbitral proceedings have been initiated at the instance ofthe appellants. Both the alleged circumstances noticed by theHigh Court, in our view, are unsustainable in law. The factsnarrated in the present complaint/FIR/charge-sheet indeedreveal the commercial transaction but that is hardly reasonfor holding that the offence of cheating would elude fromDsuch transaction. In fact, many times, offence of cheatingis committed in the course of commercial transactions andthe illustrations have been set out under Sections 415, 418and 420 IPC. Similar observations have been made by thisCourt in Trisuns Chemical Industry Vs. Rajesh Agarwal andEOrs.(supra) :-

9. We are unable to appreciate the reasoning that the provisionincorporated in the agreement for referring the disputes toarbitration is an effective substitute for criminal prosecutionwhen the disputed act is an offence. Arbitration is remedyFfor affording reliefs to the party affected by breach of theagreement but the arbitrator cannot conduct trial of anyact which amounted to an offence albeit the same act may beconnected with the discharge of any function under theagreement. Hence, those are not good reasons for the HighCourt to axe down the complaint at the threshold itself. TheGinvestigating agency should have had the freedom to go intothe whole gamut of the allegations and to reach conclusionof its own. Pre-emption of such investigation would be justifiedonly in very extreme cases as indicated in State of Haryana v.Bhajan Lal [1992 Supp (1) SCC 335].”

21. It has been further argued that reliance made by the Appellantson the judgment of this Court in Prof. R K Vijayasarathy & Anr Vs.Sudha Seetharam & Anr.[4]is misplaced, as the said case was decidedon different facts, wherein criminal proceedings were instituted as lateas three years after the institution of civil proceedings, and the necessaryingredients to constitute an offence were also not made out in thecomplaint. On the contrary, in the instant case, relevant ingredients toconstitute an offence under section 405 and 415 have clearly been madeout.

22. Placing reliance upon Sri Krishna Agencies Vs. State ofAndhra Pradesh & Anr.[5], it is further contended by Respondent No. 2that criminal proceedings cannot be quashed solely because the disputewas referred to arbitration and that arbitration proceedings had takenplace thereafter. Para 7 of the said judgment has been particularlyemphasized upon by Respondent No. 2, wherein it has been observed asunder :-

“On behalf of respondent No. 2, the submissions which hadbeen urged before the High Court, were reiterated, which,however, appears to be unacceptable having regard to thedecision cited by Mr. Adhyaru. We are also of the view thatthere can be no bar to the simultaneous continuance of acriminal proceeding and civil proceeding if the two arisefrom separate causes of action. The decision in TrisunsChemical Industry’s case (Supra) appears to squarely coverthis case as well.”

23. To simply put, what has been argued on behalf of RespondentNo. 2 is that cause of action in civil and criminal proceedings institutedby Respondent No. 2 are separate and independent of each other, i.e.,liability for breach of agreement is independent of the liability forcommission of offence under sections 405 and 415 of the Indian PenalCode. Therefore, criminal proceedings so instituted against the Appellantsherein cannot be quashed.

24. It is further contended that sale deed in respect of 8000 sq. ft.area cannot be executed by the Appellants as Respondent No 2 had notgiven GPA to sell the said area. Therefore, the sale made by the

4 2019 SCC Online SC 208

5 (2009) 1 SCC 69

AAppellants in excess of their authority is unlawful and is indicative of thecriminal intent of the appellants. Moreover, the said excess four flatssold by the Appellants, have also been taken out of the arbitral proceedingsand therefore the Appellants herein can place no reliance on the arbitralproceedings.

BContentions made on behalf of Respondent No. 1-State

25. Counsel appearing for the State of Karnataka i.e. RespondentNo. 1 submits that, as far as the argument of the Appellants thatRespondent No. 2 has merely made an attempt to cloak dispute of civilnature is concerned, the High Court has held that in the instantCcircumstances there being clear allegations that the appellants hadexecuted sale deed of the said flats without authority, there were nogrounds to interfere with the matter. It is further submitted that in theinstant facts clear ingredients of offences punishable under sections 406,419 and 420 read with section 34 of Indian Penal Code have been madeout.

Issues

26. Having perused the relevant facts and contentions made bythe Appellants and Respondents herein in our considered opinion, thefollowing three key issues require determination in the instant case:

-Whether the necessary ingredients of offences punishableunder Sections 406, 419 and 420 are prima facie made out?

-Whether sale of excess flats, even if made, amounts to amere breach of contract or constitutes an offence ofcheating?

-Whether the dispute is one of entirely civil nature andtherefore liable to be quashed?

Whether the necessary ingredients of offences punishableunder Sections 406, 419 and 420 are prima facie made out?G27. In order to ascertain the veracity of contentions made by the

27. In order to ascertain the veracity of contentions made by theparties herein, it is imperative to firstly examine whether the relevantingredients of offences which the appellants herein had been chargedwith, are prima facie made out. The relevant sections read as follows:-

“405. Criminal breach of trust—Whoever, being in any mannerHentrusted with property, or with any dominion over property,

dishonestly misappropriates or converts to his own use thatproperty, or dishonestly uses or disposes of that property inviolation of any direction of law prescribing the mode in whichsuch trust is to be discharged, or of any legal contract, expressor implied, which he has made touching the discharge of suchtrust, or wilfully suffers any other person so to do, commits“criminal breach of trust”.

[Explanation [1].—A person, being an employer [of anestablishment whether exempted under section 17 of theEmployees’ Provident Funds and Miscellaneous ProvisionsAct, 1952 (19 of 1952), or not] who deducts the employee’scontribution from the wages payable to the employee for creditto Provident Fund or Family Pension Fund established byany law for the time being in force, shall be deemed to havebeen entrusted with the amount of the contribution so deductedby him and if he makes default in the payment of suchcontribution to the said Fund in violation of the said law,shall be deemed to have dishonestly used the amount of thesaid contribution in violation of direction of law asaforesaid.] [Explanation 2.—A person, being an employer,who deducts the employees’ contribution from the wagespayable to the employee for credit to the Employees’ StateInsurance Fund held and administered by the Employees’ StateInsurance Corporation established under the Employees’ StateInsurance Act, 1948 (34 of 1948), shall be deemed to havebeen entrusted with the amount of the contribution so deductedby him and if he makes default in the payment of suchcontribution to the said Fund in violation of the said Act,shall be deemed to have dishonestly used the amount of thesaid contribution in violation of direction of law asaforesaid.]

406. Punishment for criminal breach of trust—Whoevercommits criminal breach of trust shall be punished withimprisonment of either description for term which mayextend to three years, or with fine, or with both.

419. Punishment for cheating by personation—Whoever cheatsby personation shall be punished with imprisonment of eitherde-scription for term which may extend to three years, orwith fine, or with both.

A420. Cheating and dishonestly inducing delivery of property—Whoever cheats and thereby dishonestly induces the persondeceived to deliver any property to any person, or to make,alter or destroy the whole or any part of valuable security,or anything which is signed or sealed, and which is capableof being converted into valuable security, shall be punishedBwith imprisonment of either description for term which mayextend to seven years, and shall also be liable to fine.”

28. In the instant case, the complaint levelled against the Appellantsherein is one which involves commission of offences of criminal breachof trust and cheating. While criminal breach of trust as postulatedCunder section 405 of the Indian Penal Code, entails misappropriation orconversion of another’s property for one’s own use, with dishonestintention, cheating too on the other hand as an offence defined undersection 415 of the Indian Penal Code, involves an ingredient of having adishonest or fraudulent intention which is aimed at inducing the otherDparty to deliver any property to specific person. Both the sectionsclearly prescribed ‘dishonest intention’, as pre-condition for even primafacie establishing the commission of said offences. Thus, in order toassess the relevant contentions made by the parties herein, the questionwhether actions of the Appellants were committed in furtherance of adishonest or fraudulent scheme is one which requires scrutiny.

29. Coming to the facts of the case at hands, the contestedcontention between the parties is that the builder company had sold fourexcess flats beyond its share, in terms of the JDA and supplementaryagreement entered into between the parties. Respondent No. 2 contendsthat builder company which was entitled to sell only 9 flats in its favour,Fhas instead executed sale deed for 13 flats in total. Thus, the companysimply could not have sold the flats beyond 9 flats for which it wasauthorized and resultantly cannot evade criminal liability on mere premisethat civil dispute is already pending between the parties.

30. The Appellants on the other hand contend that in terms of aGsubsequent MoU dated 19.02.15, it was mutually agreed between theparties, that partial payment for loan amount borrowed by RespondentNo. 2 from Religare Finvest Ltd., would be paid out from the saleproceeds of the said development project undertaken by both the parties.Pursuant to this MoU, the Appellants had agreed to get an NOC for 15Hflats by making payment of Rs. 40,00,000/- for each flat.

31. The key contention, and also the central point of dispute, madeby the Appellants is that, it was specifically agreed between the partiesthat the Appellants would be entitled to sell additional flats beyond theirshare, as adjustments for payment made to Religare Finvest Ltd on behalfof Respondent No. 2. It is further contended that Respondent No. 2 hadalso agreed to execute ratification deed to the JDA and GPA eventually,which would have formally authorised the Appellants to sell additionalapartments.

32. Nonetheless, the ratification deed was never made andRespondent No. 2 subsequently even revoked the GPA unilaterally,contending that the terms of JDA were not followed.

33. It was only after revocation of GPA that the company filed anapplication for arbitration seeking interim orders to restrain theRespondent No. 2 from alienating the disputed property. Simultaneously,while this dispute was pending adjudication before the arbitratorRespondent No. 2 filed criminal complaint against the Appellants.

34. At this juncture, it further becomes pertinent to mention thateventually though both the parties partly succeeded before the arbitrator,in terms of their respective claims, the arbitrator observed that GPAindeed could not have been revoked unilaterally at the instance ofRespondent No. 2. Aggrieved, Respondent No. 2 thereafter evenpreferred challenge to the award passed by the arbitrator. Moreover,pending arbitration proceedings issue regarding selling of excess flats atthe instance of Appellants, was also withdrawn by Respondent No. 2seeking liberty to pursue his claim with regard to selling of four excessflats in pending civil proceedings.

35. Upon careful assessment of such facts, by no stretch can itbe concluded that the Appellants herein have deceptively or intentionallytried to sell excess flats if any, as contended by Respondent No. 2.Here, it must also be borne in mind that subsequent to the revocation ofGPA, it was the Appellants herein who had first resorted to arbitrationproceedings on 02.03.16 for redressal of dispute between the parties, towhich Respondent No 2 had accordingly filed his statement of objectionsdated 09.03.16. It was only on 29.03.16 that Respondent No. 2 had filedthe FIR in question bearing Crime No. 185/2016 against the Appellants.Moreover, it was Respondent No. 2 who had withdrawn his prayer withrespect to selling of four excess flats by the Appellants, only to pursuethe same in civil proceedings.

A36. At this stage, by placing reliance on the judgment of this CourtinPriti Saraf & Anr. Vs. State of NCT of Delhi & Anr. (Supra) andSri Krishna Agencies Vs. State of Andhra Pradesh & Anr. (Supra),it has been further submitted by Respondent No. 2 that Appellants cannotevade criminal case by merely contending that the person whoseproperty has been sold has filed civil suit for recovery of the property,Bor that the dispute had been referred to arbitration.

37. Although, there is perhaps not even an iota of doubt that asingular factual premise can give rise to dispute which is both, of civilas well as criminal nature, each of which could be pursued regardless ofthe other. In the instant case, the actual question which requiresCconsideration is not whether criminal case could be pursued in thepresence of civil suit, but whether the relevant ingredients for criminalcase are even prima facie made out. Relying on the facts as discussedin previous paragraphs, clearly no cogent case regarding criminal breachof trust or cheating is made out.D

38. The dispute between the parties, could at best be termed asone involving mere breach of contract. Now, whether and what, is thedifference between mere breach of contract and an offence of cheatinghas been discussed in the ensuing paragraphs.

Whether sale of excess flats even if made amounts to aEmere breach of contract?

39. This Court in the case of Hridaya Ranjan Prasad Verma &Ors. Vs. State of Bihar & Anr.[6], has observed:-

“15. ….that the distinction between mere breach of contractFand the offence of cheating is fine one. It depends upon theintention of the accused at the time to inducement which maybe judged by his subsequent conduct but for this subsequentconduct is not the sole test. Mere breach of contract cannotgive rise to criminal prosecution for cheating unless fraudulentor dishonest intention is shown right at the beginning of theGtransaction, that is the time when the offence is said to havebeen committed. Therefore it is the intention which is the gistof the offence. To hold person guilty of cheating it isnecessary to show that he had fraudulent or dishonestintention at the time of making the promise…”

40. Applying this dictum to the instant factual matrix where thekey ingredient of having dishonest or fraudulent intent under sections405, 419 and 420 is not made out, the case at hand, in our consideredopinion is suitable case necessitating intervention of this Court.

Whether the dispute is one of entirely civil nature andtherefore liable to be quashed?

41. Having considered the relevant arguments of the parties anddecisions of this court we are of the considered view that existence ofdishonest or fraudulent intention has not been made out against theAppellants. Though the instant dispute certainly involves determinationof issues which are of civil nature, pursuant to which Respondent No. 2has even instituted multiple civil suits, one can by no means stretch thedispute to an extent, so as to impart it criminal colour. As has beenrightly emphasised upon by this court, by way of an observation renderedin the case of M/s Indian Oil Corporation Vs. M/s. NEPC India Ltd& Ors.[7], as under :-

“14. While no one with legitimate cause or grievance shouldbe prevented from seeking remedies available in criminal law,a complainant who initiates or persists with prosecution,being fully aware that the criminal proceedings areunwarranted and his remedy lies only in civil law, shouldhimself be made accountable, at the end of such misconceivedcriminal proceedings, in accordance with law.”

42. It was also observed:-

“13. While on this issue, it is necessary to take notice of agrowing tendency in business circles to convert purely civildisputes into criminal cases. This is obviously on account ofa prevalent impression that civil law remedies are timeconsuming and do not adequately protect the interests oflenders/creditors….There is also an impression that if personcould somehow be entangled in criminal prosecution, thereis likelihood of imminent settlement. Any effort to settle civildisputes and claims, which do not involve any criminal offence,by applying pressure though criminal prosecution should bedeprecated and discouraged.”

A43. On an earlier occasion, in case of G. Sagar Suri and Anr.Vs. State of UP and Ors.[8], this Court has also observed:-

“8. Jurisdiction under Section 482 of the Code has to beexercised with great care. In exercise of its jurisdiction HighCourt is not to examine the matter superficially. It is to beBseen if matter, which is essentially of civil nature, has beengiven cloak of criminal offence. Criminal proceedings arenot short cut of other remedies available in law. Beforeissuing process criminal court has to exercise great dealof caution. For the accused it is serious matter. This Courthas laid certain principles on the basis of which High CourtCis to exercise its jurisdiction under Section 482 of the Code.Jurisdiction under this Section has to be exercised to preventabuse of the process of any court or otherwise to secure theends of justice.”

44. Furthermore, in the landmark judgment of State of HaryanaD& Ors. Vs. Ch. Bhajan Lal and Ors.[9 ]regarding exercise of inherentpowers under section 482 of CrPC, this Court has laid down followingcategories of instances wherein inherent powers of the can be exercisedin order to secure the ends of justice. These are:-

“(1) where the allegations made in the First Information ReportEor the complaint, even if they are taken at their face valueand accepted in their entirety do not prima facie constituteany offence or make out case against the accused;

(2) where the allegations in the First Information Report andother materials, if any, accompanying the F.I.R. do not discloseFa cognizable offence, justifying an investigation by policeofficers under Section 156(1) of the Code except under anorder of Magistrate within the purview of Section 155(2)of the Code;

(3) where the uncontroverted allegations made in the FIR orG‘complaint and the evidence collected in support of the samedo not disclose the commission of any offence and make outa case against the accused;

8 (2000) 2 SCC 636H9 (1992) SCC (Cri) 426

(4) where the allegations in the FIR do not constitute acognizable offence but constitute only non-cognizableoffence, no investigation is permitted by police officer withoutan order of Magistrate as contemplated under Section155(2) of the Code;

(5) where the allegations made in the FIR or complaint are soabsurd and inherently improbable on the basis of which noprudent person can ever reach just conclusion that there issufficient ground for proceeding against the accused;

(6) where there is an express legal bar engrafted in any ofthe provisions of the Code or the concerned Act (under whicha criminal proceeding is instituted) to the institution andcontinuance of the proceedings and/or where there is aspecific provision in the Code or the concerned Act, providingefficacious redress for the grievance of the aggrieved party;

(7) where criminal proceeding is manifestly attended withmala fide and/or where the proceeding is maliciously institutedwith an ulterior motive for wreaking vengeance on the accusedand with view to spite him due to private and personalgrudge.”

45. Applying this dictum to the instant factual matrix, it can besafely concluded that the present case clearly falls within the ambit offirst, third and fifth category of the seven categories enlisted in the abovesaid judgment. The case therefore warrants intervention by this Court,and the High Court has erred in dismissing the petition filed by theAppellants under section 482 CrPC. We find that there has been attemptto stretch the contours of civil dispute and thereby essentially impart acriminal color to it.

46. Recently, this Court in case of Randheer Singh Vs. TheState of U.P. & Ors.[10], has again reiterated the long standing principlethat criminal proceedings must not be used as instruments of harassment.The court observed as under:-

“33. ….There can be no doubt that jurisdiction under Section482 of the Cr.P.C. should be used sparingly for the purpose

of preventing abuse of the process of any court or otherwise

10 Criminal Appeal No. 932 of 2021 (decided on 02.09.2021)

Ato secure the ends of justice. Whether complaint disclosescriminal offence or not depends on the nature of the allegationand whether the essential ingredients of criminal offenceare present or not has to be judged by the High Court. Therecan be no doubt that complaint disclosing civil transactionsmay also have criminal texture. The High Court has, however,Bto see whether the dispute of civil nature has been givencolour of criminal offence. In such situation, the High Courtshould not hesitate to quash the criminal proceedings as heldby this Court in Paramjeet Batra (supra) extracted above.”

47. Moreover, this Court has at innumerable instances expressedCits disapproval for imparting criminal color to civil dispute, made merelyto take advantage of relatively quick relief granted in criminal case incontrast to civil dispute. Such an exercise is nothing but an abuse ofthe process of law which must be discouraged in its entirety.

48. In view of the above facts and discussions, the impugnedDorder dated 13.08.2019 passed by the High Court of Karnataka is setaside. The impugned F.I.R. No. 185 of 2016 dated 29.03.2016 andproceedings in C.C.No. 20609 of 2017 on the file of VI Additional CMM,Bengaluru, in pursuance of charge sheet dated 29.03.2017 against theappellants for offences under Sections 406, 419, 420 read with SectionE34 IPC stands quashed.

49. As result, appeal stands allowed.

Devika Gujral

Appeal allowed.