2024 (3) TMI 1442 - SC - Indian Laws

Dismissal of quashing of FIR - Breach of contract - criminal offence or civil matter - invocation of extraordinary powers of the High Court Under Section 482 of the Code of Criminal Procedure - abuse of process of law - HELD THAT - The dispute between the parties is primarily civil in nature. It is after all a question of how many bicycles the complainant had assembled and the dispute between the parties is only regarding the figure of bicycles and consequently of the amount liable to be paid. This is a civil dispute. The complainant has not been able to establish that the intention to cheat the complainant was there with the Appellants right from the beginning. Merely because the Appellants admit that only 28, 995 bicycles were assembled but they have admittedly paid an amount of Rs. 62, 01, 746/- to the complainant which is of a much higher number of bicycles would not prove that the intention of the Appellants right from the beginning was to cheat. This amount i.e. the additional amount of Rs. 26 lacs have been paid by the Appellants pursuant to a settlement. The reasons and the logic for arriving at a settlement are quite different - The allegation that the complainant was coerced into a settlement looks unlikely for two reasons. First there is no FIR or Complaint that the complainant was coerced into this settlement. Secondly this amount was duly accepted by the complainant. This is a case where the inherent powers should have been exercised by the High Court Under Section 482 of the Code of Criminal Procedure as the powers are there to stop the abuse of the process and to secure the ends of justice. Essentially the present dispute between the parties relates to a breach of contract. A mere breach of contract by one of the parties would not attract prosecution for criminal offence in every case as held by this Court in Sarabjit Kaur v. State of Punjab and Anr. 2023 (3) TMI 1572 - SUPREME COURT . Similarly dealing with the distinction between the offence of cheating and a mere breach of contractual obligations this Court in Vesa Holdings (P) Ltd. v. State of Kerala 2015 (3) TMI 1385 - SUPREME COURT has held that every breach of contract would not give rise to the offence of cheating and it is required to be shown that the Accused had fraudulent or dishonest intention at the time of making the promise. In the case at hand the dispute between the parties was not only essentially of a civil nature but in this case the dispute itself stood settled later. There are no criminal element here and consequently the case here is nothing but an abuse of the process. Conclusion - The dispute is essentially civil and that the High Court erred in refusing to quash the FIR. The criminal proceedings are quashed under Section 482 CrPC as an abuse of process given the settlement and absence of criminal intent. The order of the High Court set aside - appeal allowed.

Summary

The core legal questions considered by the Court include:

1. Whether the dispute underlying the FIR constitutes a criminal offence or is essentially a civil matter.

2. Whether the High Court erred in refusing to quash the FIR under Section 482 of the Code of Criminal Procedure (CrPC) on the ground that the criminal proceedings were an abuse of the process of law.

3. Whether the existence of a compromise deed and partial payments made pursuant thereto affect the criminality of the allegations.

4. The applicability and scope of the inherent powers of the High Court under Section 482 CrPC in quashing criminal proceedings that are essentially civil disputes cloaked as criminal offences.

5. The distinction between breach of contract and criminal offences such as cheating and criminal breach of trust, particularly the requirement of fraudulent or dishonest intention at the time of making the promise.

Issue-wise Detailed Analysis:

1. Nature of the Dispute: Civil or Criminal?

Legal framework and precedents: The Court relied heavily on the principles articulated in Paramjeet Batra v. State of Uttarakhand, which emphasized that the High Court should exercise caution under Section 482 CrPC to prevent abuse of process and quash criminal proceedings that are essentially civil in nature. The Court also referred to Randheer Singh v. State of U.P. and Usha Chakraborty v. State of West Bengal, which reiterated that criminal proceedings should not be used as a tool of harassment when the dispute is fundamentally civil.

Further, the Court cited Sarabjit Kaur v. State of Punjab and Vesa Holdings (P) Ltd. v. State of Kerala to clarify that breach of contract does not automatically constitute a criminal offence unless there is evidence of fraudulent or dishonest intention at the time of promise.

Court's interpretation and reasoning: The Court found that the dispute was primarily about the number of bicycles assembled and the corresponding payment due, which is a contractual and civil matter. The complainant claimed to have assembled 83,267 bicycles and invoiced accordingly, while the appellants contended only 28,995 bicycles were assembled, leading to a dispute over payment amount. This factual disagreement over quantity and payment is inherently civil.

Key evidence and findings: The appellants had paid Rs. 35,37,390 initially, and subsequently, pursuant to a compromise deed, an additional Rs. 26 lakhs was paid and accepted by the complainant, totaling Rs. 62 lakhs against the claimed Rs. 1.01 crores. The complainant did not dispute receipt of this amount but alleged coercion in entering the settlement.

Application of law to facts: The Court held that the mere existence of a dispute over payment and quantity does not establish criminal intent. The additional payment under the compromise deed was intended to bring peace and avoid litigation, not to conceal fraudulent intent. The Court found no evidence that the appellants had dishonest intention from the outset.

Treatment of competing arguments: The complainant's argument of coercion was rejected due to lack of any FIR or complaint alleging coercion at the time of settlement and the fact that the amount was duly accepted through bank transaction.

Conclusion: The dispute was essentially civil, lacking the necessary criminal elements of cheating or criminal breach of trust.

2. Exercise of Inherent Powers Under Section 482 CrPC

Legal framework and precedents: Section 482 CrPC grants inherent powers to the High Court to prevent abuse of process and secure ends of justice. The Court reiterated the principle from Paramjeet Batra that these powers should be exercised sparingly but must be used to quash criminal proceedings that cloak civil disputes as criminal offences.

Court's interpretation and reasoning: The Court disagreed with the High Court's refusal to quash the FIR, emphasizing that allowing criminal proceedings to continue in a matter that is essentially civil constitutes an abuse of process. The compromise deed and payments demonstrated that the parties had resolved the dispute to a significant extent, further negating the criminality.

Key evidence and findings: The compromise deed dated 27.12.2017 and the payment of Rs. 26 lakhs were critical in showing settlement and absence of criminal intent. The FIR was filed before the settlement, but the subsequent conduct and resolution weighed against continuing criminal proceedings.

Application of law to facts: The Court applied the inherent powers to quash the FIR to prevent harassment and misuse of criminal law for what was essentially a contractual dispute.

Treatment of competing arguments: The Court acknowledged the High Court's view that a prima facie case of cheating existed but found that this was based on an incorrect inference from the payment made post-settlement. The Court rejected the notion that paying more than the claimed assembled bicycles indicated fraudulent intention.

Conclusion: The inherent powers under Section 482 CrPC should have been exercised to quash the criminal proceedings as an abuse of process.

3. Distinction Between Breach of Contract and Criminal Offence

Legal framework and precedents: The Court reiterated that not every breach of contract amounts to cheating or criminal breach of trust. The fraudulent or dishonest intention at the time of promise is a sine qua non for criminal liability, as held in Vesa Holdings (P) Ltd.

Court's interpretation and reasoning: The Court found no evidence of fraudulent intention at the time of contract formation or thereafter. The dispute was over the quantity of bicycles assembled and payment due, which is a contractual issue. The subsequent settlement further negated any presumption of criminal intent.

Key evidence and findings: The admitted payments and compromise deed, along with the absence of any direct evidence of fraud, supported the conclusion that the matter was contractual.

Application of law to facts: The Court applied the principle that criminal proceedings cannot be initiated merely because one party alleges breach of contract without proof of dishonest intention.

Treatment of competing arguments: The Court rejected the complainant's contention that the appellants intended to cheat from the beginning, finding it unsupported by evidence.

Conclusion: The allegations amounted to a breach of contract, not a criminal offence.

Significant Holdings:

"Whether a complaint discloses a criminal offence or not depends upon the nature of facts alleged therein. Whether essential ingredients of criminal offence are present or not has to be judged by the High Court. A complaint disclosing civil transactions may also have a criminal texture. But the High Court must see whether a dispute which is essentially of a civil nature is given a cloak of criminal offence."

"The mere fact that the Appellants have paid an additional amount pursuant to the settlement, cannot be presumed as an act of cheating."

"This is a case where the inherent powers should have been exercised by the High Court Under Section 482 of the Code of Criminal Procedure as the powers are there to stop the abuse of the process and to secure the ends of justice."

"Every breach of contract would not give rise to the offence of cheating, and it is required to be shown that the Accused had fraudulent or dishonest intention at the time of making the promise."

The Court ultimately held that the dispute was essentially civil and that the High Court erred in refusing to quash the FIR. The criminal proceedings were quashed under Section 482 CrPC as an abuse of process, given the settlement and absence of criminal intent.