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2025 (5) TMI 1058 - SC - CustomsPetition under section 482 of the Code of Criminal Procedure - FIR registered under sections 406 and 420 of the Indian Penal Code ( IPC ) - essential ingredients of criminal breach of trust and cheating - goods exported out of India without export-import license - misrepresentation and induced the second respondent to deliver the goods - non-payment of the sale price - HELD THAT - As per the FIR the goods were to be exported out of India. The respondent no. 2 since did not possess an import/export license the appellant had asked respondent no. 2 to export the goods through M/s. Oswal Overseas. Accordingly from 16.10.2013 to 05.03.2014 respondent no. 2 has in all exported sarees worth Rs. 34, 71, 344/- through Vikrambhai owner of M/s. Oswal Overseas to the appellant. The respondent no. 2 complains that the appellant after appropriating the goods exported has not paid the sale price of Rs. 34, 71, 344/-. M/s. Oswal Overseas is the exporter and the primary liability for the goods entrusted lies with the appellant. The respondent no. 2 has treated the Director/Partner of M/s. Oswal Overseas as a witness to bring home the accusation of breach of trust and cheating. We do not want to hold a mini trial and observe whether such an effort either in the course of the investigation by the police or finally in the prosecution will bring home the aforesaid charges. In the documents filed as Annexure P2 which is a true copy of the invoices and the payment receipt made by the appellant the appellant is shown as the consignee and M/s. Oswal Overseas is the exporter. Therefore the entrustment was made to M/s. Oswal Overseas by respondent no. 2 and not to the appellant. The sale price was agreed to be debited to the account of M/s. Oswal Overseas accepted the same as part payment against the subject export of goods from the appellant. It might be true that the appellant is yet to discharge the sale price of the subject export. The respondent no. 2 by referring to an oral arrangement of inducement tries to plead a case contrary to the documents through which the final entrustment of the exported goods happened in Sri Lanka. Thus we are of the view that the continuation of the FIR against the appellant is an abuse of the process of law and at best the non-payment of the sale price could be a civil dispute between the appellant and M/s. Oswal Overseas. The appeal is accordingly allowed the impugned order is set aside and FIR No. I-06 of 2017 is quashed.
1. ISSUES PRESENTED and CONSIDERED
- Whether the FIR registered under sections 406 and 420 of the Indian Penal Code ("IPC") against the appellant for alleged criminal breach of trust and cheating can be quashed under section 482 of the Code of Criminal Procedure ("the Code"). - Whether the allegations in the FIR disclose the essential ingredients of offences under sections 406 and 420 IPC, or whether the dispute is purely a civil matter concerning non-payment of sale price. - Whether the appellant had the requisite dishonest or fraudulent intention at the inception of the transaction to attract criminal liability. - The scope and limits of the High Court's jurisdiction under section 482 of the Code to quash an FIR at the initial stage, especially when the investigation is ongoing. - The legal significance of the role of M/s. Oswal Overseas as an exporter and intermediary in the transactions between the second respondent and the appellant, particularly regarding entrustment of goods and liability for payment. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Whether the FIR discloses the essential ingredients of offences under sections 406 and 420 IPC Relevant legal framework and precedents: - Section 406 IPC defines criminal breach of trust, requiring entrustment of property and dishonest misappropriation or conversion in violation of law or contract. - Section 420 IPC defines cheating and dishonestly inducing delivery of property. - The Court referred to the judgment in Radheyshyam v. State of Rajasthan which laid down the ingredients of criminal breach of trust:
- Rashmi Kumar v. Mahesh Kumar Bhada clarified that entrustment implies handing over possession without transferring ownership, with the accused holding property on behalf of another. - Hridaya Ranjan Prasad Verma v. State of Bihar emphasized the necessity of proving fraudulent or dishonest intention at the time of inducement; mere breach of contract is insufficient. - Prof. R.K. Vijayasarathy v. Sudha Seetharam outlined the ingredients of cheating under sections 415 and 420 IPC, focusing on fraudulent or dishonest inducement causing delivery of property. Court's interpretation and reasoning: - The Court examined the FIR and noted that the appellant had contacted the second respondent, viewed samples, and induced the latter to supply goods with a promise of payment within 60 to 90 days. - The FIR alleges that despite repeated demands and assurances, the appellant failed to pay for goods worth Rs. 34,71,344/- exported through M/s. Oswal Overseas. - However, the Court found that the entrustment of goods was made to M/s. Oswal Overseas, the exporter, not directly to the appellant. The invoices and payment receipts showed the appellant as consignee but M/s. Oswal Overseas as exporter and primary party responsible for payment. Key evidence and findings: - Documents (Annexures P1 to P3) including invoices, packing lists, and payment receipts were examined. - The "bill of lading" and customs clearance documents indicated transfer of goods through M/s. Oswal Overseas. - M/s. Oswal Overseas paid Rs. 4,46,764/- for goods not exported, reducing the unpaid amount. Application of law to facts: - The Court held that the essential ingredient of entrustment to the accused was absent since the second respondent entrusted goods to the exporter, not directly to the appellant. - The appellant's alleged non-payment was a commercial dispute over sale price rather than criminal breach of trust or cheating. Treatment of competing arguments: - The appellant argued that the FIR did not disclose offences under IPC and that the dispute was purely civil. - The second respondent contended that the appellant had fraudulent intention and misrepresented to induce business, making the allegations fit criminal offences. - The Court noted that the second respondent's attempt to rely on oral inducement contradicted documentary evidence. Conclusions: - The FIR did not disclose the essential ingredients of criminal breach of trust or cheating. - The matter was essentially a civil dispute over unpaid sale price. Issue 2: Whether the High Court erred in refusing to quash the FIR under section 482 of the Code Relevant legal framework and precedents: - The Court referred to State of Odisha v. Pratima Mohanty, Kaptan Singh v. State of Uttar Pradesh, and Pratibha v. Rameshwari Devi, which emphasize that quashing FIRs under section 482 is an exceptional remedy. - Courts must not delve into the merits or reliability of allegations at the FIR stage and must exercise caution. Court's interpretation and reasoning: - The High Court had dismissed the quashing application relying on the second respondent's narrative and affidavit, finding prima facie material for offences. - The Supreme Court held that the High Court improperly relied on the narrative without considering the documentary evidence contradicting the allegations. - The Court emphasized that continuing investigation/prosecution here would amount to abuse of process of law. Key evidence and findings: - The Supreme Court noted the absence of direct entrustment to appellant and the presence of export documents showing M/s. Oswal Overseas as exporter and liable party. Application of law to facts: - The Court applied the principle that non-payment of sale price alone cannot constitute criminal breach of trust or cheating. - The Court found that the High Court failed to appreciate that the dispute was civil in nature and that the FIR was an abuse of process. Treatment of competing arguments: - The appellant sought quashing based on the FIR and documents without extraneous evidence. - The second respondent and investigating agency argued that investigation should continue to establish dishonest intention. - The Court held that investigation or trial cannot be used to convert a civil dispute into a criminal case. Conclusions: - The High Court erred in refusing to quash the FIR. - The FIR was quashed as continuation would be an abuse of process of law. Issue 3: The legal effect of the role of M/s. Oswal Overseas and the nature of entrustment Relevant legal framework and precedents: - Entrustment is a key element in criminal breach of trust, requiring possession to be handed over to the accused for some purpose. - The Court relied on Rashmi Kumar v. Mahesh Kumar Bhada, which clarified that entrustment does not transfer ownership but possession on behalf of another. >Court's interpretation and reasoning: - The second respondent entrusted goods to M/s. Oswal Overseas, who had export-import license and facilitated export to the appellant. - The appellant was the consignee but not the party to whom goods were entrusted by the second respondent. - The contractual and documentary evidence showed that the liability for payment lay with M/s. Oswal Overseas. Key evidence and findings: - Export documents, invoices, and payment receipts indicated the role of M/s. Oswal Overseas as exporter and intermediary. Application of law to facts: - Since entrustment was to M/s. Oswal Overseas, the appellant could not be held liable for criminal breach of trust based on non-payment. Treatment of competing arguments: - The second respondent argued that the appellant induced him to do business through M/s. Oswal Overseas and thus was responsible. - The Court rejected this, holding that the documentary evidence contradicted the oral allegations. Conclusions: - The role of M/s. Oswal Overseas as exporter and intermediary precludes criminal liability of the appellant for breach of trust or cheating. 3. SIGNIFICANT HOLDINGS - "For an offence punishable under Section 406, IPC, the following ingredients must exist: (i) The accused was entrusted with property, or entrusted with dominion over property; (ii) The accused had dishonestly misappropriated or converted to their own use that property, or dishonestly used or disposed of that property or wilfully suffer any other person to do so; and (iii) Such misappropriation, conversion, use or disposal should be in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract." - "The distinction between mere breach of contract and the offence of cheating has to be kept in mind. It depends upon the intention of the accused at the time of the alleged inducement... Mere breach of contract cannot give rise to criminal prosecution for cheating unless a fraudulent or dishonest intention is shown at the inception of the transaction." - "While examining an FIR/complaint, quashing of which is sought, the court cannot embark upon any enquiry as to the reliability or genuineness of allegations made in the FIR/complaint. Quashing a complaint/FIR should be an exception rather than any ordinary rule." - "The continuation of investigation/prosecution into the offence of cheating and breach of trust would amount to an abuse of the process of law" where the dispute is essentially civil. - "The entrustment was made to M/s. Oswal Overseas by respondent no. 2 and not to the appellant." - "The non-payment of the sale price could be a civil dispute between the appellant and M/s. Oswal Overseas." - The FIR No. I-06 of 2017 is quashed, setting aside the impugned order of the High Court.
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