The Bombay High Court, Aurangabad Bench, quashed FIR No. 134/2021 and associated proceedings under Sections 420 and 406 IPC, ruling that the matter is purely a civil dispute improperly given a criminal color.

1. Introduction of Parties (Para 1)

Applicants (directors of AN Retail Ventures) sought to quash proceedings initiated by Respondent No. 2 (partner in Agrawal Retails) for alleged non-refund of security deposit and unpaid commissions under franchise agreements.

2. Background of Agreements (Paras 2-4)

Agrawal Retails entered into franchise agreements with AN Retail Ventures to operate garment outlets under "Cotton World." Security deposits totaling ₹51,00,000 were made, and operational commissions were agreed upon. Franchise operations began but were later terminated unilaterally by ANR.

3. Allegations and FIR Details (Paras 5-8)

Respondent No. 2 alleged breach of trust and cheating, citing non-refund of security deposits and unpaid commissions, totaling ₹59,23,000. FIR No. 134/2021 was filed after failed reconciliation efforts.

4. Applicants’ Arguments (Para 9)

The applicants contended that the dispute was civil, emphasizing no fraudulent or dishonest intention at the transaction's inception, which is essential for invoking Sections 420 and 406 IPC.

5. Respondents’ Counter-arguments (Para 10)

Respondents argued that the applicants' actions, including early termination and non-refund, demonstrated fraudulent intent, constituting criminal offenses.

6. Court's Observations on Criminal Intention (Paras 14-22)

The court cited precedents (Hridaya Ranjan Prasad Verma and others, 2000, and others) establishing that mere breach of contract does not equate to cheating unless fraudulent intent existed at the inception. ANR’s efforts to establish and run outlets indicated no dishonest intention.

7. Civil Nature of the Dispute (Paras 23-30)

Disputes over accounts and reconciliation highlighted the lack of criminal mens rea. ANR had invested in operational arrangements and sought reconciliation, further indicating the civil nature of the matter.

8. Abuse of Process (Paras 31-35)

The court emphasized the misuse of criminal law as a shortcut for resolving civil disputes, reiterating Supreme Court judgments discouraging such practices (Indian Oil Corporation vs. NEPC India Ltd., 2006).

Ratio Decidendi:

The distinction between civil breach of contract and criminal fraud or breach of trust hinges on the existence of dishonest intent at the transaction's inception. The absence of such intent in this case rendered criminal proceedings inappropriate.

Acts and Sections Discussed:

1. Section 420 IPC (Cheating):
   Requires fraudulent/dishonest inducement at the transaction's inception, which was absent here.

2. Section 406 IPC (Criminal Breach of Trust):
   Requires dishonest misappropriation of entrusted property, not evident as reconciliation efforts were underway.

3. Section 482 CrPC:
   Invoked to prevent abuse of process and quash proceedings lacking prima facie criminal ingredients.

Subjects:

• Civil vs. Criminal Law
• Section 482 CrPC
• Franchise Agreements
• Contractual Disputes
• Abuse of Legal Process