Case Note & Summary
The appeals arose from a common judgment and order dated 19.02.2025 passed by the High Court of Jharkhand at Ranchi in W.P. (Cr.) No. 1041 of 2024 and W.P. (Cr.) No. 1042 of 2024, whereby the High Court declined to quash FIR Kotwali P.S. Case No. 323 of 2024 registered under Sections 316(2), 318(4) and 3(5) of the Bharatiya Nyaya Sanhita, 2023. The appellants were the Chairman and Managing Director, Executive Director, Chief Executive Officer, Chief Operations Officer and a clerk of M/s Oriental Aromatics Limited, a manufacturer of specialty aroma chemicals and camphor. The respondent No.2, sole proprietor of M/s D.K. Enterprises, was offered distributorship of 'Saraswati' camphor for Jharkhand for three years from 01.04.2024 to 01.04.2027 for a total payment of Rs.20,00,000 and various gifts and benefits. He paid Rs.52,000 as token money in December 2023, signed the agreement on 29.03.2024 and returned it on 04.05.2024, and transferred Rs.73,00,000 as advance in six remittances between 04.04.2024 and 26.06.2024. Goods worth Rs.31,49,167 were supplied under four bills. The dispute arose when respondent No.2 raised the issue of lower rates charged to others, after which the company stopped supplies, demanded more money, and did not return the balance of Rs.41,50,833. The appellants contended that the FIR, read as a whole, disclosed only a civil dispute over price, supply and accounts arising from a written commercial contract with a criminal overtone. The respondent No.2 argued that the appellants deliberately projected deliberate conduct as contractual dispute and that intention to deceive was evident from termination of a three-year agreement within about a month and a half without forewarning and on fictitious dues. Reliance was placed on C.S. Prasad v. C. Satyakumar and Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra. The State supported the respondent and submitted that investigation was at a seminal stage. The Court framed two questions: whether the FIR allegations taken at face value disclosed the alleged offences, and whether a civil dispute was given a criminal overtone. It noted that Section 318(4) BNS corresponds to Section 420 IPC and Section 316(2) to Section 406 IPC. Relying on Delhi Race Club, Hridaya Ranjan Prasad Verma and Bhajan Lal, the Court held that for cheating, dishonest intention at the time of inducement is the gist; mere breach of contract does not suffice. The FIR lacked any averment of dishonest intention at inception, no deception preceding the remittances, and part performance by supplying goods worth over Rs.31 lakh was consistent with intention to perform. The termination of distributorship under contractual terms was not deception; wrongful termination gives rise to damages, not cheating. For criminal breach of trust, the Court held that money paid as price or advance passes to supplier as his own and is not entrustment; the FIR did not allege money was to be held for a specified purpose or returned in specie. The Court also noted that legal notices issued by respondent No.2 on 23.07.2024 and 29.07.2024 did not mention unreturned advance, and the claim was raised for the first time in the FIR filed more than two months later. Applying the principles in Bhajan Lal, the Court concluded that the FIR did not disclose the alleged offences and that the dispute was civil in nature. The excerpt provided ends before the formal operative order; however, the reasoning indicates that the appeals were to be allowed and the FIR quashed.
Headnote
A) Criminal Law - Cheating - Dishonest Intention at Inception - Bharatiya Nyaya Sanhita, 2023 - Section 318(4) - The FIR alleged cheating but did not plead facts showing dishonest or fraudulent intention at the time of inducement; mere breach of contract and subsequent supply of goods worth Rs.31,49,167 against advance of Rs.73,00,000 did not constitute cheating; promise of future gifts and benefits was not a deception absent intention not to perform; no deception preceding the six remittances. Held that the essential ingredients of cheating under Section 318(4) BNS were not made out. (Paras 8-16) B) Criminal Law - Criminal Breach of Trust - Entrustment - Bharatiya Nyaya Sanhita, 2023 - Section 316(2) - Money paid to supplier as price or advance under contract passes as own money and not entrustment; no averment that money was to be held on behalf of respondent or applied for specified purpose. Held that Section 316(2) BNS not disclosed. (Paras 18-19) C) Criminal Procedure - Quashing of FIR - Principles under Article 226 and Section 482 CrPC - Constitution of India - Article 226; Code of Criminal Procedure, 1973 - Section 482 - Where allegations in FIR taken at face value do not constitute any offence, High Court may quash to prevent abuse of process; no assessment of truth or evidence required; deficiency is one of law and investigation cannot supply missing averment. Held that the present case fell within the first category in State of Haryana v. Bhajan Lal. (Paras 11-12) D) Criminal Law - Civil/Commercial Dispute with Criminal Overtone - Cheating and Criminal Breach of Trust - Bharatiya Nyaya Sanhita, 2023 - Sections 316(2), 318(4) - Distributorship agreement executed, goods supplied, price/supply dispute; termination under contract not deception; legal notices did not mention unreturned advance; FIR after two months indicated afterthought. Held that the dispute was civil in nature and criminal proceedings were an abuse of process. (Paras 17-19)
Issue of Consideration
Whether the allegations made in the first information report, taken at their face value when accepted in their entirety, disclose the commission of the offences alleged; Whether a civil/commercial dispute between the parties has been sought to be given a criminal overtone, if yes, the consequence thereof
Final Decision
The Supreme Court, on analysis, found that the FIR did not disclose the essential ingredients of the offences under Sections 318(4) and 316(2) BNS. The allegations, taken at face value, revealed a commercial/civil dispute with part performance and no dishonest intention at inception or entrustment. Applying the principles in State of Haryana v. Bhajan Lal, the FIR was liable to be quashed; however, the provided excerpt ends before the formal operative order.
Law Points
- Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown from the beginning of the transaction
- intention at the time of inducement is the gist of cheating
- money paid as price or advance under a contract passes to the supplier as his own and is not entrustment
- criminal breach of trust requires entrustment with beneficial interest remaining with the transferor
- civil/commercial disputes cannot be converted into criminal offences without factual averments of deception or entrustment
- High Court may quash FIR under Article 226 and Section 482 CrPC if allegations taken at face value do not constitute any offence
