Supreme Court Decries FIRs Over Civil Disputes, Reiterates Difference Between 'Cheating' & 'Breach Of Contract'
Magistrates have to be cautious before issuing summons to the accused in disputes of civil nature, the Court reminded.;
The Supreme Court recently expressed grave concern over the police allowing civil disputes to be wrongly converted into criminal proceedings. The Court also stressed that a breach of contract could attract the offence of cheating or criminal breach of trust only when there is an element of dishonest intention from the very beginning of the contractual agreement. The Court noted that it...
The Supreme Court recently expressed grave concern over the police allowing civil disputes to be wrongly converted into criminal proceedings.
The Court also stressed that a breach of contract could attract the offence of cheating or criminal breach of trust only when there is an element of dishonest intention from the very beginning of the contractual agreement.
The Court noted that it was noticing this trend in several cases coming from the State of Uttar Pradesh.
"During the last couple of months, a number of judgments/orders have been pronounced by this Court, especially in cases arising from the State of Uttar Pradesh, deprecating the stance of the police as well as the courts in failing to distinguish between a civil wrong in the form of a breach of contract, non-payment of money or disregard to and violation of contractual terms; and a criminal offence under Sections 420 and 406 of the IPC, the ingredients of which are quite different and requires mens rea at the time when the contract is entered into itself to not abide by the terms thereof."
The bench of CJI Sanjiv Khanna and Justice Sanjay Kumar was hearing a plea seeking quashing of criminal proceedings against the petitioner for the offences under sections 420, 406, 354, 504, 506 IPC. It was the case of the complainant that the petitioners allegedly cheated him of Rs.19 Lakhs over the false promise to execute a sale deed of certain house property.
The Appellants then moved the Allahabad High Court under S. 482 petition seeking to quash the charges. The High Court refused to quash the charges in the petition under S. 482 CrPC in the prima facie view that "at this stage, it cannot be said that no offence is made out against the applicants."
The bench at the outset flagged the issue of the continuous trend where civil disputes are been converted into criminal proceedings by the UP Police.
"We are constrained to pass this detailed speaking order, as it is noticed that, notwithstanding the law clearly laid down by this Court on the difference between a breach of contract and the criminal offence of cheating, we are continuously flooded with cases where the police register an FIR, conduct investigation and even file chargesheet(s) in undeserving cases."
The bench also held that there was a stark difference between breach of contractual obligations and crime of breach of trust or cheating.
The Court also negated the perception of the public that, just because civil remedies appear to be time-consuming, opting for criminal procedure would be better. The bench held that the Courts need to be careful in these matters as allowing such criminal proceedings would mean a breakdown of rule of law.
"It is the duty and obligation of the court to exercise a great deal of caution in issuing process, particularly when the matter is essentially of civil nature. The prevalent impression that civil remedies, being time-consuming, do not adequately protect the interests of creditors or lenders should be discouraged and rejected as criminal procedure cannot be used to apply pressure.Failure to do so results in the breakdown of the rule of law and amounts to misuse and abuse of the legal process."
In another case from UP, namely Deepak Gaba and Others v. State of Uttar Pradesh , the Supreme Court noticed a growing problem where people were misusing the criminal justice system by filing false or misleading complaints. These complaints often hid outrageous claims or were actually about civil disputes, not criminal ones. The Court said such cases should be thrown out early and not be allowed to continue.
In Deepak Gabba, the Court observed that a summoning order under Section 204 CrPC should not be passed lightly or as a matter of course. In this case, the complainant had invoked Sections 405, 420, 471, and 120B of the IPC against the accused. However, the Magistrate directed summons to be issued only under Section 406 of the IPC, and not under Sections 420, 471 or 120B of the IPC. This summoning order was challenged before the Allahabad High Court unsuccessfullly.
"In yet another case, again arising from criminal proceedings initiated in the State of Uttar Pradesh, this Court was constrained to note recurring cases being encountered wherein parties repeatedly attempted to invoke the jurisdiction of criminal courts by filing vexatious complaints, camouflaging allegations that are ex facie outrageous or are pure civil claims.These attempts must not be entertained and should be dismissed at the threshold."
It referred to the decision in Thermax Ltd. v. K.M. Johny, which explained that courts must clearly understand the difference between civil and criminal matters, though sometimes a situation might involve both. Further, the bench clarified that before issuing a summons (which starts a criminal case), the Magistrate must think carefully and check if there's enough evidence. Even if detailed reasons aren't needed, there must be a solid basis for moving forward. The Magistrate can even ask questions to find out if the complaint is genuine.
" Reference was made to a judgment of this Court in Thermax Limited and Others v. K.M. Johny and Others, which held that courts should be watchful of the difference between civil and criminal wrongs, though there can be situations where the allegation may constitute both civil and criminal wrongs. Further, there has to be a conscious application of mind on these aspects by the Magistrate, as a summoning order has grave consequences of setting criminal proceedings in motion. Though the Magistrate is not required to record detailed reasons, there should be adequate evidence on record to set criminal proceedings into motion. The Magistrate should carefully scrutinize the evidence on record and may even put questions to the complainant/investigating officer etc. to elicit answers to find out the truth about the allegations."
The Court held that a summoning order has to be passed when the complaint or chargesheet discloses an offence and when there is material that supports and constitutes essential ingredients of the offence. The summoning order should not be passed lightly or as a matter of course, it clarified further.
The Court referred to the decision in Sharif Ahmed and Another v. State of Uttar Pradesh and Another, where the Court held it mandatory for the Investigating Officer to ensure that the chargesheet contains clear and complete entries.
"Significantly, this Court in Sharif Ahmed cautioned courts to check such attempts of making out a criminal case on the basis of vague and ex facie false assertions."
"Further, Sharif Ahmed (supra) exposits the legal position relating to the ingredients and contents of a chargesheet, drawing upon several earlier judgments of this Court which elucidate the contents of a police report under Section 173(2) of the Cr.P.C. It also clarifies the course of action to be adopted by the Magistrate when the chargesheet is found to be incomplete or vague in content."
S. 173 (2) CrPC deals with the police report prepared after the completion of an investigation. The final report prepared is required to be submitted by the Officer-In-Charge of the police station to the Magistrate who has the power to take cognisance of the offence.
The Court, in applying the above principles to the present facts noted that "the chargesheet in the present case is bereft of particulars and details required and mandated in terms of Section 173(2) of the Cr.P.C."
When Can Breach Of Contract Be A Criminal Offence? Bench Explains
To explain the difference between cheating, criminal breach of trust and mere breach of contract, the Court referred to various prior observations.
The bench referred to the decision in Lalit Chaturvedi and Others v. State of Uttar Pradesh and Another which in turn referred to Mohammed Ibrahim and Others v. State of Bihar and Another where the ingredients of S.420 IPC (Cheating) have been laid down as :
(i) deception of a person either by making a false or misleading representation or by dishonest concealment or by any other act or omission;
(ii) fraudulent or dishonest inducement of that person to either deliver any property or to consent to the retention thereof by any person or to intentionally induce that person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived; and
(iii) such act or omission causing or is likely to cause damage or harm to that person in body, mind, reputation or property.
The Lalit Chaturvedi Case also mentioned the decision in V.Y. Jose and Another v. State of Gujarat and Another, which observed that a contractual dispute should not lead to criminal proceedings. It stressed that the element of cheating should be present since the beginning of a contractual agreement; if the complaint does not detail such averments which make out the ingredients for cheating, the High Courts should exercise powers under S. 482 Crpc.
The bench also placed reliance on the decision in Delhi Race Club (1940) Limited and Others v. State of Uttar Pradesh and Another, which highlighted the fine distinction between the offences of criminal breach of trust and cheating. The Court held that the two are antithetical in nature and cannot coexist simultaneously. Police officers and courts must carefully apply their minds to determine whether the allegations genuinely constitute the specific offence alleged.
Referring to the observation in Kunti and Another v. State of Uttar Pradesh and Another, this Court referred to Sarabjit Kaur v. State of Punjab and Another " wherein it was observed that a breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction".
The bench noted that in Sarabjit Kaur the Court stressed that the existence of a dishonest intention is crucial to make out for criminal proceedings arising out of contractual disputes.
"Merely on the allegation of failure to keep a promise will not be enough to initiate criminal proceedings. Thus, the dishonest intention on the part of the party who is alleged to have committed the offence of cheating should be established at the time of entering into the transaction with the complainant, otherwise the offence of cheating is not established or made out. "
Costs Of Rs. 50,000 Imposed On The State Of UP
The Court observed that despite repeated warnings, the State of UP continued converting civil cases into criminal cases. Resultantly a penalty of Rs. 50,000/- was imposed on the State. The State Authorities were given the liberty to conduct enquiries internally and get reimbursed from the liable officers.
The order reads :
"We are also constrained to impose costs of ₹50,000/- (Rupees fifty thousand only) on the State of Uttar Pradesh as, in spite of repeated judgments/orders of this Court, we are being flooded with cases of civil wrongs being made the subject matter of criminal proceedings by filing chargesheets, etc."
"These costs will be paid by the State of Uttar Pradesh within a period of six weeks from the date of receipt of a copy of this order. It will be open to the State of Uttar Pradesh to conduct internal enquiries and collect this amount from the delinquent and responsible officers. Registry is directed to communicate a copy of this order to the Chief Secretary of the State of Uttar Pradesh who shall be responsible for ensuring the payment of costs."
The Court also expressed inclination towards imposing costs on Respondent No.2 but refrained from it "on account of the possibility that she was persuaded and guided by wrong legal advice."
Case Details : RIKHAB BIRANI vs THE STATE OF UTTAR PRADESH| SLP(Crl) No. 008592 - / 2024
Citation : 2025 LiveLaw (SC) 438