Mere Breach Of Contract Not Cheating; Giving Criminal Colour To Civil Disputes Must Be Discouraged: Supreme Court

The Supreme Court observed that mere breach of contract cannot give rise to criminal prosecution for cheating.For criminal prosecution, the key ingredient of having a dishonest or fraudulent intent under sections 405, 419 and 420 has to be made out, the bench of Justices S. Abdul Nazeer and Krishna Murari observed.The bench said that a criminal color cannot be given to a civil dispute merely to take advantage of a relatively quick relief granted in a criminal case in contrast to a civil dispute. Such an exercise is nothing but an abuse of the process of law which must be discouraged in its entirety, the court added.In this case, the complaint against the builder company was that it had sold four excess flats beyond its share, in terms of the JDA and supplementary agreement entered into between the parties. The complainants contended that the builder was entitled to sell only 9 flats in its favour, has instead executed sale deed for 13 flats in total. The High Court, refused to quash the criminal proceedings. In appeal filed before the Apex Court, these issues were considered: (1) Whether the necessary ingredients of offences punishable under Sections 406, 419 and 420 are prima facie made out? (2) Whether sale of excess flats, even if made, amounts to a mere breach of contract or constitutes an offence of cheating? (3) Whether the dispute is one of entirely civil nature and therefore liable to be quashed?Referring to relevant provisions of the Indian Penal Code, the bench observed:28..While a criminal breach of trust as postulated under section 405 of the Indian Penal Code, entails misappropriation or conversion of another's property for one's own use, with a dishonest intention, cheating too on the other hand as an offence defined under section 415 of the Indian Penal Code, involves an ingredient of having a dishonest or fraudulent intention which is aimed at inducing the other party to deliver any property to a specific person. Both the sections clearly prescribed 'dishonest intention', as a pre-condition for even prima facie establishing the commission of said offences. Thus, in order to assess the relevant contentions made by the parties herein, the question whether actions of the Appellants were committed in furtherance of a dishonest or fraudulent scheme is one which requires scrutinyTaking into account the allegations raised in the complaint, the bench noted that the dispute between the parties, could at best be termed as one involving a mere breach of contract. The bench then referred to the following observations made in Hridaya Ranjan Prasad Verma & Ors. Vs. State of Bihar:"15. ….that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time to inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise…"The court observed that there has been attempt on the part of complainants to stretch the contours of a civil dispute and thereby essentially impart a criminal color to it. Quashing the criminal proceedings, the bench observed thus: "47. Moreover, this Court has at innumerable instances expressed its disapproval for imparting criminal color to a civil dispute, made merely to take advantage of a relatively quick relief granted in a criminal case in contrast to a civil dispute. Such an exercise is nothing but an abuse of the process of law which must be discouraged in its entirety.".Case name and Citation: Mitesh Kumar J. Shah vs. State of Karnataka | LL 2021 SC 592Case no. and Date: CrA . 1285 OF 2021 | 26 October 2021Coram: Justices S. Abdul Nazeer and Krishna MurariClick here to Read/Download Judgment

Mere Breach Of Contract Not Cheating; Giving Criminal Colour To Civil Disputes Must Be Discouraged: Supreme Court

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