Every breach of contract would not give rise to an offence of cheating: Supreme Court quashes FIR stating no criminal elements are involved

Naresh Kumar and Anr versus The State of Karnataka and Anr 2024 INSC 196, 2024 Livelaw (SC) 228

The two Appellant before this Court are Assistant Managers (Marketing) and the Managing Director of a company. They have come for an appeal challenging the order of the Hon’ble Karnataka High Court on dismissing the Quash of the FIR filed by them.

The 2nd Respondent before the Apex Court is the De facto Complainant and the Petitioner before the Hon’ble Karnataka High Court. The 2nd Respondent was given a contract of assembling bicycles by the Appellants, for which an invoice of Rs. 1,01,58, 574/- was raised by the 2nd Respondent towards the Appellants, out of which only Rs. 35,37,390/- was paid by the Appellants. This gave rise to a complaint filed by the 2nd Respondent, which came to be registered as a crime in FIR No: 113/2017 U/s 406, 420, 506 IPC after which the Chargesheet came to be filed against both the Appellants herein.

Most vital facet to be considered is subsequent to the registration of FIR, the Appellants and 2nd Respondent came to a settlement by way of a Compromise deed dated 27/12/2017 and an additional amount of Rs. 26 Lakhs was paid to the 2nd Respondent for settling the entire claim. Later, the 2nd Respondent re-opened the issue stating that the settlement was entered by force and the investigation has to continue against the Appellants.

The High Court exercising its jurisdiction U/s 482 Cr.P.C. came to a conclusion that the Appellants had the intention of cheating right from the beginning and it is seen that the Appellants had initially claimed that only 28, 995 bicycles were assembled by the 2nd Respondent, for which only Rs. 35 Lakhs was supposed to be paid, by the Appellants had paid Rs. 62 Lakhs. Therefore, the 2nd Respondent had assembled more number of cycles and therefore, the Appellants had cheated the 2nd Respondent.

The Apex Court, did not not consider the finding of High Court as correct, since the High Court had come to a conclusion that the dispute is civil in nature, as the dispute arises only because of the number of bicycles, and no intention of cheating from inception is seen towards the Appellants. The settlement made by paying an additional amount of Rs. 26 Lakhs by the 2nd Respondent is to bring a quietus to the situation, and no dispute was raised by the 2nd Respondent regarding the additional amount.

Referring the landmark case of Paramjeet Batra V State of Uttarakhand (2013) 11 SCC 673, this court considered the view that U/s 482 Cr.P.C. the High Court must not hesitate in quashing of Criminal proceedings which is civil in nature.

Also, referring Sarabjit Kaur Vs State of Punjab and another (2023) 5 SCC 360 and Vesa Holdings (P) Ltd V State of Kerala (2015) 8 SCC 293, this court concluded that not every breach of contract obligation gives rise to cheating and that cheating should exhibit fraudulent and dishonest intention at the time of Promise/representation. In the present case, the issue even stood settled later. Therefore the appeal is allowed and order of the Hon’ble Karnataka High Court is set aside as no criminal elements were involved, the FIR No: 113 of 2017 was quashed.

Also, the Apex Court in catena of decisions had quashed the matter for reasons that the disputes are civil in nature. The following are some of the important cases, where it had been quashed based on the same reason.

1. The Apex Court in case of Randheer Singh Vs. The State of U.P. & Ors., (Criminal Appeal No. 932 of 2021 decided on 02.09.2021) has again reiterated the long standing principle that criminal proceedings must not be used as instruments of harassment, and therefore the case was quashed.
2. Considering serious factual disputes which are civil in nature, the Apex Court in Sardar Ali Khan vs The State Of Uttar Pradesh on 24 January, 2020 had quashed an FIR for offences under Sections 418, 419, 420, 467, 468 and 471 IPC.
3. The Apex court in M. Srikanth vs The State Of Telangana on 21 October, 2019 had quashed the matter for the reason that the Civil court had already seized the matter.
4. The case in Bal Kishan Das v. P.C. Nayar, 1991 Supp (2) SCC 412 : 1991 SCC (Cri) 1055 at page 413 was quashed for the reason that the Arbitration is already pending, which is a civil disputes and hence quashed.
5. The Apex Court in. Suresh Yadav v. Sharifa Bee, (2007) 13 SCC 107 : (2009) 1 SCC (Cri) 282 at page 110 had quashed the matter that there is a civil dispute that is pending and a different stand has been taken before the Civil court.
6. The case in  Dilbag Rai v. State of Haryana, (2019) 16 SCC 736 : (2020) 2 SCC (Cri) 452 : 2018 SCC OnLine SC 2910 at page 738 was quashed since the dispute is with regard to a sale agreement, which is a civil transaction and there is no criminality that is been involved.