The Supreme Court recently comprising of a bench of Justices S. Abdul Nazeer and Krishna Murari observed that mere breach of contract cannot give rise to criminal prosecution for cheating. (Mitesh Kumar J. Shah vs. State of Karnataka)
The bench observed that 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 court 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.
Facts of the case
The complaint against the builder company in the present case 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.
Issue before the court
(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?
Contention of the Parties
The Appellants herein have contended that the sequence of events in the instant case do not fulfill the necessary ingredients of an alleged offence, therefore Respondent No. 2 has been simply trying to impart criminal color to a Civil dispute. It was contended that the issue of alienation of flats had not been responded to by the arbitrator since Respondent No. 2 had withdrawn his claim in respect of the said flats from arbitral proceedings with liberty to pursue his case in pending civil proceedings. Furthermore, since Respondent No. 2 had decided to pursue his claim by way of a civil suit, therefore criminal complaint on the same issue should be quashed.
Respondent No. 2 on the contrary submitted that the developer company of the Appellants being entitled to sell only 9 flats has executed a sale deed for 13 flats in all. Further the sale of 4 flats (flat nos. 002, 301, 304 & 404) beyond the 9 flats is in excess of the Appellants company’s share and therefore Respondent No. 2 has been constrained to lodge a complaint for cheating against the Appellants.
Respondent No. 2 in his objection to the contention of the Appellants that civil dispute is being given a criminal color, relying upon the dictum in State of Karnataka Vs. M. Devendrappa & Anr. [(2002) 3 SCC 89], submitted that reliance must be placed on whether the complaint spells out the ingredients of a criminal offence or not, and not on the defenses available to an accused, which if established in trial may lead to his acquittal.
Courts Observation and Judgment
The bench referring to relevant provisions of the Indian Penal Code observed, "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 scrutiny.
The bench taking into account the allegations raised in the complaint, noted that the dispute between the parties, could at best be termed as one involving a mere breach of contract also referred to the judgment in the case of Hridaya Ranjan Prasad Verma & Ors. Vs. State of Bihar wherein it was observed, "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 an attempt on the part of complainants to stretch the contours of a civil dispute and thereby essentially impart a criminal color to it.
The bench Quashing the criminal proceedings remarked, "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."
Read Judgment ;
SOURCE ; latestlaws.com
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