Code of Criminal Procedure, 1973: s. 482 – Quashing of complaint – Appellant No. 1 is the Managing Director of the Public Limited Company and Appellant Nos.2 and 3 are the Directors of the said Company –The company itself has been arrayed as proforma Respondent No.3 – In January 2008, Respondent No. 2, an authorized representative of SMC Global Securities Ltd, Delhi desired to make an investment on its behalf with the appellants –It was mutually decided between the parties that Respondent No. 2 will invest an amount of Rs. 2.5 crore with the company in lieu of which they will be issued 2,50,000 equity shares of the company (Respondent No. 3) – Subsequently, Respondent No. 2 filed share application form along with the cheque of Rs. 2.5 crore – An allotment letter was issued in favour of Respondent No. 2 whereby 2,50,000 shares were issued in lieu of the investment made by him – The proforma Respondentno.3 and Respondent No.2 arrived at an understanding, regarding the investment made by Respondent No.
2. – Having failed to bring the IPO as per memorandum of understanding, Respondent No.2 issued a legal notice to the Appellants, who duly replied to the legal notice denying all the allegations contained in the legal notice – Respondent No. 2 filed a police complaint in New Delhi – Respondent No. 2 filed a second complaint underss.406, 409, 420, 468,120B and 34 IPC on the basis of the same cause of action at Kolkata and the same was converted into FIR under ss.406, 420, 120B IPC –High Court of Calcutta by impugned judgment dismissed the quashing as well as the revision petition filed by the Appellants – Hence instant appeal – Held: There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages – While breach of contract cannot give rise to criminal prosecution, for cheating, fraudulent or dishonest intention is the basis of the offence of cheating – In the case at hand, complaint filed by the Respondent No. 2 does not disclose dishonest or fraudulent intention of the appellants – In order to attract the ingredients of ss.406 and
420 IPC, it is imperative on the part of the complainant to prima facie establish that there was an intention on part of the petitioner and/or others to cheat and/or to defraud the complainant right from the inception – It has to be prima facie established that due to such alleged act of cheating, the complainant (Respondent No. 2) had suffered a wrongful loss and the same had resulted in wrongful gain for the accused (appellant) – In absence of these elements, no proceeding is permissible in the eyes of law with regard to the commission of the offence punishable u/s 420 IPC – The impugned FIR and proceedings in pursuance of charge sheet against the appellants for the offences under ss.406, 420,120B IPC quashed – Penal Code, 1860 – ss.406, 420,120B.
Allowing the appeal, the court
HELD: 1. “Entrustment” of property under Section 405 of the Indian Penal Code, 1860 is pivotal to constitute an offence under this. The words used are, ‘in any manner entrusted with property’. So, it extends to entrustments of all kinds whether to clerks, servants, business partners or other persons, provided they are holding a position of ‘trust’. A person who dishonestly misappropriates property entrusted to them contrary to the terms of an obligation imposed is liable for a criminal breach of trust and is punished under Section 406 of the Penal Code. Section
420 IPC is a serious form of cheating that includes inducement (to lead or move someone to happen) in terms of delivery of property as well as valuable securities. This section is also applicable to matters where the destruction of the property is caused by the way of cheating or inducement. Punishment for cheating is provided under this section which may extend to 7yearsand also makes the person liable to fine. [Paras 24, 30] [903-E-F; 905-B-D]
2. There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by the Respondent No. 2 does not disclose dishonest or fraudulent intention of the appellants. [Para 34][907-B-D]
3. Having gone through the complaint/FIR and even the chargesheet, it cannot be said that the averments in the FIR and the allegations in the complaint against the appellant constitute an offence under Section 405 & 420 IPC, 1860. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making promise being absent, no offence under Section 420 IPC can be said to have been made out. In the instant case, there is no material to indicate that Appellants had any malafide intention against the Respondent which is clearly deductible from the MOU dated 20.08.2009 arrived between the parties. Respondent No. 2 filed a complaint u/s 156(3) Cr.P.C on 06.06.2012, wherein his prayer for registration of an FIR was rejected vide order dated28.02.2013 by the MM, Tis Hazari Court, immediately after which he filed his complaint on 28.03.2013 at P.S Bowbazar, Calcutta. The timeline of filing complaints clearly indicates the malafide intention of Respondent No. 2 which was to simply harass the petitioners so as to pressurise them into shelling out the investment made by Respondent No.2. [Paras 36, 38][908-A-C, G-H]
Uma Shankar Gopalika v. State of Bihar & Anr. (2005)
10 SCC 336; Hridaya Ranjan Prasad Verma & Ors. v. State of Bihar & Anr. (2000) 4 SCC 168 : [2000] 2 SCR 859; Prof. R.K. Vijayasarathy & Anr. v. Sudha Seetharam & Anr. (2019) 16 SCC 739 : [2019] 2 SCR 185; Vesa Holdings Pvt. Ltd. & Anr. v. State of Kerala & Ors. (2015)
8 SCC 293 : [2015] 4 SCR 27 – relied on.
V.Y. Jose & Anr. v. State of Gujarat & Anr. (2009) 3 SCC 78 : [2008] 17 SCR 588 Murari Lal Gupta v. Gopi Singh (2005) 13 SCC 699; K. Jayaram and Ors. v. Bangalore Development Authority & Ors. 2021 SCC OnLine SC 1194; Union of India and Ors. v.
Shantiranjan Sarkar (2009) 3 SCC 90 : [2009]
1 SCR 242; K. Jagadish v. Udaya Kumar G.S. & Anr. (2020) 14 SCC 552; V. Ravi Kumar v. State and Ors. (2019) 14 SCC 568 : [2018] 14 SCR 828; Indian Oil Corporation v. NEPC India Ltd. & Ors. (2006) 6 SCC
736 : [2006] 3 Suppl. SCR 704; A.V. Mohan Rao & Anr. v. M Kishan Rao & Anr. (2002) 6 SCC 174 : [2002]
1 Suppl. SCR 175; Union of India & Ors. v. Cipla Ltd. & Anr. (2017) 5 SCC 262 : [2016] 7 SCR 523; Krishna Lal Chawla & Ors. v. State of U.P. & Anr.(2021) 5 SCC 435; T.T. Antony v. State of Kerala & Ors. (2001) 6 SCC
181 : [2001] 3 SCR 942; K. Jayaram and Ors. v. Bangalore Development Authority & Ors. 2021 SCC OnLine SC 1194; State of Haryana & Ors. v. Bhajan Lal & Ors. 1992 Supp (1) SCC 335 : [1990] 3 Suppl. SCR 259; R.P. Kapur v. State of Punjab [1960] 3 SCR 388; Inder Mohan Goswami & Anr. v. State of
Uttaranchal & Ors. (2007) 12 SCC 1 : [2007]
10 SCR 847; Indian Oil Corpn. v NEPC India Ltd. & Ors. (2006) 6 SCC 736 : [2006] 3 Suppl. SCR 704; State of Madhya Pradesh v. Awadh Kishore Gupta & Ors. (2004) 1 SCC 691 : [2003] 5 Suppl. SCR 672; G. Sagar Suri & Anr. v. State of UP & Ors. (2000) 2 SCC
636 : [2000] 1 SCR 417; R K Dalmia vs Delhi
Administration [1963] 1 SCR 253; Sudhir Shantilal Mehta v. CBI (2009) 8 SCC 1 : [2009] 12 SCR 682 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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