In Naresh Kumar v. State of Karnataka, the Supreme Court's bench of Justices Sudhanshu Dhulia and Prasanna B. Varale set aside the appeal and the order of Justice Suraj Govindaraj, Karnataka High Court dated December 2, 2020. The Court quashed the criminal proceedings arising out of FIR No.113 of 2017. The Court concluded that "Essentially, the present dispute between the parties relates to a breach of contract....In the case at hand, the dispute between the parties was not only essentially of a civil nature but in this case the dispute itself stood settled later as we have already discussed above. We see no criminal element here and consequently the case here is nothing but an abuse of the process."
The two appellants before the Court are the Assistant Manager (Marketing) and the Managing Director of a company, which is a manufacturer of bicycles. Respondent no.2 was given a contract, for the assembly of bicycles, their transport and their delivery, at the rate of Rs.122/- for each bicycle, and since they had assembled 83,267 bicycles, they raised invoices amounting to Rs. 1,01,58,574/- and were liable to be paid the same. But respondent no.2 contended that instead, a payment of only Rs.35,37,390/- was given by the appellants. Hence, it was a case of criminal breach of trust and cheating and the First Information Report No. 113 of 2017 against the appellant no. 1 was filed on May 24, 2017 under Sections 406, 420 and 506 of the Indian Penal Code (IPC) at P.S. Doddaballapura, Bangalore Rural District. Later on, a Chargesheet dated May 30, 2019, was filed in the court where both the appellants were made accused.
Supreme Court's judgement records that subsequent to the filing of FIR there was an admitted settlement between the appellants and respondent No. 2 by a Compromise Deed dated December 27, 2017 by which as a full and final settlement between the two parties, an additional amount of Rs. 26 lakhs were to be paid by the appellant, which has been duly given and accepted. This amount was deposited in the account of respondent no. 2 on December 29, 2017. This was done by the appellants in order to give a quietus to the whole situation and to bring peace, according to the appellants. Therefore, as of now, a total amount of Rs.62 lakhs as against Rs. 1,01,58,574/- which was claimed by the complainant has been admittedly paid. The case of the respondent no. 2 against the settlement dated December 27, 2017 is that the respondent no. 2 was coerced in entering into this settlement and this is not a settlement arrived at by the free will of the complainant and therefore the prosecution of the appellants is necessary under the criminal law.
Supreme Court observed that the High Court did not accord any importance to the fact that settlement had occurred by a Compromise Deed dated December 27, 2017. It found it strange that the High Court refused to accept the contention of the appellants that the dispute between the parties in any case is civil in nature. The High Court was of the opinion that since the appellants had claimed that the complainant assembled only 28,995 bicycles, which would make them liable to pay only an amount of Rs.35 lakhs, but instead the appellants had paid an amount of Rs.62 lakhs which shows that the actual number of bicycles which were assembled by the complainant was much more than 28,995 bicycles, as claimed by the appellants and therefore, the appellants had an intention to cheat the complainant right from the beginning. Thus, it was held by the High Court that prima facie a case of cheating is made out against the appellants.
After hearing the counsels for both the parties, the Supreme Court held the considered view that "the findings of the High Court on this aspect are not correct. We do not agree with the findings arrived at by the High Court for two reasons. Firstly, the dispute between the parties is primarily, civil in nature. It is after all a question of how many bicycles the complainant had assembled and the dispute between the parties is only regarding the figure of bicycles and consequently of the amount liable to be paid. This is a civil dispute."
It observed that "The complainant has not been able to establish that the intention to cheat the complainant was there with the appellants right from the beginning. Merely because the appellants admit that only 28,995 bicycles were assembled, but they have admittedly paid an amount of Rs. 62,01,746/- to the complainant, which is of a much higher number of bicycles, would not prove that the intention of the appellants right from the beginning was to cheat. This amount i.e. the additional amount of Rs. 26 lacs have been paid by the appellants pursuant to a settlement. The reasons and the logic for arriving at a settlement are quite different. In this case it seems, it is primarily to bring a quietus to the dispute and to have peace and to avoid litigation. The mere fact that the appellants have paid an additional amount pursuant to the settlement, cannot be presumed as an act of cheating."
As to the complainant's claim that he was coerced into the settlement, the Court noted that the allegation that the complainant was coerced into a settlement, looks unlikely for two reasons. First, there is no FIR or Complaint that the complainant was coerced into this settlement. Secondly, this amount was duly accepted by the complainant.
The Court observed that this is a case where the inherent powers should have
been exercised by the High Court under Section 482 of the
Criminal Procedure Code as the powers are there to stop
the abuse of the process and to secure the ends of justice. Section 482 empowers the High Court with inherent power "to prevent abuse of the process of any Court or otherwise to secure the ends of justice." It does not grant new powers to the High Court but rather preserves its inherent powers to prevent abuse of court processes and ensure justice. Section 482 can be used to quash even non-compoundable offences.
Drawing in the judgement in Paramjeet Batra v. State of Uttarakhand (2013), the Court recognized that although the inherent powers of a High Court under Section 482 of the Code of Criminal Procedure should be exercised sparingly, yet the High Court must not hesitate in quashing such criminal proceedings which are essentially of a civil nature. This power is to be used only for the purpose of preventing abuse of the process of any court or otherwise to secure ends of justice. It pointed out that the High Court must see whether a dispute which is essentially of a civil nature is given a cloak of criminal offence. In such a situation, if a civil remedy is available and is, in fact, adopted as has happened in this case, the High Court should not hesitate to quash the criminal proceedings to prevent abuse of process of the court.” Supreme has held that "criminal proceedings cannot be taken recourse to as a weapon of harassment" in Randheer Singh v. State of U.P. (2021). The Court has reiterated in Usha Chakraborty v. State of West Bengal & (2023) that where a dispute which is essentially of a civil nature, is given a cloak of a criminal offence, then such disputes can be quashed, by exercising the inherent powers under Section 482 of the Code of Criminal Procedure.
Justice Dhulia authored the judgement dated March 12, 2024. Drawing on the Supreme Court's judgement in Sarabjit Kaur v. State of Punjab (2023), he underlined that "A mere breach of contract, by one of the parties, would not attract prosecution for criminal offence in every case". He also relied on the Court's verdict in Vesa Holdings (P) Ltd. v. State of Kerala, (2015) which dealt with the distinction between the offence of cheating and a mere breach of contractual obligations and held that every breach of contract would not give rise to the offence of cheating, and it is required to be shown that the accused had fraudulent or dishonest intention at the time of making the promise.
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