Sections 420, 406 IPC cannot travel together, Police, courts failing to distinguish between a civil wrong in the form of a breach of contract, non-payment of money or violation of contractual terms: Supreme Court

In Rikhab Birani vs. The State of Uttar Pradesh & Anr. (2025), Supreme Court's Division Bench  passed a 15-page long judgement dated April 16, 2025 observed that "The chargesheet in the present case is bereft of particulars and details required and mandated in terms of Section 173(2) of the Cr.P.C. It merely reproduces the contents of the FIR which makes reference to the payments made as well as the allegation that in the revenue records, the godown in question was recorded in the name of Rakesh Birani, the son of the appellant, Rikhab Birani. It is noted that the appellant, Rikhab Birani, informed the complainant that Rakesh Birani had expired. The complainant had then requested refund of money, etc. However, the FIR does not state the material and evidence available and collected during the course of the investigation to establish the offences under Sections 420, 406, 354, 504 and 506 of the IPC. Clearly, the ingredients of the aforesaid are not established and made out. In view of the aforesaid discussion, we set aside the impugned judgment/order and allow the present appeal quashing the FIR and the resultant proceedings, including the chargesheet."

The judgement reads:"We clarify that the present appeal only deals with the question of criminal offence. We have not commented or made any observations on the civil rights of complainant-respondent No.2. We are also constrained to impose costs of ₹50,000/- (Rupees fifty thousand only) on the State of Uttar Pradesh as, in spite of repeated judgments/orders of this Court, we are being flooded with cases of civil wrongs being made the subject matter of criminal proceedings by filing chargesheets, etc. These costs will be paid by the State of Uttar Pradesh...."

The Court observed:"We are constrained to pass this detailed speaking order, as it is noticed that, notwithstanding the law clearly laid down by this Court on the difference between a breach of contract and the criminal offence of cheating, we are continuously flooded with cases where the police register an FIR, conduct investigation and even file chargesheet(s) in undeserving cases. During the last couple of months, a number of judgments/orders have been pronounced by this Court, especially in cases arising from the State of Uttar Pradesh, deprecating the stance of the police as well as the courts in failing to distinguish between a civil wrong in the form of a breach of contract, non-payment of money or disregard to and violation of contractual terms; and a criminal offence under Sections 420 and 406 of the IPC, the ingredients of which are quite different and requires mens rea at the time when the contract is entered into itself to not abide by the terms thereof."

In V.Y. Jose & Anr. vs. State of Gujarat and Anr.(2009) 3 SCC 78, the Court observed that a contractual dispute or breach of contract per se should not lead to initiation of a criminal proceeding. The ingredient of ‘cheating’, as defined under Section 415 of the IPC, is existence of a fraudulent or dishonest intention of making initial promise or representation thereof, from the very beginning of the formation of contract. 

Similar judgements have been delivered in S.W. Palanitkar vs. State of Bihar, AIR 2001 SC 2960  Hari Prasad Chamaria vs. Bishun Kumar Surekha, AIR 1974 SC 301 and Pepsi Foods Ltd. vs. Special Judicial Magistrate, AIR 1998 SC 128.