The Supreme Court reiterated that a mere breach of contract cannot give rise to criminal prosecution for cheating. The court observed that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. “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.”, the bench comprising Justices S. Abdul Nazeer and Krishna Murari said.
In this case, an investment was made by the complainant amounting to Rs. 2.5 crores in lieu of which 2,50,000/- equity shares were issued. This finally culminated into a Memorandum of Understanding. Alleging that the accused breached this MoU, three complaints were filed.
First one, a private complaint u/s 156(3) Cr.P.C with CJM, Tis Hazari Court Delhi for registration of FIR was withdrawn. Second one is a Complaint u/s 156(3) Cr.P.C with CJM, Tis Hazari Court Delhi for registration of FIR was withdrawn. Second one is a Complaint u/s 68 of the companies act r/w section 200 CrPC filed before the CMM, Tis Hazari Courts at Delhi; which is pending. Third, a complaint was made to the P.S Bowbazar, Central Division, Kolkata which was eventually registered as FIR No. 168 u/s 406, 420, 120B IPC, 1860. The accused challenged the FIR registered in Kolkata before the Calcutta High Court. The High Court dismissed the said petition.
Before the Apex Court, it was contended on behalf of the accused that the transaction in question between the parties as revealed from the F.I.R was purely a sale transaction or what may be called as a commercial transaction, therefore the question of cheating does not arise at all.
On the other hand, the complainant said that he has made a specific allegation that on inducement of the accused persons, he had parted with 2.50 crore on a false promise that they would be allotted shares in the company. On 29.02.2008, a false statement was made by the accused persons that the complainant had been allotted the shares, whereas it.
Taking note of the essential ingredients for Section 406 (Criminal Breach of Trust) and 420 (Cheating), the bench observed:
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. However, as held by this court in Hridaya Ranjan Prasad Verma & Ors. Vs. State of Bihar & Anr., the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one. 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. Having gone through the complaint/FIR and even the charge sheet, 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. Allowing the appeal, the bench also observed that registering a complaint in Kolkata was a way of harassing the accused as a complaint has already been filed in Delhi with all the necessary facts, apart from the jurisdictional issue at Kolkata.
Case details Vijay Kumar Ghai vs State of West Bengal | 2022 LiveLaw (SC) 305 | CrA 463 OF 2022 | 22 March 2022
Coram: Justices S. Abdul Nazeer and Krishna Murari