In order to attract ingredients of Sections 406 & 420 of IPC, complainant has to prima facie establish intention on part of accused to cheat him right from inception: SC

Read Judgment: Vijay Kumar Ghai & Ors. V. The State of West Bengal & Ors.

Pankaj Bajpai

New Delhi, March 23, 2022: Finding that there was no material to indicate that the  accused-appellants had any malafide intention against complainant (Respondent) which was clearly deductible from the MOU arrived between the parties, the Supreme Court has deduced that no offence u/s 420 IPC could have been made out in a case where allegations were 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. 

Noticing that entire origin of the dispute emanates from an investment made by second respondent amounting to Rs.2.5 crores in lieu of which 2,50,000/- equity shares were issued, finally culminating into the MOU and based on this MOU the respondent filed three complaints, the Division Bench of Justice Krishna Murari and Justice S. Abdul Nazeer observed that two simultaneous proceedings, arising from the same cause of action i.e. MOU were initiated by Respondent amounting to an abuse of the process of the law which is barred. 

Going by the background of the case, In January 2008, an authorized representative of SMC Global Securities Ltd, Delhi (second respondent) desired to make an investment on its behalf with Vijay Kumar (appellants) wherein it was mutually decided between the parties that second respondent 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 Priknit Apparel Pvt. Ltd (Appellants – Proforma company). Subsequently, an allotment letter was issued in favour of second respondent whereby 2,50,000 shares were issued in lieu of the investment made by him. 

Having failed to bring the I.P.O as per memorandum of understanding, the second respondent issued a legal notice to the Appellants, who duly replied to the legal notice denying all the allegations. Thereafter, the second respondent filed a police complaint with PS Rajender Nagar, New Delhi by the concerned officer apprised that the complaint does not pertain to their jurisdiction and therefore the same ought to be transferred. Accordingly, second respondent filed a complaint with the Economic Offences Wing (EOW) and the said complaint was transferred to PS Darya Ganj, New Delhi. 

Later, the second respondent filed a complaint u/s 156(3) of CrPC before the Tiz Hazari Court, New Delhi for registration of FIR against the Appellants and their company. In addition, the respondent also filed another Complaint u/s 68 of the Companies Act r/w/s 200 of CrPC which is pending adjudication. The Metropolitan Magistrate (MM) observed that the entire dispute was civil in nature and there was no criminality involved, thereby turning down the prayer of second respondent for registration of an FIR and posted the case for pre-summoning evidence with regard to the application u/s 156(3) CrPC filed by respondent.

Thereafter, the respondent filed a second complaint u/s 406, 409, 420, 468, 120B and 34 IPC on the basis of the same cause of action with the PS Bowbazar at Kolkata, but the concerned Police Station recommended closure of the case since the entire dispute was found to be civil in nature. The respondent then filed a protest petition with the Chief Metropolitan Magistrate (CMM), Kolkata against closure report, which was allowed and further investigation was directed. In the meantime, the authorized representative of respondent made a statement before the MM, Tis Hazari, New Delhi for withdrawing the complaint case.

Later, the Appellants filed a quashing petition u/s 482 CrPC seeking quashing of FIR and the High Court issued notice to the Respondents and stayed further proceeding of criminal case. The respondent thereafter filed an application for vacation of the stay order granted by the High Court but the same was dismissed while observing that second respondent had also filed a complaint at Delhi on the same allegations, thus the proceedings at Calcutta were intended to harass the Appellants. However, the High Court dismissed the quashing as well as the revision petition filed by the Appellants and observed that in order to exercise the power u/s 482 CrPC, the only requirement is to see whether continuance of the criminal proceedings would be a total abuse of the process of the court and the continuance of the criminal proceedings against the appellants is in no way an abuse of the process of the court. 

After considering the submissions, the Top Court observed that forum shopping has been termed as disreputable practice by the courts and has no sanction and paramountcy in law. 

“In spite of this Court condemning the practice of forum shopping, Respondent No. 2 filed two complaints i.e., a complaint u/s 156(3) Cr.P.C before the Tis Hazari Court, New Delhi on 06.06.2012 and a complaint which was eventually registered as FIR No. 168 u/s 406, 420, 120B IPC before PS Bowbazar, Calcutta on 28.03.2013. ie., one in Delhi and one complaint in Kolkata. The Complaint filed in Kolkata was a reproduction of the complaint filed in Delhi except with the change of place occurrence in order to create a jurisdiction”, noted the Court. 

Speaking for the Bench, Justice Murari observed that “Entrustment” of property u/s 405 of IPC is pivotal to constitute an offence under this, and hence, 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 u/s 406 of IPC. 

“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. (2000) 4 SCC 168, 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”, added the Bench. 

Justice Murari further found from timeline of filing complaints, the malafide intention of Respondent which was to simply harass the appellants so as to pressurise them into shelling out the investment made by Respondent. 

In order to attract the ingredients of Section of 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, added the Bench. 

Accordingly, the Apex Court allowed the appeal and quashed the FIR and proceedings in pursuance of charge sheet against the appellants for the offences u/s 406, 420, 120B IPC.