2022 (1) TMI 1482 - HC - Indian Laws

Seeking for quashing cancellation and setting aside the FIR - allegations in the FIR constitute the necessary ingredients of the offenses under Sections 406 408 and 420 of the IPC or not - FIR filed in suppression of all relevant facts - HELD THAT - From the plain reading of the FIR it reveals that the informant has alleged that the petitioner company has taken certain amount for supply of grains in terms of the agreement entered into between the parties but neither grains was supplied nor money was returned. The said conduct of the petitioner company is stated to be a breach of trust by cheating. Although the FIR was filed on 01.02.2017 but they have not disclosed certain facts which goes to the root of the matter - As it was a commercial transaction between the parties it was incumbent on the part of the informant/respondent side to settle the dispute in terms of the agreement rather than to flout such agreement and resort to criminal proceeding. From the various admitted communication between the parties vide Annexure-6 it reveals that the informant company has given reply to the letter dated 05.09.2016 only after filing of the case on 06.02.2017 denying any liability to pay such amount on their part making some counter claim from the petitioner company. From the documents on record it reveals that the petitioner side has served written notice (vide Annexure-10 dated 19.08.2017) upon the respondent for arbitration and the respondent has also accepted the proposal (vide Annexure-11 dated 14.09.2017) showing willingness to appoint arbitrator of their choice. Pursuant to which the petitioner filed an application under Section 11 of the Arbitration and Conciliation Act 1996 for appointment of sole arbitrator in terms of Clause 20 of the agreement dated 16.01.2015 which was registered as AP No. 1144/2017. In All Cargo Movers (India) Private Limited and Others vs- Dhanesh Badarmal Jain and Another 2007 (10) TMI 620 - SUPREME COURT Suneet Gupta vs- Anil Triloknath Sharma and Others 2008 (4) TMI 837 - SUPREME COURT Satishchandra Ratanlal Shah vs- State of Gujarat 2019 (1) TMI 1632 - SUPREME COURT and Another similar view has been reiterated that mere breach of promise agreement or contract does not ipso facto constitute an offence criminal breach of trust under Section 405 IPC without there being clear case of entrustment. Further it has been held that allegations in the criminal complaint must disclose necessary ingredients thereof. The court can for the purpose of finding out as to whether said allegations are prima facie correct take into consideration the correspondence exchanged by the parties and other admitted documents. Criminal proceedings should not be encouraged while is found mala fide or otherwise abuse of the process of the court. Further it is held that the superior court while exercising inherent power under Section 482 CrPC the court should strive to serve the ends of justice. Undoubtedly it is settled proposition of law that the complaint must disclose necessary ingredients of the offence. Turning to the present case in hand as mentioned above the FIR failed to disclose the necessary ingredients of either of the offences under Section 406 and 420 IPC. There is nothing to show that the petitioner had the dishonest intention at the time of execution of the agreement between the parties and their subsequent conduct for raising a claim for certain amount of money would not amount to cheating - This Court did not find any justification shown by the prosecution agency in carrying out the investigation in a hurried manner only on the basis of the FIR without scrutinizing as to whether the registration of a case under Section 406 and 420 IPC is justified in absence of basic ingredients constituting the offences. Although it is mandatory to register a case under the law and the investigating authority has the statutory right for investigation but it equally important on the part of the prosecuting agency for registration of the cases under proper provision of law. Mere using the words cheating and breach of entrustment in the FIR is not enough to register the case on the same section without satisfying as to whether ingredients of such offence has been made out. Conclusion - The present case warrants interference inasmuch as the ingredients of the offence of cheating punishable under Section 420 and the other offences 406/408 of IPC has not been made out in the FIR. That being the position the case comes within the purview of the first category of the observation in State of Haryana vs. Bhajan Lal 1990 (11) TMI 386 - SUPREME COURT wherein it has been held that where the allegation made in the First Information Report or the complaint even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused the power under Section 482 CrPC can be invoked. As discussed above and the present case reading the averment in the FIR in its entirety the ingredients of intentional deception on the part of the accused at the beginning of the negotiations/agreement has neither been expressly stated or indirectly suggested in the complaint. The entire proceeding is quashed - petition allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the allegations in the FIR constitute the necessary ingredients of the offenses under Sections 406, 408, and 420 of the IPC.
• Whether the existence of an arbitration clause in the agreement between the parties precludes the initiation of criminal proceedings.
• Whether the criminal proceedings initiated are an abuse of the process of law.
• Whether the actions of the investigating agency were lawful and justified.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Allegations in the FIR and Ingredients of IPC Offenses

• Relevant Legal Framework and Precedents: Sections 406, 408, and 420 of the IPC pertain to criminal breach of trust and cheating. The court referred to precedents such as Hridaya Rangan Pd. Verma vs. State of Bihar and Satishchandra Ratanlal Shah vs. State of Gujarat, which emphasize that mere breach of contract does not constitute cheating unless accompanied by fraudulent intention at the time of the agreement.
• Court's Interpretation and Reasoning: The court found that the FIR lacked specific allegations of fraudulent intention at the time of the contract's inception. The mere non-fulfillment of contractual obligations does not amount to criminal breach of trust or cheating.
• Key Evidence and Findings: The FIR did not mention the petitioner's claim of outstanding dues or the arbitration clause in the agreement. The court noted that the informant's failure to disclose these facts undermined the criminal allegations.
• Application of Law to Facts: The court applied the principles of criminal law, noting the absence of prima facie evidence of dishonest intention or entrustment necessary for the alleged offenses.
• Treatment of Competing Arguments: The respondent argued that criminal and civil remedies could coexist, but the court emphasized the lack of criminal intent in the FIR.
• Conclusions: The FIR did not disclose the necessary ingredients of the offenses under Sections 406, 408, and 420 IPC.

Issue 2: Arbitration Clause and Criminal Proceedings

• Relevant Legal Framework and Precedents: The agreement between the parties included an arbitration clause, mandating dispute resolution through arbitration. The court referred to legal principles that arbitration clauses do not automatically preclude criminal proceedings unless the dispute is purely civil.
• Court's Interpretation and Reasoning: The court noted that the dispute was fundamentally civil, centered on a commercial transaction, and thus more appropriately resolved through arbitration.
• Key Evidence and Findings: The petitioner had initiated arbitration proceedings, and a sole arbitrator was appointed by mutual agreement, indicating the parties' acknowledgment of the civil nature of the dispute.
• Application of Law to Facts: The court concluded that the existence of an arbitration clause and ongoing arbitration proceedings highlighted the civil nature of the dispute, rendering criminal proceedings inappropriate.
• Treatment of Competing Arguments: The respondent's contention that criminal proceedings could proceed despite arbitration was dismissed due to the lack of criminal intent.
• Conclusions: The arbitration clause and ongoing arbitration proceedings warranted the quashing of criminal proceedings.

Issue 3: Abuse of Process of Law

• Relevant Legal Framework and Precedents: The court referred to the principles established in State of Haryana vs. Bhajan Lal, which allow quashing of proceedings that constitute an abuse of process.
• Court's Interpretation and Reasoning: The court found that the criminal proceedings were initiated with a mala fide intent to pressurize the petitioner, lacking genuine criminal allegations.
• Key Evidence and Findings: The court noted the absence of deceit or fraudulent intention in the FIR and the improper conduct of the investigation.
• Application of Law to Facts: The court determined that the proceedings were an abuse of process, as they were based on civil disputes and lacked criminal substance.
• Treatment of Competing Arguments: The court rejected the respondent's argument that criminal proceedings were justified, emphasizing the civil nature of the dispute.
• Conclusions: The proceedings were quashed as an abuse of process.

Issue 4: Legality of Investigating Agency's Actions

• Relevant Legal Framework and Precedents: The court considered the procedural requirements for lawful investigation under the CrPC.
• Court's Interpretation and Reasoning: The court criticized the investigating agency for acting hastily without verifying the criminal nature of the allegations.
• Key Evidence and Findings: The investigation was conducted without proper scrutiny of the FIR's allegations, leading to undue pressure on the petitioner.
• Application of Law to Facts: The court found the investigation to be flawed and unjustified, further supporting the quashing of proceedings.
• Treatment of Competing Arguments: The court dismissed the respondent's defense of the investigation, highlighting procedural lapses.
• Conclusions: The investigation was deemed improper, contributing to the decision to quash the proceedings.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "Mere breach of contract simpliciter does not constitute an offence." "The FIR failed to disclose the necessary ingredients of either of the offences under Section 406 and 420 IPC."
• Core Principles Established: The court reaffirmed that criminal proceedings require clear evidence of criminal intent, which was absent in this case. It emphasized the importance of arbitration clauses in resolving civil disputes.
• Final Determinations on Each Issue: The court quashed the criminal proceedings, finding them to be an abuse of process and inappropriate given the civil nature of the dispute and the existence of an arbitration clause.