2025 (4) TMI 433 - SC - Indian Laws

Seeking quashing of FIR - refusal to quash the proceeding inter alia holding the allegations prima facie divulging ingredients of offence under Section 415 IPC - criminal offence or commercial dispute - HELD THAT - Materials collected during investigation do not show the present case falls in the category of commercial disputes which would attract penal consequences. Investigating officer had recorded statements of two bankers and a builder. The bankers disclosed the appellant and his relations had substantial landed properties which had been mortgaged to them in 2014. The appellant had repaid the loan regularly till 2016 thereafter defaulted. Notwithstanding default in 2018 an additional loan was also sanctioned to him. These materials support the appellant s representation that he was a businessman of substance and as late as on 2018 his bankers reposed confidence in his financial liquidity to extend additional loans. Nothing is placed on record to disclose utter insolvency or bankruptcy of the appellant which he had knowingly suppressed and persuaded the 2nd non-applicant to enter into the commercial arrangement. The High Court erred in not taking into consideration these relevant aspects which shows the representation of the appellant that he was a creditworthy businessman cannot be labelled as deception merely on the ground that the appellant had failed to honour the terms of the subsequent agreement. The High Court came to the conclusion that the appellant had intention to deceive from the inception of the transaction. This reasoning is wholly fallacious. Mere breach of promise to repay per se does not infer dishonest intention. The proposition of law declared in Mohsinbhai Fateali vs Emperor 1931 (11) TMI 7 - BOMBAY HIGH COURT does not help the 2nd non applicant. In the said case the Bench held merely because the accused had subsequently filed for insolvency it cannot be held that he had no reasonable expectation to pay for the goods on the date of contract. In Khoda Bakhsh vs Bakeya Mundari 1905 (6) TMI 1 - CALCUTTA HIGH COURT the accused had deceived the complainant to part with money on the assurance to liquidate a mortgage debt and utilized the money to repay another debt which he had suppressed. No such divergence of funds/ goods is made out in the factual matrix to show deception by the appellant. Conclusion - A commercial dispute does not automatically translate into a criminal offense unless there is clear evidence of fraudulent intent at the inception of the transaction. The impugned order is set aside and the proceeding arising out of FIR is quashed - appeal allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The primary legal issue considered was whether the allegations against the appellant constituted an offense under Section 420 of the Indian Penal Code (IPC) for cheating, and whether the proceedings initiated under FIR No. 80/2022 should be quashed. The Court examined whether the appellant's actions amounted to a criminal offense or were merely a commercial dispute.

ISSUE-WISE DETAILED ANALYSIS

Relevant legal framework and precedents:

The Court referenced Section 420 of the IPC, which pertains to cheating and dishonestly inducing delivery of property. The Court also considered the principles set out in the case of State of Haryana vs. Bhajan Lal, which delineates the circumstances under which a criminal proceeding can be quashed. The Court examined illustrations (f) and (g) of Section 415 of the IPC to determine the presence of dishonest intent at the inception of the transaction.

Court's interpretation and reasoning:

The Court analyzed whether the appellant's representation as a 'reputed, trustworthy and creditworthy' businessman was made with dishonest intent at the inception of the transaction. It considered whether the appellant's failure to pay the dues was due to a deliberate intention to deceive or merely a result of business setbacks.

Key evidence and findings:

The evidence included statements from bankers and a builder, which indicated that the appellant had substantial assets and was considered creditworthy by financial institutions as late as 2018. The appellant had defaulted on payments but was still granted additional loans, indicating financial credibility at the time. No evidence was presented to show that the appellant was insolvent or had misrepresented his financial status at the time of the transaction.

Application of law to facts:

The Court applied the principles from the Bhajan Lal case to determine that the allegations did not prima facie constitute an offense under Section 420 IPC. The Court found no evidence of dishonest intent at the inception of the transaction. The appellant's failure to adhere to the payment schedule was attributed to business losses rather than fraudulent intent.

Treatment of competing arguments:

The Court considered the argument that the appellant had induced the 2nd non-applicant to supply coal through false representation. However, it found that the appellant's financial dealings and subsequent business setbacks did not support a finding of initial fraudulent intent. The Court emphasized that a breach of contract does not automatically infer criminal liability.

Conclusions:

The Court concluded that the case did not meet the criteria for a criminal offense under Section 420 IPC. The allegations were more aligned with a civil dispute over unpaid dues rather than a criminal act of cheating.

SIGNIFICANT HOLDINGS

The Court held that the High Court erred in its assessment by not considering the appellant's financial credibility and the absence of evidence indicating fraudulent intent at the inception of the transaction. The Court emphasized that mere failure to repay a debt does not constitute cheating unless there is evidence of dishonest intent from the beginning.

Preserve verbatim quotes of crucial legal reasoning:

"Mere breach of promise to repay per se does not infer dishonest intention."

Core principles established:

The Court reaffirmed the principle that a commercial dispute does not automatically translate into a criminal offense unless there is clear evidence of fraudulent intent at the inception of the transaction. It reiterated that the criminal law should not be used as a tool to recover outstanding dues in the absence of criminal intent.

Final determinations on each issue:

The Court set aside the High Court's order and quashed the proceedings arising out of FIR No. 80/2022. The appeal was allowed, and all pending applications were disposed of.