2007 (10) TMI 620 - SC - Companies Law

Supreme Court: Breach of Contract Not a Crime

The Supreme Court quashed the order taking cognizance against the appellant, emphasizing that criminal proceedings should not be used as a shortcut for ... Whether as a criminal complaint under Section 138 of the Negotiable Instruments Act had already been pending, a criminal complaint under Section 406/420 initiated will be an abuse of the due process of law? Issues Involved:1. Negligence and breach of contract in delivery of goods without original Bills of Lading.2. Criminal breach of trust and misappropriation of goods.3. Allegations of cheating under Sections 406, 420, 34, and 114 of the Indian Penal Code.4. Quashing of the order issuing summons by the Metropolitan Magistrate.Issue-wise Detailed Analysis:1. Negligence and breach of contract in delivery of goods without original Bills of Lading:The parties entered into a contract for the delivery of six consignments valued at US $98,715.29. The appellants instructed their agents in Mombassa, Kenya, to deliver the cargo only against the presentation of original Bills of Lading. However, the goods were delivered to M/s. Fashionette Industries Ltd. without the original Bills of Lading, allegedly as a favor to a regular customer. The complainant issued a notice alleging negligence and breach of duty under the contract and law, claiming a sum of US$ 84,353.31. The complaint highlighted that the delivery was made without the required Bills of Lading, contrary to established procedures.2. Criminal breach of trust and misappropriation of goods:The complaint petition filed on 6.5.1998, more than a year after the civil suit, alleged that the accused delivered the goods without securing the original Bills of Lading, thus committing criminal breach of trust and misappropriation of the complainant's property. The petition accused the parties of acting in concert and abetment, causing a loss of valuable property.3. Allegations of cheating under Sections 406, 420, 34, and 114 of the Indian Penal Code:The complaint alleged that the accused, by issuing Bills of Lading, assured the complainant that the goods would be delivered only upon presentation of the original Bills of Lading. The failure to adhere to this assurance led to allegations of cheating and fraudulent inducement. However, the court noted that the complaint did not contain specific averments regarding the ingredients of the offences under Sections 406 and 420 IPC, nor did it establish any fraudulent or dishonest intention at the time of contract formation.4. Quashing of the order issuing summons by the Metropolitan Magistrate:The High Court of Gujarat dismissed the application for quashing the summons, holding that the complaint prima facie disclosed offences of breach of trust and that the allegations were substantiated by the complainant's statement on oath. The Supreme Court, however, opined that the allegations, even if taken at face value, did not disclose an offence. It emphasized that breach of contract simpliciter does not constitute an offence and that criminal proceedings should not be used as a shortcut for civil remedies. The court cited precedents where it was held that for establishing the offence of cheating, fraudulent or dishonest intention at the time of making a promise must be shown, which was absent in this case.Conclusion:The Supreme Court set aside the impugned judgment, allowing the appeal and quashing the order taking cognizance against the appellant. The court reiterated that criminal proceedings should not be encouraged when found to be mala fide or an abuse of the process of the court, emphasizing the need to serve the ends of justice.