2009 (7) TMI 1365 - SC - Indian Laws

Court rules breach of contract not necessarily fraud; distinguishes civil disputes from criminal offenses.

The High Court dismissed the appellant's application to quash the FIR, citing non-return of earnest money as indicative of dishonest intentions. The court ... Breach of contract of an agreement for sale - second respondent was unable to pay the balance amount of consideration - appellants executed a deed of sale in favour of other persons - refused to return the earnest money to second respondent - Whether breach of contract of an agreement for sale would constitute an offence u/s 406 or Section 420 of the IPC? - HELD THAT:- Appellants in this Petition, in no uncertain terms, stated that they were ready and willing to pay the amount on due date. The ingredients of Section 420 of the Indian Penal Code are - Deception of any persons, Fraudulently or dishonestly inducing any person to deliver any property; or To consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit. The High Court, should have posed a question as to whether any act of inducement on the part of the appellant has been raised by the second respondent and whether the appellant had an intention to cheat him from the very inception. If the dispute between the parties was essentially a civil dispute resulting from a breach of contract on the part of the appellants by non-refunding the amount of advance the same would not constitute an offence of cheating. Similar is the legal position in respect of an offence of criminal breach of trust having regard to its definition contained in Section 405 of the IPC. There cannot furthermore be any doubt that the High Court would exercise its inherent jurisdiction only when one or the other propositions of law, as laid down in R. Kalyani v. Janak C. Mehta and Ors.[2008 (10) TMI 713 - SUPREME COURT] is attracted, which are as under: (1) The High Court ordinarily would not exercise its inherent jurisdiction to quash a criminal proceeding and, in particular, a First Information Report unless the allegations contained therein, even if given face value and taken to be correct in their entirety, disclosed no cognizable offence. (2) For the said purpose, the Court, save and except in very exceptional circumstances, would not look to any document relied upon by the defence. (3) Such a power should be exercised very sparingly. If the allegations made in the FIR disclose commission of an offence, the court shall not go beyond the same and pass an order in favour of the accused to hold absence of any mens rea or actus reus. (4) If the allegation discloses a civil dispute, the same by itself may not be a ground to hold that the criminal proceedings should not be allowed to continue. As the High Court has not applied its mind with regard to the aforementioned aspects of the matter, the impugned judgment cannot be sustained. It is set aside accordingly. The appeal is allowed. Issues:- Whether breach of contract of an agreement for sale constitutes an offence under Section 406 or Section 420 of the Indian Penal Code.Analysis:The case involves the appellant, the owner of agricultural lands, who entered into an agreement for sale with respondent No. 2. The respondent, a property dealer, paid a significant sum towards the land purchase. However, due to alleged failure to pay the balance amount, the appellant executed a sale deed with other parties. The respondent accused the appellant of committing offences under Section 406 and Section 420 of the Indian Penal Code. Subsequently, the appellant paid an amount upon cancellation of the agreement and entered into another agreement for refund if necessary.The respondent lodged a first information report, alleging fraud and breach of trust by the appellant. The High Court dismissed the appellant's application for quashing the FIR, citing non-return of earnest money as indicative of dishonest intentions. The appellant contended that the allegations did not amount to offences under Section 406 and 420 of the IPC. On the other hand, the respondent argued that the appellant sold the land to others and failed to return a substantial amount despite promises.The legal analysis focused on the definitions of 'criminal breach of trust' and 'cheating' under Sections 405 and 415 of the IPC, respectively. It was emphasized that mere breach of contract does not constitute cheating, which requires fraudulent or dishonest intent at the time of making promises. The elements of Section 420, including deception, inducement, and intentional harm, were highlighted. The judgment stressed the necessity of proving inducement and fraudulent intent for cheating to be established.The judgment criticized the High Court for not considering whether the dispute was civil in nature due to a breach of contract or involved criminal offences. It referenced previous cases to outline the parameters for interference in criminal proceedings, emphasizing that the court should not quash FIRs unless no cognizable offence is disclosed. The judgment concluded by setting aside the impugned decision and remitting the matter back to the High Court for a fresh consideration.