Quashing of cheating and breach of trust complaint where insolvency resolution actions lacked essential criminal ingredients.

Allegations of criminal breach of trust and cheating arising from actions taken during an insolvency resolution process were found not to disclose the essential ingredients of Sections 406 and 420 IPC. The petitioner acted as resolution professional under the Insolvency and Bankruptcy Code pursuant to tribunal directions, and the revised offer, competing bids, and creditor deliberations were already within the knowledge of the committee of creditors and approved by the tribunal before the complaint was made. On those facts, there was no prima facie entrustment, dishonest misappropriation, deception, or fraudulent inducement, and the complaint was treated as an attempt to react to adverse insolvency orders. The FIR and consequential criminal proceeding were therefore liable to be quashed as an abuse of process.

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Issues: Whether the FIR and consequential criminal proceeding alleging offences under Sections 406 and 420 of the Indian Penal Code, 1860, arising out of actions taken during the insolvency resolution process, disclosed the requisite ingredients of the offences and warranted quashing in exercise of inherent powers.

Analysis: The petitioner was acting as resolution professional under the Insolvency and Bankruptcy Code, 2016 pursuant to directions of the National Company Law Tribunal, and the impugned actions related to consideration and approval of resolution plans by the committee of creditors. The materials showed that the revised offer and competing bids were within the knowledge of the creditors, and the decision-making process had already been deliberated upon by the committee and approved by the tribunal before the complaint was lodged. On these facts, the essential elements of entrustment, dishonest misappropriation or conversion were absent for criminal breach of trust, and the element of deception or fraudulent inducement was also absent for cheating. The complaint was also found to be a reaction to adverse orders in the insolvency proceedings and fell within the categories warranting interference at the threshold under the well-settled principles governing quashing of criminal proceedings.

Conclusion: The FIR and the consequential criminal proceeding were liable to be quashed, as the allegations did not make out offences under Sections 406 and 420 of the Indian Penal Code, 1860 and the prosecution was an abuse of process.

Ratio Decidendi: Where allegations made in a criminal complaint do not prima facie satisfy the essential ingredients of the alleged offences, and the complaint is shown to arise from bona fide official acts performed under a statutory regime, the criminal proceeding may be quashed to prevent abuse of process and secure the ends of justice.

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