2023 (3) TMI 1572 - SC - Indian Laws

Breach of contract not criminal offence under Section 420 IPC without fraudulent intention from beginning

Sarabjit Kaur Versus The State of Punjab & Anr.

The SC allowed the petition and quashed FIR No. 430/2017 under Sections 420, 120-B and 506 IPC. The Court held that appellant's failure to execute sale ... Quashing of F.I.R. No. 430 dated 16.10.2017 under Sections 420, 120- B and 506 of the Indian Penal Code, 1860 - Civil dispute or criminal offence - appellant's failure to execute the sale deed as per the Agreement to Sell - HELD THAT:- A breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. Merely on the allegation of failure to keep up promise will not be enough to initiate criminal proceedings. From the facts available on record, it is evident that the respondent No. 2 had improved his case ever since the first complaint was filed in which there were no allegations against the appellant rather it was only against the property dealers which was in subsequent complaints that the name of the appellant was mentioned. The entire idea seems to be to convert a civil dispute into criminal and put pressure on the appellant for return of the amount allegedly paid. The criminal Courts are not meant to be used for settling scores or pressurise parties to settle civil disputes. Wherever ingredients of criminal offences are made out, criminal courts have to take cognizance. The complaint in question on the basis of which F.I.R. was registered was filed nearly three years after the last date fixed for registration of the sale deed. Allowing the proceedings to continue would be an abuse of process of the Court. Conclusion - i) Civil disputes arising out of breach of contract cannot be converted into criminal cases by filing complaints under Sections 420, 120-B, and 506 IPC without clear evidence of fraud or criminal conspiracy. ii) The Court has the power to quash F.I.R.s and criminal proceedings where they constitute an abuse of process or are founded on non-cognizable offences. The impugned order passed by the High Court deserves to be set aside - Petition allowed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court were:Whether the complaint and subsequent F.I.R. alleging offences under Sections 420 (cheating), 120-B (criminal conspiracy), and 506 (criminal intimidation) of the Indian Penal Code, 1860, were maintainable or whether the dispute was purely civil in nature.Whether the appellant's failure to execute the sale deed as per the Agreement to Sell amounted to a criminal offence or merely a breach of contract.Whether the repeated complaints filed by the respondent, including the impugned complaint leading to the F.I.R., were an abuse of the criminal process intended to pressurize the appellant in a civil dispute.Whether the High Court erred in dismissing the petition seeking quashing of the F.I.R.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Nature of the dispute - Civil or CriminalRs.Relevant legal framework and precedents: It is a well-established principle that breach of contract is a civil wrong and does not ordinarily constitute a criminal offence unless there is a clear demonstration of fraudulent or dishonest intention at the inception of the transaction. The Court referred to the legal maxim that mere failure to perform a contract does not amount to cheating under Section 420 IPC unless there is mens rea (criminal intention) to cheat.Court's interpretation and reasoning: The Court examined the facts that the appellant entered into an Agreement to Sell a plot of land to the vendee's wife, with explicit mention that the appellant was not the owner at the time and that the sale deed was to be executed by a fixed date, which was extended. The respondent had filed multiple complaints, initially without naming the appellant and only against property dealers. The first complaint sought refund of money without alleging cheating. Subsequent complaints introduced allegations against the appellant and criminalized the dispute.Key evidence and findings: The investigation report and legal opinion from the District Attorney concluded that the dispute was civil in nature, and no criminal offence was made out. The respondent did not initiate any civil proceedings for specific performance or recovery of earnest money, nor was there any evidence of readiness and willingness to perform the contract on the respondent's part.Application of law to facts: The Court applied the principle that criminal prosecution cannot be initiated solely on the basis of breach of contract without proof of fraudulent intention. The absence of any civil suit or notice prior to the complaints further supported the civil character of the dispute.Treatment of competing arguments: The State argued that the chargesheet had been filed and the appellant could raise all pleas before the trial court. The Court found this approach inappropriate given the repeated complaints and the nature of the allegations, which appeared to be an attempt to convert a civil dispute into a criminal case.Conclusions: The Court concluded that the dispute was purely civil and that the criminal complaints were an abuse of process.Issue 2: Whether the F.I.R. and subsequent proceedings constituted an abuse of processRelevant legal framework and precedents: Courts have the inherent power to quash F.I.R.s and criminal proceedings if they are found to be mala fide or an abuse of the process of law, especially where the allegations do not disclose a cognizable offence or are intended to harass the accused.Court's interpretation and reasoning: The Court noted that the respondent filed three complaints over a period of time, progressively improving the allegations to include the appellant. The first complaint did not name the appellant and was directed against property dealers only. The subsequent complaints were filed without disclosing the outcome of earlier complaints, suggesting an intent to harass and pressure the appellant.Key evidence and findings: The F.I.R. was registered nearly three years after the last date fixed for execution of the sale deed, and no civil action was initiated by the respondent. There was no evidence of any notice issued to the appellant demanding performance or refund prior to filing the complaints.Application of law to facts: The Court applied the principle that criminal courts should not be used as a substitute for civil remedies or to pressurize parties in civil disputes. The delay and repeated complaints indicated mala fide intent.Treatment of competing arguments: The State's submission that the appellant could raise all defenses at trial was rejected in light of the abuse of process evident from the facts.Conclusions: The Court held that allowing the criminal proceedings to continue would amount to an abuse of the process of the Court.Issue 3: Whether the High Court erred in dismissing the petition for quashing the F.I.R.Court's reasoning: The Court found that the High Court failed to appreciate the civil nature of the dispute and the repeated attempts by the respondent to convert it into a criminal matter. The High Court's dismissal of the petition for quashing the F.I.R. was therefore set aside.Conclusion: The Court allowed the appeal and quashed the F.I.R. and all subsequent proceedings.3. SIGNIFICANT HOLDINGSThe Court held:'A breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. Merely on the allegation of failure to keep up promise will not be enough to initiate criminal proceedings.''The criminal Courts are not meant to be used for settling scores or pressurise parties to settle civil disputes. Wherever ingredients of criminal offences are made out, criminal courts have to take cognizance. The complaint in question on the basis of which F.I.R. was registered was filed nearly three years after the last date fixed for registration of the sale deed. Allowing the proceedings to continue would be an abuse of process of the Court.'Core principles established:Civil disputes arising out of breach of contract cannot be converted into criminal cases by filing complaints under Sections 420, 120-B, and 506 IPC without clear evidence of fraud or criminal conspiracy.Repeated filing of complaints with improved allegations after earlier complaints were dismissed or consigned to record can amount to abuse of process and mala fide prosecution.Readiness and willingness to perform contractual obligations and initiation of civil remedies are essential factors in determining the nature of the dispute.The Court has the power to quash F.I.R.s and criminal proceedings where they constitute an abuse of process or are founded on non-cognizable offences.Final determinations:The F.I.R. No. 430 dated 16.10.2017 under Sections 420, 120-B, and 506 IPC and all subsequent proceedings were quashed.The appeal was allowed, setting aside the High Court's order dismissing the petition for quashing.