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        Sale Transaction Alone Doesn't Amount to Criminal Breach of Trust Under Section 406 IPC: Civil Remedy Only

        M/s. SHIKHAR CHEMICALS Versus THE STATE OF UTTAR PRADESH & ANR.

        M/s. SHIKHAR CHEMICALS Versus THE STATE OF UTTAR PRADESH & ANR. - TMI

        ISSUES:

          Whether a criminal complaint for recovery of unpaid dues in a commercial transaction can constitute an offence under Section 406 IPC (criminal breach of trust).Whether a mere transaction of sale amounts to "entrustment" of property within the meaning of Sections 405 and 406 IPC.Whether criminal proceedings can be instituted in a matter that is essentially a civil dispute concerning recovery of money.The correctness of the High Court's refusal to quash criminal proceedings initiated on a complaint alleging fraud and criminal breach of trust in a commercial transaction.The propriety of the Magistrate's issuance of process under Section 406 IPC based on the complaint and magisterial inquiry.

        RULINGS / HOLDINGS:

          On the issue of criminal breach of trust, the Court held that "a mere transaction of sale cannot amount to an entrustment" and therefore, the allegations in the complaint do not prima facie constitute an offence under Section 406 IPC.The Court emphasized that "before there can be any entrustment there must be a trust meaning thereby an obligation annexed to the ownership of property and a confidence reposed in and accepted by the owner," which was absent in the facts of the case.The Court held that criminal proceedings cannot be used as a substitute for civil remedies in cases of pure civil disputes, stating that allowing criminal prosecution for recovery of money would "amount to abuse of process of law."The High Court's rejection of the quashing petition was set aside, particularly criticizing the High Court's observation that the complainant should be allowed to pursue criminal proceedings because civil litigation "would take years" and be financially burdensome.The Magistrate's order issuing process under Section 406 IPC was found to be based on an erroneous understanding of law and was thus set aside.

        RATIONALE:

          The Court applied the legal framework established by precedent, notably the landmark decision explaining that "a mere transaction of sale cannot amount to an entrustment" (State of Gujarat vs. Jaswantlal Nathalal), which clarified the necessary fiduciary relationship and trust element required for criminal breach of trust.The Court reiterated that the offence under Section 406 IPC requires proof of entrustment and breach of trust, not merely non-payment or breach of contract.It relied on established principles distinguishing civil disputes from criminal offences, emphasizing that civil remedies are the proper recourse for recovery of money and that criminal proceedings should not be used to circumvent this.The Court noted the recent pronouncement clarifying the ingredients of criminal breach of trust, underscoring the High Court's failure to consider this authoritative guidance.The Court issued directions to the High Court to reassign the matter to a different judge and to ensure proper judicial oversight, reflecting concerns about repeated erroneous orders by the concerned judge.

        Topics

        ActsIncome Tax
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