A civil dispute arising from a commercial transaction does not constitute a criminal offence of cheating

Bombay High Court Quashes FIR in Commercial Dispute, Clarifies Distinction Between Civil and Criminal Offences, Court rules that breach of contract does not constitute cheating without initial fraudulent intent, emphasizing civil remedies over criminal prosecution.

In a significant judgment, the Bombay High Court's Nagpur Bench has quashed an FIR and subsequent criminal proceedings against Ketan Goenka and others, emphasizing the distinction between civil disputes and criminal offences. The court, comprising Justices Urmila Joshi-Phalke and Nandesh S. Deshpande, ruled that a civil dispute arising from a commercial transaction cannot be treated as a criminal offence of cheating under Section 420 of the Indian Penal Code unless there is evidence of fraudulent or dishonest intent from the inception of the transaction.

The case involved a dispute over the non-payment for soyabean supplied to Goenka Proteins Pvt. Ltd., owned by the applicants. Despite the non-payment, the court observed that the issue was essentially a civil matter, not warranting criminal prosecution. The judgment highlighted that mere failure to honour contractual obligations does not amount to cheating unless there is a fraudulent intent from the beginning.

The court pointed out that the applicants had been conducting regular business with the complainant, Balaji Agro Industries, with substantial turnovers and prior payments made. The court concluded that the applicants did not exhibit any intent to deceive from the start, and part payments had already been made towards the goods delivered.

In its decision, the High Court exercised its inherent powers under Section 482 of the Criminal Procedure Code to quash the FIR and related proceedings, emphasizing the prevention of abuse of the legal process. The ruling is expected to have broader implications, reinforcing the need for disputes of a civil nature to be resolved through appropriate civil remedies rather than through the criminal justice system.

The judgment also underscored the importance of distinguishing between breach of contract and criminal breach of trust and cheating, clarifying that both offences require distinct elements of intent and action. The court reiterated that fraudulent intent must be present at the inception for an act to qualify as cheating, while criminal breach of trust necessitates the entrustment of property with dishonest misappropriation.

Bottom Line:

A civil dispute arising from a commercial transaction does not constitute a criminal offence of cheating under Section 420 IPC unless fraudulent or dishonest intention is present from the inception of the transaction.

Statutory provisions: Indian Penal Code, 1860 Section 420, Criminal Procedure Code, 1973 Section 482, Indian Penal Code, 1860 Sections 420 and 406.

Ketan v. State of Maharashtra, (Bombay)(DB)(Nagpur Bench) : Law Finder Doc id # 2819485