MRS.U.ANITHA REDDY v. STATE OF KARNATAKA

2. Heard Sri Ajay Shankar, learned counsel appearing for the petitioners, Sri B.N.Jagadeesha, learned Additional State Public Prosecutor appearing for respondent No.1 and Sri Prabhakar Naik, respondent No.2 in person.

3. Facts, in brief, germane are as follows:- The petitioners are the owners of 31 guntas of land in Sy.No.36/6 and 36/7 of Chembanahalli Village, Sarjapur Hobli, Anekal Taluk. They entered into a Joint Development Agreement 4 (‘JDA’ for short) with the developer who is the other accused in the subject crime. In terms of law, plan sanction was obtained and the developer bifurcated the apartments that fell into the share of the land owners and the developers in terms of sharing agreement executed between the parties. Eight years thereafter, it appears the developer abandoned the project without completing it. The petitioners, against the developer, invoking arbitration clause issued notice and have also filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an Arbitrator. The petition so filed under Section 11 is still pending consideration at the hands of this Court. Meanwhile, the Association of Home owners of the apartment complex filed a petition before the Karnataka Real Estate Regulatory Authority (‘RERA’ for short) seeking substitution of the builder and in terms thereof, the Association has taken the onus of construction of the project and completing the same. After all these happenings, the 2nd respondent, a home buyer who is said to have paid a sum of `33,76,000/- to the developer registers a crime in Crime No.420 of 2023 for the aforesaid offence. The registration of crime is what has driven the petitioners to this Court in the subject petition. 5

4. The learned counsel appearing for the petitioners would take this Court through the JDA to demonstrate that 38% of the built up area was retained by the petitioners and the remaining area was with the developer. The 2nd respondent/complainant has no contract with the petitioners, as he is the one who has invested with the developer’s share of property. The developer commits default in the project. In spite thereof, the petitioners are drawn into the web of crime. After the developer defaulting in the project, RERA has permitted the Association of Home Buyers to complete the project. Therefore, the petitioners are nowhere in the picture qua the 2nd respondent/complainant. The ingredients of Section 420 of the IPC against these petitioners cannot be imagined to be met is the submission of the learned counsel appearing for the petitioners.

5. Per contra, the 2nd respondent in person would vehemently refute the submissions to contend that he has entered into contract with the developer, which does not mean that the petitioners are not aware of anything. 38% of the land share is even now not 6 identified. Owners share could not be clearly defined even in the JDA and General Power of Attorney was issued by the petitioners in favour of the developer and the new developer has been brought in without the consent of home buyers. On these points, the respondent in person seeks dismissal of the petition.

6. I have given my anxious consideration to the submissions made by the learned counsel for the petitioners and the 2nd respondent in person.

7. The afore-narrated facts are not in dispute as they are all borne out of records. The petitioners/accused 4 to 6 are the owners of the land as afore-described. They enter into a JDA on 25-09-2013 with M/s Viijcon Properties. The developer’s share was to be transferred in terms of the JDA. Relevant portion of clause 8 of the JDA, which is germane, reads as follows: “VIII. TRANSFER OF DEVELOPERS SHARE: a. The owners herein irrevocably appoint the Developer to sell 62% (sixty two per cent) of Developer’s share of saleable undivided right title and interest in the Schedule Property together and including the total super built up 7 b. c. d. e. f. area either in whole or in parts or in portions as the developer may deem fit. The Owners also authorize the Developer to connect the money receivable on sale of the undivided share in the property together with total super built up area in respect of the 62% (sixty two per cent) of Developer share; Any excess or shortfall in the price of the sale of the undivided share and interest to the extent of the Developer share shall be the profit or loss of the Developer and the Owners shall not be responsible for the same likewise any excess or shortfall in the price of the sale of the undivided share or interest to the extent of the owners share shall be profit or loss of the Owners and the Developer shall not be responsible for the same; The owners shall not be responsible for any dispute between the Developer and the prospective buyers arising between them; To allot various apartments/car parking area to be constructed in the Schedule Property (other than the Owners share) to such persons and in such manner as the Developer may deem fit, to the extent of the Developers share, however, the Developer shall be entitled to sell the last remaining 5% (five percent) of their share, after completion of the entire Project falling to the share of Developer. The term completion means and includes completion of entire internal and external infrastructure, as specified in this agreement and the Project should be deemed to be habitable by humans; The Owners shall execute a Power of Attorney to enable the Developer to enter into the agreement of sale and to execute sale deeds in respect of the saleable undivided right, title and interest in the Schedule Property together with total super built up area with various buyers to the extent of Developers 62% (six two percent) share and Power of Attorney shall be in force till the completion of the project and its sale;” 8 The owners irrevocably appoint the developer to sell sixty two percent of developer’s share of saleable undivided right, title and interest and the remaining 38 percent remain with the owners. After execution of the JDA, the petitioners execute a General Power of Attorney on the same day in favour of the developer. All these happen in the year 2013. Construction begins. Several home buyers register their interest in the apartment complex by paying certain amounts as was demanded. The 2nd respondent/ complainant has also paid a sum of Rs.33,76,000/- to the developer and not to the petitioners. Not a single rupee has passed on to the petitioners from the hands of the complainant. This is an admitted fact. The developer defaults in completion of the project and abandons it half way.

8. In terms of the aforesaid JDA, the petitioners have invoked resolution of the dispute by way of arbitration and the said petition seeking appointment of an Arbitrator is said to be pending consideration before this Court. The flat owners who had formed an Association knocked at the doors of RERA. RERA on 17-07-2023 grants an interim order. It reads as follows: 9 “INTERIM ORDER a. b. c. d. e. The Respondent No.1 shall remit all the sale proceeds from sale of newly sanctioned flats under modified sanction 09.01.2023, bearing Number A.001, A 002, A003, A 004, A 005, B 701, B 702, B 703, B 704 and B 705 to any prospective purchasers, only in the escrow account jointly opened by the Complainant and Respondent No.1. bearing No.CC460/2014-16 The authorized the Complainant representative of Association should be a confirming party/consenting witness in all the sale deeds executed by the Respondent No.1. The President of the Complainant Association should be the signatory for withdrawal of the amount from the escrow account along with one of the partner of Respondent No.1. The request made by the complainant Association for extension of the project for one more year will be considered in view of the MOU between Respondent No.1 and the Complainant submitted before this Authority. As this project remains with Respondent No.1, after the extension is given, the actual promoter will be the complainant Association for the amounts additionally invested by the allottee and also the additional amounts received from the sale of the 10 apartments. The authority u/s 7(3) allowed this registration to continue till 30-06-2024 without payment of the fee to RERA for extension. The Respondent No.1 promoter to ensure that the President of the Association is signatory for the cheques to draw from ESCROW account. However, the other statutory requirements of the RERA i.e., submission of Quarterly Updates, Annual Audit Reports and such other compliances should be complied jointly by both the parties.” 10 The Association is now in-charge of completion of construction of the building. Likewise, the *wife of the complainant who was the initial investor had also knocked at the doors of RERA in which the developer and the petitioners were the respondents. In Complaint No.00239 of 2023, RERA on 01-12-2023 has passed the following order: “ORDER “In exercise of the powers conferred under Section 31 of the Real Estate (Regulation and Development) Act, 2016, the complaint bearing No.00239 of 2023 is hereby allowed.

3. The respondents are hereby directed to pay the amount of Rs.60,91,329/- (Rupees sixty lakh ninety one thousand three hundred and twenty nine only) with interest at the rate of 9% p.a. from 11-05-2025 till 30-04-2017. Further, the respondents are directed to pay the amount of Rs.60,91,329/- (Rupees sixty lakh ninety one thousand three hundred and twenty nine only) with interest at the rate of SBI MCLR+2% from 01.05.2017 to till the date of entire realisation. The complainant is at liberty to enforce the said order in accordance with law if the respondents fail to comply with the above order. No order as to costs.” The RERA directs the respondents therein to pay `60,91,329/- to the *wife of the complainant/2nd respondent along with interest from 01-05-2017 till the date of payment. The complainant does * Corrected vide court order dated 03.12.2024 11 not get that order executed but seeks to register a complaint before the jurisdictional Police for offence punishable under Section 420 of the IPC.

9. The issue now would be, whether an amount of `60,91,329/- as ordered by RERA or `33,76,000/- which the complainant had transferred to the Developer, could be recovered through criminal law being set into motion. The issue need not detain this Court for long or delve deep into the matter. Interpreting the very provision of law i.e., Section 420 of the IPC in an identical circumstance this Court in the case of PATEL ENGINEERING LIMITED v. STATE OF KARNATAKA1 has held as follows: “…. …. ….

13. As observed in the course of the order, there are several proceedings pending between the parties. It was always open to the complainant to initiate civil proceedings in a manner known to law and not set the criminal law into motion on breach of agreements, on the specious plea that he is unlettered. On the said the score, permitting further investigation even, in the case at hand, would run foul of the judgment of the Apex Court 1 Criminal Petition No.6513 of 2024 decided on 06-08-2024 12 in the case of VIJAY KUMAR GHAI v. STATE OF WEST BENGAL2 where in it is held as follows: “27. Section 405 IPC defines “criminal breach of trust” which reads as under: property, “405. Criminal breach of trust.—Whoever, being in any manner entrusted with property, or with any dominion dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust”.” The essential ingredients of the offence of criminal breach of trust are: (1) The accused must be entrusted with the property or with dominion over it, (2) The person so entrusted must use that property, or; (3) (a) (b) The accused must dishonestly use or dispose of that property or wilfully suffer any other person to do so in violation, of any direction of law prescribing the mode in which such trust is to be discharged, or; of any legal contract made touching the discharge of such trust.

28. “Entrustment” of property under Section 405 of the Penal Code, 1860 is pivotal to constitute an offence under this. The words used are, “in any manner entrusted with property”. So, entrustments of all kinds whether to clerks, servants, business partners or other persons, provided they are holding a position of “trust”. A person who dishonestly misappropriates property entrusted to them contrary to the terms of an obligation imposed is liable for a it extends 2 (2022) 7 SCC 124 13 criminal breach of trust and is punished under Section 406 of the Penal Code. in R.K. Dalmia v. Delhi

29. The definition in the section does not restrict the property to movables or immovables alone. This Court Admn. [R.K. Dalmia v. Delhi Admn., (1963) 1 SCR 253 : AIR 1962 SC 1821] held that the word “property” is used in the Code in a much wider sense than the expression “movable property”. There is no good reason to restrict the meaning of the word “property” to movable property only when it is used without any qualification in Section 405.

30. In Sudhir Shantilal Mehta v. CBI [Sudhir Shantilal Mehta v. CBI, (2009) 8 SCC 1: (2009) 3 SCC (Cri) 646] it was observed that the act of criminal breach of trust would, inter alia mean using or disposing of the property by a person who is entrusted with or has otherwise dominion thereover. Such an act must not only be done dishonestly but also in violation of any direction of law or any contract express or implied relating to carrying out the trust.

31. Section 415 IPC defines “cheating” which reads as under: “415. Cheating.—Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.” The essential ingredients of the offence of cheating are:

1. Deception of any person

2.(a) Fraudulently or dishonestly inducing that person— (i) to deliver any property to any person; or 14 (ii) to consent that any person shall retain any property; or (b) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were no so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property.

32. A fraudulent or dishonest inducement is an essential ingredient of the offence. A person who dishonestly induces another person to deliver any property is liable for the offence of cheating.

33. Section 420 IPC defines “cheating and dishonestly inducing delivery of property” which reads as under: “420. Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”

34. Section 420 IPC is a serious form of cheating that includes inducement (to lead or move someone to happen) in terms of delivery of property as well as valuable securities. This section is also applicable to matters where the destruction of the property is caused by the way of cheating or cheating is provided under this section which may extend to 7 years and also makes the person liable to fine. inducement. Punishment

35. To establish the offence of cheating in inducing the delivery of property, the following ingredients need to be proved: 15 (i) The representation made by the person was false. (ii) The accused had prior knowledge that the representation he made was false. (iii) The accused made false representation with dishonest in order to deceive the person to whom it was made. intention (iv) The act where the accused induced the person to deliver the property or to perform or to abstain from any act which the person would have not done or had otherwise committed.

36. As observed and held by this Court in R.K. Vijayasarathy v. Sudha Seetharam [R.K. Vijayasarathy v. Sudha Seetharam, (2019) 16 SCC 739 : (2020) 2 SCC (Cri) 454] , the ingredients to constitute an offence under Section 420 are as follows: (i) (ii) a person must commit the offence of cheating under Section 415; and the person cheated must be dishonestly induced to: (a) deliver property to any person; or b) make, alter or destroy valuable security or anything signed or sealed and capable of being converted into valuable security. Thus, cheating is an essential ingredient for an act to constitute an offence under Section 420 IPC.

37. The following observation made by this Court in Uma Shankar Gopalika v. State of Bihar [Uma Shankar Gopalika v. State of Bihar, (2005) 10 SCC 336 : (2006) 2 SCC (Cri) 49] with almost similar facts and circumstances may be relevant to note at this stage : (SCC pp. 338-39, paras 6-7) 16 “6. Now the question to be examined by us is as to whether on the facts disclosed in the petition of the complaint any criminal offence whatsoever is less offences under Sections made out much 420/120-BIPC. The only allegation in the complaint petition against the accused persons is that they assured the complainant that when they receive the insurance claim amounting to Rs 4,20,000, they would pay a sum of Rs 2,60,000 to the complainant out of that but the same has never been paid. … It was pointed out on behalf of the complainant that the accused fraudulently persuaded the complainant to agree so that the accused persons may take steps for moving the consumer forum in relation to the claim of Rs 4,20,000. It is well settled that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In the present case, it has nowhere been stated that at the very inception that there was intention on behalf of the accused persons to cheat which is a condition precedent for an offence under Section 420IPC.

7. In our view petition of complaint does not disclose any criminal offence at all much less any offence either under Section 420 or Section 120- BIPC and the present case is a case of purely civil dispute between the parties for which remedy lies before a civil court by filing a properly constituted suit. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse of the process of court and to prevent the same it was just and expedient for the High Court to quash the same by exercising the powers under Section 482CrPC which it has erroneously refused.”

38. There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. However, as held by this Court in Hridaya Ranjan Prasad Verma v. State of Bihar [Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168 : 2000 SCC (Cri) 786] , 17 the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one. While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by Respondent 2 does not disclose dishonest or fraudulent intention of the appellants.” (Emphasis supplied) Later, the Apex Court in the case of MITESH KUMAR J.SHA v. STATE OF KARNATAKA3 has held as follows: “Issues

24. Having perused the relevant facts and contentions made by the appellants and the respondents herein in our considered opinion, the following three key issues require determination in the instant case: (i) Whether the necessary ingredients of the offences punishable under Sections 406, 419 and 420 are prima facie made out? (ii) Whether sale of excess flats, even if made, amounts to a mere breach of contract or constitutes an offence of cheating? (iii) Whether the dispute is one of entirely civil nature and therefore liable to be quashed? Whether the necessary ingredients of offences punishable under Sections 406, 419 and 420 are prima facie made out?

25. In order to ascertain the veracity of contentions made by the parties herein, it is imperative to firstly examine whether the relevant ingredients of offences which the appellants herein had been charged with, are prima facie made out. The relevant sections read as follows: 3 (2022)14 SCC 572 18 “405. Criminal breach of trust.—Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or willfully suffers any other person so to do, commits “criminal breach of trust”. Explanation 1.—A person, being an employer of an establishment whether exempted under Section 17 of the Employees' Provident Funds and Miscellaneous Provisions Act, 1952 (19 of 1952), or not who deducts the employee's contribution from the wages payable to the employee for credit to a Provident Fund or Family Pension Fund established by any law for the time being in force, shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said law, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid. Explanation 2.—A person, being an employer, who deducts the employees' contribution from the wages payable to the employee for credit to the Employees' State Insurance Fund held and administered by the Employees' State Insurance Corporation established under the Employees' State Insurance Act, 1948 (34 of 1948), shall be deemed to have been entrusted with the amount of the contribution so deducted by him and if he makes default in the payment of such contribution to the said Fund in violation of the said Act, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid. *** 406. Punishment for criminal breach of trust.—Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both. *** 419. Punishment for cheating by personation.—Whoever cheats by personation shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.

420. Cheating and dishonestly inducing delivery of property.— Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or 19 anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”

26. In the instant case, the complaint levelled against the appellants herein is one which involves commission of offences of criminal breach of trust and cheating. While a criminal breach of trust as postulated under Section 405 of the Penal Code, 1860, entails misappropriation or conversion of another's property for one's own use, with a dishonest intention, cheating too on the other hand as an offence defined under Section 415 of the Penal Code, 1860, involves an ingredient of having a dishonest or fraudulent intention which is aimed at inducing the other party to deliver any property to a specific person. Both the sections clearly prescribed “dishonest intention”, as a precondition for even prima facie establishing the commission of the said offences. Thus, in order to assess the relevant contentions made by the parties herein, the question whether actions of the appellants were committed in furtherance of a dishonest or fraudulent scheme is one which requires scrutiny.

27. Coming to the facts of the case at hands, the contested contention between the parties is that the builder company had sold four excess flats beyond its share, in terms of the JDA and supplementary agreement entered into between the parties. Respondent 2 contends that builder company which was entitled to sell only 9 flats in its favour, has instead executed sale deed for 13 flats in total. Thus, the company simply could not have sold the flats beyond 9 flats for which it was authorised and resultantly cannot evade criminal liability on a mere premise that a civil dispute is already pending between the parties.

28. The appellants on the other hand contend that in terms of a subsequent MoU dated 19-2-2015, it was mutually agreed between the parties, that partial payment for a loan amount borrowed by Respondent 2 from Religare Finvest Ltd., would be paid out from the sale proceeds of the said development project undertaken by both the parties. Pursuant 20 to this MoU, the appellants had agreed to get an NOC for 15 flats by making payment of Rs 40,00,000 for each flat.

29. The key contention, and also the central point of dispute, made by the appellants is that, it was specifically agreed between the parties that the appellants would be entitled to sell additional flats beyond their share, as adjustments for payment made to Religare Finvest Ltd. on behalf of Respondent 2. It is further contended that Respondent 2 had also agreed to execute a ratification deed to the JDA and GPA eventually, which would have formally authorised the appellants to sell additional apartments.

30. Nonetheless, the ratification deed was never made and Respondent 2 subsequently even revoked the GPA unilaterally, contending that the terms of JDA were not followed. It was only after revocation of GPA that the company filed an application for arbitration seeking interim orders to restrain the disputed property. Respondent 2 Simultaneously, while this dispute was pending adjudication before the arbitrator Respondent 2 filed a criminal complaint against the appellants. from alienating

31. At this juncture, it further becomes pertinent to mention that eventually though both the parties partly in terms of their succeeded before the arbitrator, respective claims, the arbitrator observed that GPA indeed could not have been revoked unilaterally at the instance of Respondent 2. Aggrieved, Respondent 2 thereafter even preferred a challenge to the award passed by the arbitrator. Moreover, pending arbitration proceedings issue regarding selling of excess flats at the instance of the appellants, was also withdrawn by Respondent 2 seeking liberty to pursue his claim with regard to selling of four excess flats in pending civil proceedings.

32. Upon a careful assessment of such facts, by no stretch can it be concluded that the appellants herein have deceptively or intentionally tried to sell excess flats if any, as contended by Respondent 2. Here, it must also be borne in mind that subsequent to the revocation of GPA, it was the appellants herein who had first resorted to arbitration proceedings on 2-3- 21 2016 for redressal of dispute between the parties, to which Respondent 2 had accordingly filed his statement of objections dated 9-3-2016. It was only on 29-3-2016 that Respondent 2 had filed the FIR in question bearing Crime No. 185/2016 against the appellants. Moreover, it was Respondent 2 who had withdrawn his prayer with respect to selling of four excess flats by the appellants, only to pursue the same in civil proceedings. in Priti Saraf v. State

33. At this stage, by placing reliance on the judgment of this Court (NCT of Delhi) [Priti Saraf v. State (NCT of Delhi), (2021) 16 SCC 142 : 2021 SCC OnLine SC 206] and Sri Krishna Agencies v. State of A.P. [Sri Krishna Agencies v. State of A.P., (2009) 1 SCC 69 : (2009) 1 SCC (Civ) 18 : (2009) 1 SCC (Cri) 241] , it has been further submitted by Respondent 2 that the appellants cannot evade a criminal case by merely contending that the person whose property has been sold has filed a civil suit for recovery of the property, or that the dispute had been referred to arbitration.

34. Although, there is perhaps not even an iota of doubt that a singular factual premise can give rise to a dispute which is both, of a civil as well as criminal nature, each of which could be pursued regardless of the other. In the instant case, the actual question which requires consideration is not whether a criminal case could be pursued in the presence of a civil suit, but whether the relevant ingredients for a criminal case are even prima facie made out. Relying on the facts as discussed in previous paragraphs, clearly no cogent case regarding a criminal breach of trust or cheating is made out.

35. The dispute between the parties, could at best be termed as one involving a mere breach of contract. Now, whether and what, is the difference between a mere breach of contract and an offence of cheating has been discussed in the ensuing paragraphs. Whether sale of excess flats even if made amounts to a mere breach of contract?

36. This Court in Hridaya Ranjan Prasad Verma v. State of Bihar [Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168 : 2000 SCC (Cri) 786] , has observed : (SCC p. 177, para 15) 22 “15. … that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time to inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise.”

37. Applying this dictum to the instant factual matrix where the key ingredient of having a dishonest or fraudulent intent under Sections 405, 419 and 420 is not made out, the case at hand, in our considered opinion is a suitable case necessitating intervention of this Court. Whether the dispute is one of entirely civil nature and therefore liable to be quashed? instant dispute

38. Having considered the relevant arguments of the parties and decisions of this Court we are of the considered view that existence of dishonest or fraudulent intention has not been made out against the appellants. Though involves determination of issues which are of civil nature, pursuant to which Respondent 2 has even instituted multiple civil suits, one can by no means stretch the dispute to an extent, so as to impart it a criminal colour. As has been rightly emphasised upon by this Court, by in Indian Oil way of an observation Corpn. v. NEPC India Ltd. [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188] , as under : (SCC p. 749, para 14) rendered certainly “14. While no one with a legitimate cause or grievance should be prevented from seeking remedies available in criminal law, a complainant who initiates or persists with a prosecution, being fully aware that the criminal proceedings are unwarranted and his remedy lies 23 only in civil law, should himself be made accountable, at the end of such misconceived criminal proceedings, accordance with law.”

39. It was also observed : (Indian Oil Corpn. case [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188] , SCC pp. 748-49, para 13) “13. While on this issue, it is necessary to take notice of a growing tendency in business circles to convert purely civil disputes into criminal cases. This is obviously on account of a prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. … There is also an impression that if a person could somehow be entangled in a criminal prosecution, there is a likelihood of imminent settlement. Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure though criminal prosecution should be deprecated and discouraged.”

40. On an earlier occasion, in G. Sagar Suri v. State of U.P. [G. Sagar Suri v. State of U.P., (2000) 2 SCC 636 : 2000 SCC (Cri) 513] , this Court has also observed : (SCC p. 643, para 8) “8. Jurisdiction under Section 482 of the Code has to be exercised with great care. In exercise of its jurisdiction the High Court is not to examine the matter superficially. It is to be seen if a matter, which is essentially of civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law. Before issuing process a criminal court has to exercise a great deal of caution. For the accused it is a serious matter. This Court has laid certain principles on the basis of which the High Court is to exercise its jurisdiction under Section 482 of the Code. Jurisdiction under this section has to be exercised to prevent abuse of the process of any court or otherwise to secure the ends of justice.”

41. Furthermore, in the landmark judgment of State of Haryana v. Bhajan Lal [State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 : 1992 SCC (Cri) 426] regarding exercise of 24 inherent powers under Section 482CrPC, this Court has laid down the following categories of instances wherein inherent powers of the Court can be exercised in order to secure the ends of justice. These are : (SCC pp. 378-79, para 102) “102. … (1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused. (2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code. (3) (4) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a non- cognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code. (5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion proceeding against the accused. is sufficient ground (6) Where there is an express legal bar engrafted in any of the provisions of the Code or the Act concerned (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the Act concerned, providing efficacious redress for the grievance of the aggrieved party. (7) Where a criminal proceeding is manifestly attended with mala fide and/or where the proceeding is 25 maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge.”

42. Applying this dictum to the instant factual matrix, it can be safely concluded that the present case clearly falls within the ambit of first, third and fifth in the category of the seven categories enlisted abovesaid therefore warrants judgment. The case intervention by this Court, and the High Court has erred in dismissing the petition filed by the appellants under Section 482CrPC. We find that there has been attempt to stretch the contours of a civil dispute and thereby essentially impart a criminal colour to it.” (Emphasis supplied) Following the aforesaid judgments, the Apex Court in the case of KUNTI v. STATE OF UTTAR PRADESH4 has held as follows: “…. …. …. impugned

6. Vide the judgment dated 18-10-2019 [Kunti v. State of U.P., 2019 SCC OnLine All 7183], the learned Single Judge dismissed the application under Section 482CrPC, not accepting the argument on the part of the appellant, that the present Respondent 2 had an alternative remedy in the nature of a civil suit for the execution of the sale agreement. Relying on, in V. Ravi Kumar v. State [V. Ravi Kumar v. State, (2019) 14 SCC 568: (2020) 1 SCC (Cri) 401] , the prayer for quashing has been refused.

7. It has been urged by way of this appeal arising out of SLP, that the agreement to sell was void ab initio, in light of Section 157-A, Uttar Pradesh Zamindari Abolition & Land Reforms Act, 1950, whereby a person belonging to a Scheduled Caste cannot transfer property to any person not of a Scheduled Caste without prior permission of the Collector or District Magistrate concerned. Further it has been urged that the instant FIR has been lodged four years after the slated date of the execution of the sale deed. It is also submitted that the present 4 (2023) 6 SCC 109 26 agreement to sell is forged and in respect thereof, a report to the Senior Superintendent of Police stands filed.

8. We notice that the agreement to sell had been duly registered at the office of the Deputy Registrar, 1st, Office at Bulandshahr, and the complaint filed by the appellant, purporting that the same was forged, was filed on 11-5-2012, which is, incidentally, the same as the date of the reply to the legal notice sent by Respondent 2 herein, dated 8-5-2012, and is also four years from the date of the agreement.

9. However, we do not find the need to engage with the grounds as urged, because a perusal of the record in no uncertain terms reflects the dispute as being of a civil nature. This Court recently, in Sarabjit Kaur v. State of Punjab [Sarabjit Kaur v. State of Punjab, (2023) 5 SCC 360] , observed that : (SCC p. 363, para 13) “13. 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.”

10. A two-Judge Bench of this Court in ARCI v. Nimra Cerglass Technics (P) Ltd. [ARCI v. Nimra Cerglass Technics (P) Ltd., (2016) 1 SCC 348 : (2016) 1 SCC (Cri) 269] , while deliberating upon the difference between mere breach of contract and the offence of cheating, observed that the distinction depends upon the intention of the accused at the time of the alleged incident. If dishonest intention on the part of the accused can be established at the time of entering into the transaction with the complainant, then criminal liability would be attached.

11. In Vijay Kumar Ghai v. State of W.B. [Vijay Kumar Ghai v. State of W.B., (2022) 7 SCC 124 : (2022) 2 SCC (Cri) 787] , one of us, (Krishna Murari J.) observed in reference to earlier decisions as under : (SCC pp. 139-40, paras 24-25) 27 “24. This Court in G. Sagar Suri v. State of U.P. [G. Sagar Suri v. State of U.P., (2000) 2 SCC 636 : 2000 SCC (Cri) 513] observed that it is the duty and obligation of the criminal court to exercise a great deal of caution in issuing the process, particularly when matters are essentially of civil nature.

25. This Court has time and again cautioned about converting purely civil disputes into criminal cases. This Court in Indian Oil Corpn. [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6 SCC 736 : (2006) 3 SCC (Cri) 188] noticed the prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. The Court further observed that : (Indian Oil Corpn. [Indian Oil Corpn. v. NEPC India Ltd., (2006) 6 SCC 736: (2006) 3 SCC (Cri) 188] , SCC p. 749, para 13) ‘13. … Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged.’ ”

12. Having regard to the above well-established principles and also noting that the present dispute is entirely with respect to property and more particularly buying and selling thereof, it cannot be doubted that a criminal hue has been unjustifiably lent to a civil natured issue.

13. In view of the above, the impugned judgment and order dated 18-10-2019 [Kunti v. State of U.P., 2019 SCC OnLine All 7183] passed by the High Court of Judicature at Allahabad, refusing to quash the FIR in question and Case No. 6695 of 2012 arising out of Case Crime No. 421 of 2012 under Sections 406, 420, 467, 468, 417 and 418IPC bearing No. 32337 of 2013 is set aside. The appeal is allowed.” (Emphasis supplied) The Apex Court in the case of VIJAY KUMAR GHAI (supra) has held that breach of agreement can never be a subject matter of criminal law set into motion, as such cases would be unjustifiably of a civil nature. In the light of the facts obtaining in the case at hand, as narrated hereinabove and the judgments 28 rendered by the Apex Court quoted supra, if further proceedings are permitted to continue, it would undoubtedly become an abuse of the process of law and result in miscarriage of justice. The issue would be whether a FIR without permitting investigation could be quashed in such cases. This is also answered by the Apex Court in the case of MITESH KUMAR J.SHA (supra) holding that where the dispute is one of entirely civil nature, the crime should not be permitted to be investigated even.

14. In the aforesaid facts, it becomes germane to notice the judgment of the Apex Court in the case of MAHMOOD ALI v. STATE OF UTTAR PRADESH5 wherein the Apex Court has held as follows: “…. …. ….

13. At this stage, we would like to observe something important. Whenever an accused comes before the Court invoking either the inherent powers under Section 482 of the Code of Criminal Procedure (CrPC) or extraordinary jurisdiction under Article 226 of the Constitution to get the FIR or the criminal proceedings quashed essentially on the ground that such proceedings are manifestly frivolous or vexatious or instituted with the ulterior motive for wreaking vengeance, then in such circumstances the Court owes a duty to look into the FIR with care and a little more closely. We say so because once the complainant decides to proceed against the accused with an ulterior motive for wreaking personal vengeance, etc., then he would ensure that the FIR/complaint is very well drafted with all the necessary pleadings. The complainant would ensure that the averments made in the FIR/complaint are such that they disclose the necessary ingredients to constitute the alleged offence. Therefore, it will not be just enough for the Court to look into the averments made in the FIR/complaint alone for the purpose of ascertaining whether the necessary ingredients to constitute the alleged offence are disclosed or not. In frivolous or vexatious proceedings, the Court owes a duty to into many other attending circumstances emerging from the record of the case over and above the averments and, if need be, with due care and circumspection try to read in between the lines. The Court jurisdiction under Section 482 of while exercising 5 2023 SCC OnLine SC 950 29 overall circumstances the CrPC or Article 226 of the Constitution need not restrict itself only to the stage of a case but is empowered to take into account initiation/registration of the case as well as the materials collected in the course of investigation. Take for instance the case on hand. Multiple FIRs have been registered over a period of time. It is in the background of such circumstances the registration of multiple FIRs assumes importance, thereby attracting the issue of wreaking vengeance out of private or personal grudge as alleged. leading Andhra

14. In State Pradesh v. Golconda Linga Swamy, (2004) 6 SCC 522, a two-Judge Bench of this Court elaborated on the types of materials the High Court can assess to quash an FIR. The Court drew a fine distinction between consideration of materials that were tendered as evidence and appreciation of such evidence. Only such material that manifestly fails to prove the accusation in the FIR can be considered for quashing an FIR. The Court held:— “5. …Authority of the court exists for advancement of justice and if any attempt is made to abuse that authority so as to produce injustice, the court has power to prevent such abuse. It would be an abuse of the process of the court to allow any action which would result in injustice and prevent promotion of justice. In exercise of the powers court would be justified to quash any proceeding if it finds that initiation or continuance of it amounts to abuse of the process of court or quashing of these proceedings would otherwise serve the ends of justice. When no offence is disclosed by the complaint, the court may examine the question of fact. When a complaint is sought to be quashed, it is permissible to look into the materials to assess what the complainant has alleged and whether any offence is made out even if the allegations are accepted in toto.

6. In R.P. Kapur v. State of Punjab, AIR 1960 SC 866 : 1960 Cri LJ 1239, this Court summarised some categories of cases where inherent power can and should be exercised to quash the proceedings : (AIR p. 869, para 6) (i) where it manifestly appears that there is a legal bar against the institution or continuance e.g. want of sanction; 30 (ii) (iii) where the allegations in the first information report or complaint taken at its face value and accepted in their entirety do not constitute the offence alleged; where the allegations constitute an offence, but there is no legal evidence adduced or the evidence adduced clearly or manifestly fails to prove the charge.

7. In dealing with the last category, it is important to bear in mind the distinction between a case where there is no legal evidence or where there is evidence which is clearly inconsistent with the accusations made, and a case where there is legal evidence which, on appreciation, may or may not support the accusations. When exercising jurisdiction under Section 482 of the Code, the High Court would not ordinarily embark upon an enquiry whether the evidence in question is reliable or not or whether on a reasonable appreciation of it accusation would not be sustained. That is the function of the trial Judge. Judicial process, no doubt should not be an instrument of oppression, or, needless harassment. Court should be circumspect and judicious in exercising discretion and should take all relevant facts and circumstances into consideration before issuing process, lest it would be an instrument in the hands of a private complainant to unleash vendetta to harass any person needlessly. At the same time the section is not an instrument handed over to an accused to short-circuit a prosecution and bring about its sudden death…..” (Emphasis supplied)

15. In the result, this appeal succeeds and is hereby allowed. The impugned order passed by the High Court of Judicature at Allahabad is hereby set aside. The criminal proceedings arising from FIR No. 127 of 2022 dated 04.06.2022 registered at Police Station Mirzapur, Saharanpur, State of U.P. are hereby quashed.” (Emphasis supplied) The Apex Court holds that when petitions are filed under Section 482 of the Cr.P.C., or under Article 226 of the Constitution to get the FIR quashed, essentially on the ground that it is either frivolous, vexatious or instituted with ulterior motives to wreak vengeance or civil disputes or commercial transactions are projected to be a crime, the Court while exercising its jurisdiction under Article 482 of the Cr.P.C., should not restrict itself only to such of the cases, but is empowered to take into account overall circumstances and answer whether the crime should be permitted to be investigated into or not. 31

15. In the light of the afore-elucidated law by the Apex Court, I deem it appropriate to exercise the jurisdiction under Section 482 of the Cr.P.C. and obliterate the Damocles sword that hangs on the head of these petitioners, in the light of the fact that a pure commercial transaction or breach of an agreement between the parties is sought to be given a colour of crime; added to the fact that the signatory to all the documents, the 2nd petitioner is no more.” It becomes apposite to refer to the judgment of the Apex Court in the case of NARESH KUMAR v. STATE OF KARNATAKA6 wherein it is held as follows: “…. …. ….

5. Under these circumstances, we are of the considered view that this is a case where the inherent powers should have been exercised by the High Court under Section 482 of the Criminal Procedure Code as the powers are there to stop the abuse of the process and to secure the ends of justice.

6. In of Paramjeet Batra v. State Uttarakhand, (2013) 11 SCC 673, this Court recognized that inherent powers of a High Court under although Section 482 of the Code of Criminal Procedure should be exercised sparingly, yet the High Court must not hesitate in quashing such criminal proceedings which are essentially of a civil nature. This is what was held: “12. While exercising its jurisdiction under Section 482 of the Code the High Court has to be cautious. This power is to be used sparingly and only for the purpose of preventing abuse of the process of any court or otherwise to secure ends of justice. Whether a complaint discloses a criminal offence or not depends upon the nature of facts alleged therein. Whether essential ingredients of criminal offence are present or not has to be judged by the High Court. A complaint disclosing civil transactions may 6 2024 SCC OnLine SC 268 32 also have a criminal texture. But the High Court must see whether a dispute which is essentially of a civil nature is given a cloak of criminal offence. In such a situation, if a civil remedy is available and is, in fact, adopted as has happened in this case, the High Court should not hesitate to quash the criminal proceedings to prevent abuse of process of the court.” (emphasis supplied)

7. Relying upon the decision in Paramjeet Batra (supra), this Court in Randheer Singh v. State of U.P., (2021) 14 SCC 626, observed that criminal proceedings cannot be taken recourse In Usha to as a weapon of harassment. Chakraborty v. State of West Bengal, 2023 SCC OnLine SC 90, relying upon Paramjeet Batra (supra) it was again held that where a dispute which is essentially of a civil nature, is given a cloak of a criminal offence, then such disputes can be quashed, by exercising inherent powers under Section 482 of the Code of Criminal Procedure.

8. Essentially, the present dispute between the parties relates to a breach of contract. A mere breach of contract, by one of the parties, would not attract prosecution for criminal offence in every case, as held by this Court in Sarabjit Kaur v. State of Punjab, (2023) 5 SCC 360. Similarly, dealing with the distinction between the offence of cheating and a mere breach of contractual obligations, this Court, in Vesa Holdings (P) Ltd. v. State of Kerala, (2015) 8 SCC 293, has held that every breach of contract would not give rise to the offence of cheating, and it is required to be shown that the accused had fraudulent or dishonest intention at the time of making the promise.

9. In the case at hand, the dispute between the parties was not only essentially of a civil nature but in this case the dispute itself stood settled later as we have already discussed above. We see no criminal element here and consequently the case here is nothing but an abuse of the process. We therefore allow the appeal and set aside the order of the High Court dated 02.12.2020. The criminal proceedings arising out of FIR No. 113 of 2017 will hereby stand quashed.” 33 The Apex Court holds that criminal law cannot be set into motion for the purpose of recovery of money or breach of contract and such breach of contract cannot be given a colour of crime particularly of the offence punishable under Section 420 of the IPC.

10. If the elucidation of the Apex Court is pitted against the facts obtaining in the case at hand, it would unmistakably emerge that the *wife of the complainant has knocked at the doors of RERA and secured an order of refund of `60,91,329/-. It was the duty of the complainant to get the order executed. Refund orders cannot be executed by setting the criminal law into motion. For an offence under Section 420 of the IPC, the dishonest intention of the accused must be writ large right from the inception. These are agreements between the parties. Therefore, there can be no question of dishonest intention to cheat the victim.

11. For the aforesaid reasons, the following: O R D E R (i) Criminal petition is allowed. * Corrected vide court order dated 03.12.2024 34 (ii) FIR in Crime No.420 of 2023 registered by Sarjapur Police and pending before the Principal Civil Judge (Jr. Dn.) & JMFC, Anekal stands quashed qua petitioners. (iii) It is made clear that the observations made in the case at hand are only for the purpose of consideration of the case of the petitioners under Section 482 of the Cr.P.C., and the same would not bind or influence any proceedings pending between the parties or any other accused in the same crime. Sd/- (M. NAGAPRASANNA) JUDGE Bkp CT:MJ Page no.34 is retyped and replaced vide court order dated 03.12.2024