Cheating Case Can't Be Filed Against Parties Bound By Valid Contract Over Performance Related Issues: Karnataka High Court

The Karnataka High Court has held that a cheating case cannot be filed against parties bound by valid contract over performance related issues.

The Court was considering a Petition seeking quashing of the proceedings pending in case registered for the offences punishable under Sections 506 and 420 of Indian Penal Code, 1860.

The single judge bench of Justice Sachin Shankar Magadum observed, "Be that as it may, the admitted position remains that the parties are bound by a valid and subsisting contract and the controversy essentially pertains to the performance of obligations arising therefrom. Such disputes are, in their nature, civil and are amenable to adjudication before an appropriate forum in accordance with law."

The Petitioner was represented by Advocate Shravanth Arya Tandra while the Respondent was represented by High Court Government Pleader Anoop Kumar.

Facts of the Case

The gist of the Complaint was that Respondent No.2 – a Private Limited Company entered into a sale–purchase agreement with Jambu Odisha Trade Private Limited, of which the Petitioner–Accused is one of the Directors.

The principal allegation of Respondent No.2, as the Complainant, was that despite the execution of the agreement between the two companies, after receiving delivery of 20,000 Metric Tonnes of Iron Ore Fines, failed to deliver the same to the complainant. On the strength of this allegation, Respondent No.2 lodged a written complaint before the jurisdictional Police Station, asserting that the company and its officials had committed offences punishable under Sections 420 and 506 of the Indian Penal Code. Acting on the said Complaint, the jurisdictional police registered a crime against the accused.

The Petitioner filed the present petition on two grounds:

(i) That the Petitioner, merely by virtue of being a Director, could not have been prosecuted unless the company itself was arrayed as the principal accused; and

(ii) That a plain reading of the written complaint demonstrates that the dispute, at its core, arises out of a contractual transaction, and therefore, Respondent No.2 was not justified in giving a civil dispute the colour of a criminal prosecution.

Reasoning By Court 

The Court at the outset took consideration on the rival contentions and has carefully examined the judgments rendered by the Supreme Court in S.N.Vijayalakshmi v. State of Karnataka and in Shailesh Kumar Singh @ Shailesh R. Singh v. State of Uttar Pradesh & Others 

Stressing that the essence of the grievance raised by Respondent No.2 was that the said material was not supplied within the stipulated period as agreed under the sale–purchase agreement.

"If these facts, as set out in the complaint, are taken at their face value, this Court is of the considered opinion that the law declared by the Hon’ble Supreme Court in S.N. Vijayalakshmi v. State of Karnataka (supra) is squarely attracted to the case on hand. The Apex Court has categorically held that, in the absence of any element of criminality or dishonest intention at the inception of the transaction, a party cannot be permitted to pursue both civil and criminal remedies simultaneously, for such parallel proceedings would amount to an abuse of the process of law", the Court observed.

It pointed out that the recitals in the Complaint itself disclose that a substantial portion of the contractual obligations was, in fact, performed by Jambu Odisha Trade Private Limited, of which the Petitioner is one of the Directors and therefore, in the absence of any material to prima-facie indicates that the company, acting through the petitioner, entertained a fraudulent or dishonest intention to deceive the complainant at the inception of the contract, the basic ingredients of the offence of cheating under Section 420 IPC are not satisfied.

"Even if the allegations contained in the complaint are assumed to be true in their entirety, no offence, as alleged, can be said to have been made out against the petitioner", the Court observed.

The Petition was accordingly allowed.

Cause Title: Sailen Das vs. State By Kodigehalli Police Station (2025:KHC:36015)

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