Supreme Court: Mere Non-Payment Of Sale Price Not An Offence Of Criminal Breach Of Trust Or Cheating

The Court allowed an Appeal and set aside the Order of the Gujarat High Court, which refused to quash an FIR registered against the director (Appellant) of an import and export company registered in Sri Lanka for offences punishable under Sections 406 and 420 of the IPC.

A Bench of Justice Pankaj Mithal and Justice SVN Bhatti remarked, “We have perused the FIR and are convinced that the inducement is an explanation to contradict the documents through which exports have been completed. In the circumstances of this case, by referring to inducement, the continuation of investigation/prosecution into the offence of cheating and breach of trust would amount to an abuse of the process of law. Further, what begs the question is whether such non-payment of the sale price can be an offence of criminal breach of trust and cheating at the hands of the second respondent. The answer is clearly no.”

Senior Advocate PS Patwalia appeared for the Appellant, while Advocate Deepanwita Priyanka represented the Respondents.

Brief Facts

The crux of the dispute revolved around the non-payment of the sale price for the exported goods. The Respondent claimed an oral arrangement of inducement, leading to the registration of the FIR against the Appellant.

Court’s Reasoning

The Supreme Court referred to its decision in Hridaya Ranjan Prasad Verma v. State of Bihar (2006), where it was held that “the distinction between mere breach of contract and the offence of cheating is a fine one…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…From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.”

The Bench pointed out that the documents, including a proforma invoice and a payment receipt, indicated that the entrustment of the goods was facilitated through a company and not directly to the Appellant. The payment receipt also showed the company as the exporter and the Appellant as the consignee.

The Court then referred to its decision in AM Mohan v. State, wherein it was held that “dishonest inducement was the sine qua non to attract the provisions of Sections 415 and 420 of the IPC.”

“The sale price was agreed to be debited to the account of M/s. Oswal Overseas accepted the same as part payment against the subject export of goods from the appellant. It might be true that the appellant is yet to discharge the sale price of the subject export. The respondent no. 2, by referring to an oral arrangement of inducement, tries to plead a case contrary to the documents through which the final “entrustment” of the exported goods happened in Sri Lanka,” the Bench remarked.

Consequently, the Court ordered, “For the above reasons, and particularly appreciating Annexures-P1 to P3, we are of the view that the continuation of the FIR against the appellant is an abuse of the process of law, and at best, the non-payment of the sale price could be a civil dispute between the appellant and M/s. Oswal Overseas. The appeal is accordingly allowed, the impugned order is set aside and FIR No. I-06 of 2017 is quashed.”

Accordingly, the Supreme Court allowed the Appeal.

Cause Title: Ashok Kumar Jain v. State of Gujarat & Anr. (Neutral Citation: 2025 INSC 614)

Appearance:

Appellant: Senior Advocate P.S. Patwalia; AOR Natasha Dalmia

Respondents: AOR Swati Ghildiyal and Neha Singh; Advocates Deepanwita Priyanka and Mohit D. Ram

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