Breach Of Contract Does Not Give Rise To Criminal Prosecution Unless Dishonest Intention Is Present Since Beginning: Reiterates SC
The Supreme Court while dealing with a Criminal Appeal related to the quashing of an FIR, has again in its recent judgement reiterated that "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." The Court observed that "Merely on the allegation of failure to keep up promise will not be enough to initiate criminal proceedings.”
The Bench of Justice Krishna Murari and Justice Sanjay Karol was dealing with an appeal which had challenged the order, passed by the Allahabad High Court, refusing to quash the criminal proceedings before the Court of Chief Judicial Magistrate, Bulandshahr under Sections 406, 420, 467, 468, 417 and 418 of the Indian Penal Code. The Apex Court in this case found that a criminal hue has been unjustifiably lent to a civil-natured issue.
The Court noted that the Appellants before them were Bhumidars of the agricultural land in Uttar Pradesh for which they had allegedly executed an agreement to sell with Respondent No.2. The Appellants had taken a part sum during the execution of the agreement while the rest of the amount was to be paid during the execution of the sale deed.
The Court further noted that as per the impugned order, the execution of the sale deed was being avoided and was extended from date to date by the appellant and upon discovering that the appellant herein planned to sell the property in dispute to somebody other than the Appellant(s), the FIR, subject of the quashing proceedings was lodged at Police Station Kotwali, District Bulandshahr.
It was also observed by the Bench that in the impugned order, the prayer for quashing was refused as the High Court did not find any merit in the submissions of the Appellants that Respondent No. 2 had an alternative remedy in the nature of a civil suit for the execution of the sale agreement which came to be rejected by the High Court resulting in dismissal of the quashing of the FIR application.
The Appellants had also submitted before the Supreme Court that the agreement to sell was void ab initio, in light of Sec. 157(A), Uttar Pradesh Zamindari Abolition & Land Reforms Act, 1950, which restricts the transfer of property by Schedule Caste to any person of any other caste without prior permission of the concerned Collector or District Magistrate.
The Court in its judgement noted that there was no 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. Relying on its earlier case of Sarabjit Kaur v. State of Punjab and Anr. 2023 SCC OnLine 210, the Court reiterated that “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."
Further relying on the case of ARCI v. Nimra CerglassTechnics (P) Ltd, the Court said that the distinction between breach of contract and the offence of cheating 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.
Having regard to the above well established principles, the Court found the dispute is a civil-natured issue and accordingly set aside the impugned judgment refusing to quash the FIR in question and allowed the appeal.
Cause Title: Kunti And Anr. v. State Of Uttar Pradesh And Anr. [Crl.A. No. 001380 / 2023]