1. Dispute over unpaid balance for goods supplied — Complaint filed for fraud and cheating — Magistrate issued process under Section 406 IPC. (Para 4 , 5 , 6 , 7 , 11 )
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2025 Supreme(SC) 1164
SUPREME COURT OF INDIA
J.B. PARDIWALA, R. MAHADEVAN, JJ.
M/s. Shikhar Chemicals – Petitioner
VERSUS
The State of Uttar Pradesh & Anr. – Respondent
Petition For Special Leave To Appeal (Crl.) No. 11445 of 2025
Decided On : 04-08-2025
Advocates appeared:
For the Petitioner(s): Mr. Surjadipta Seth, Adv. Mr. Arindam Ghosh, AOR
For the Petitioner(s): Mr. Surjadipta Seth, Adv. Mr. Arindam Ghosh, AOR
The court held that a mere failure to pay for goods does not constitute criminal breach of trust, and quashing of criminal proceedings was required when the allegations pertained to a civil dispute.
Headnote:(A) Criminal Procedure Code, 1973 - Section 202 - Indian Penal Code, 1860 - Section 406 - Quashing petition - High Court rejected the petition aiming to quash proceedings against the accused for non-payment of dues in a trade - The Supreme Court criticized the High Court's decision as fundamentally flawed, highlighting an abuse of process for allowing criminal proceedings in a purely civil dispute, and established that merely failing to pay a commercial debt does not equate to criminal breach of trust. (Paras 1-29)
(B) Criminal Jurisdiction - High Court's responsibility - The High Court must recognize the distinction between civil and criminal proceedings and not allow criminal action as a bypass for civil remedies. (Paras 18-20)
(C) Trial Dynamics - The implications of the Supreme Court's ruling require a re-evaluation of the judge's handling of previous similar cases, necessitating oversight and ensuring misconduct is addressed effectively. (Paras 22-27)
Legal Category Hierarchy
- crime and sentencing
- practice and procedure
Table of Contents
2. Petitioner sought quashing of criminal proceedings as a civil dispute — Respondent contended criminal proceedings were justified due to civil litigation delays and financial constraints. (Para 8 , 12 , 18 , 19 )
3. Criminal proceedings cannot be used for recovery of civil dues — Sale transactions lack the entrustment required to constitute criminal breach of trust. (Para 13 , 14 , 15 , 20 )
4. A mere transaction of sale cannot amount to entrustment under Section 405 IPC — Civil disputes cannot be converted into criminal proceedings to expedite recovery. (Para 14 , 20 )
5. High Court order set aside — Matter remanded for fresh consideration — Directions issued restricting the concerned judge from criminal determinations. (Para 21 , 22 , 23 , 24 , 25 , 26 )
6. Does a sale of goods constitute entrustment for the purpose of Section 406 IPC?
No. A mere transaction of sale cannot amount to entrustment. Entrustment requires a trust or fiduciary relationship where the person handing over the property continues to be its owner, which is not the case in a sale. (Para 14 )
7. Can criminal proceedings be initiated to recover money in a civil dispute because civil courts are slow?
No. Resorting to criminal proceedings for the recovery of balance amounts in a pure civil dispute is an abuse of the process of law, regardless of the time required for civil litigation. (Para 20 )
8. What is the legal implication of failing to distinguish between cheating and criminal breach of trust in commercial disputes?
The court noted that these are distinct offences with different ingredients; specifically, criminal breach of trust requires entrustment, and failing to recognize this distinction leads to erroneous judicial orders. (Para 14 , 15 )
ORDER
1. This petition arises from the order passed by the High Court of Judicature at Allahabad (Coram of Prashant Kumar, J.) in Criminal Miscellaneous Application No. 2507/2024 dated 05.05.2025 by which the application filed by the petitioner herein seeking quashing of the proceedings of Complaint Case no. 113283 of 2023 pending in the Court of Additional Chief Judicial Magistrate-I, Kanpur Nagar came to be rejected.
2. With all due deference and humility at our command, we are constrained to observe that the impugned order is one of the worst and most erroneous orders that we have come across in our respective tenures as judges of this Court.
3. The judge concerned has not only cut a sorry figure for himself but has made a mockery of justice. We are at our wits’ end” to understand what is wrong with the Indian Judiciary at the level of High Court. At times we are left wondering whether such orders are passed on some extraneous considerations or it is sheer ignorance of law. Whatever it be, passing of such absurd and erroneous orders is something unpardonable.
4. It all started with a private complaint lodged by the respondent no.2 herein in the Court of Additional Chief Judicial Magistrate-I, Kanpur Nagar, which came to be registered as Complaint Case No. 113283 of 2023. The complaint reads thus:
“1. That the complainant is engaged in the wholesale and retail business of yarn (thread) used in fabric manufacturing, through his firm M/s Lalita Textile Concern. The respondent, through her firm M/s Shikhar Chemicals, is involved in the business of manufacturing and selling cloth made from yarn supplied by the complainant.
2. That since both parties are in the same trade, they have had business relations for the past 4–5 years. In this regard, the complainant, through his firm, supplied goods (yarn) to the respondent’s firm worth a total of Rs.52,34,385/- (Fifty-two lakhs thirty-four thousand three hundred eighty-five only) between April 2019 and July 2019, against various attached tax invoices. Out of this, the respondent paid Rs.47,75,000/- (Forty-seven lakhs seventy-five thousand only) through RTGS transfers. (Statement of account showing received and outstanding amounts is attached.) A balance of Rs.4,59,385/- (Four lakhs fifty-nine thousand three hundred eighty-five only) has remained unpaid since August 2019. As per Yarn Committee and market regulations, interest at the rate of 8% is payable on the outstanding amount if not cleared within 15 days. Till the date of filing this application, an additional amount of Rs.7,23,711/- has become due as interest, which is also recoverable from the respondent.
3. That the complainant attempted to contact the respondent several times via phone for the outstanding payment, but the respondent failed to make any payment. The complainant submitted a complaint to the concerned Deputy Commissioner of the GST Zone/Range/Sector. The GST department issued notices seeking explanation from the respondent, but she failed to respond or provide any clarification. Subsequently, another legal notice was issued under Section DRC-501A of GST Act, but the respondent again did not respond. The department, through proper legal process, imposed a penalty on the respondent for fraudulently availing tax benefits. The action was taken under Section 73(9) of the Act on 19/04/2023, as per information received by the complainant under RTI (copy enclosed).
4. That the complainant, through his advocate, sent a legal notice to the respondent, which was returned undelivered from all addresses (Factory/Home/Office) with the remark that the premises were locked. All notices were sent to addresses registered with the GST department. These events made the complainant reasonably believe that the respondent has absconded after fraudulently obtaining goods and financial benefits. (Returned notices with postal documents are enclosed.)
5. That the complainant again sent a legal notice through his advocate to all GST-registered addres
