1. Unpaid balance in a sale of goods transaction — Complaint filed for fraud and criminal breach of trust under Section 406, IPC. (Para 4 , 5 , 11 )
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2025 Supreme(SC) 1701
SUPREME COURT OF INDIA
J.B. PARDIWALA, R. MAHADEVAN, JJ.
M/s. Shikhar Chemicals – Petitioner
Versus
The State of Uttar Pradesh & Anr. – Respondents
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
IMPORTANT POINT
In cases of civil dispute complainant cannot be permitted to resort to criminal proceedings as same would amount to abuse of process of law.
Headnote:
Indian Penal Code, 1860 – Sections 406 and 420 – Criminal Procedure Code, 1973 – Section 482 – Criminal breach of trust and cheating – Criminal prosecution – Quashing application dismissed by High Court – Case is one of sale of goods and recovery of some balance amount – High Court held that criminal proceedings instituted by complainant in a case of pure civil dispute is justified because it may take considerable time for complainant to recover balance amount by preferring civil suit – In cases of civil dispute complainant cannot be permitted to resort to criminal proceedings as same would amount to abuse of process of law – Impugned order passed by High Court set aside – Matter remanded to High Court for fresh consideration of Criminal Miscellaneous Application – Petition partly allowed. (Paras 13, 20 and 22)
Facts of the case:
Present petition arises from order passed by High Court of Judicature at Allahabad (Coram of Prashant Kumar, J.) in Criminal Miscellaneous Application No. 2507/2024 dated 05.05.2025 by which application filed by petitioner herein seeking quashing of proceedings of Complaint Case No. 113283 of 2023 pending in Court of Additional Chief Judicial Magistrate-I, Kanpur Nagar came to be rejected.
Findings of Court:
Concerned Judge shall not be assigned any criminal determination, till he demits office. If at all at some point of time, he is to be made to sit as a single Judge, he shall not be assigned any criminal determination.
Result : Petition partly allowed.
Legal Category Hierarchy
Table of Contents
2. Petitioner sought quashing of proceedings as a civil dispute — Respondent contended criminal proceedings were justified due to fraud and delays in civil litigation. (Para 8 , 12 , 18 , 19 )
3. The court observed that sale transactions lack entrustment and criticized the use of criminal law to bypass civil litigation delays. (Para 13 , 14 , 15 , 19 , 20 )
4. A mere transaction of sale cannot amount to entrustment under Section 405, IPC; civil disputes cannot be converted into criminal proceedings to avoid litigation delays. (Para 14 , 20 )
5. High Court order set aside — Matter remanded for fresh consideration — Concerned judge restricted from assigning 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 an entrustment. For entrustment to exist, there must be a trust or fiduciary relationship where the person handing over the property continues to be its owner. (Para 14 )
7. Can criminal proceedings be initiated for the recovery of money in a civil dispute to avoid civil court delays?
No. In cases of pure civil disputes, a complainant cannot resort to criminal proceedings simply because civil suits may take a long time; such action amounts to an abuse of the process of law. (Para 20 )
8. What is the legal distinction between cheating and criminal breach of trust in commercial transactions?
The court noted a fine distinction between cheating under Section 420, IPC and criminal breach of trust under Section 406, IPC, specifically regarding the essential ingredient of entrustment required for the latter. (Para 15 , 16 )
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
