Criminal liability under contract disputes requires proof of dishonest intention from inception; mere breach does not constitute a criminal offence.

ORDER :

1. This Writ Petition is filed with the following relief:

“…to issue a Writ of Certiorari or other appropriate order or direction in the nature of a Writ declaring the Crime No. 686/2015 of P.S. Medchal, Cyberabad , Rangareddy District as arbitrary, discriminatory, without any basis not attracting the offence for which it was registered malafide and violative of Articles 14 and 21 of the Constitution of India and consequently set aside the same in the interest of justice and pass.......”

2. Heard Mr.B.Nalin Kumar, learned senior counsel for the petitioner, Mr.D.Pradeep, learned Assistant Government Pleader for Home appearing for respondent Nos.1 and 2 and Mr.Badra Nanavath, learned counsel representing Mr.Sanjeev Kumar, learned Senior Counsel appearing for respondent No.3.

3.1. Learned counsel for the petitioner contends that the grievance of the de facto complainant is that the petitioner failed to make payment to the farmers who had supplied paddy seeds to the petitioner’s company, M/s. Manisha Agri Bio-Tech Private Limited, Kandlakoya. It is alleged in the complaint that the cheques issued by the petitioner’s company towards payment of the amount due were dishonoured by the banker with the endorsement “payment stopped”.

3.2. Learned counsel for the petitioner submits that the transaction between the petitioner’s company and the de facto complainant is purely contractual in nature, governed by a written agreement concerning the supply of paddy seeds and the corresponding payment terms. The de facto complainant had, in fact, instituted a civil suit in O.S. No. 1238 of 2015 before the II Additional District Judge, Mahabubnagar, seeking recovery of the said amount, which is presently pending trial.

3.3. It is therefore contended that, in view of the existence of a civil remedy, initiation of criminal proceedings on the same cause of action is unsustainable. Learned counsel submits that it is a settled position of law that a breach of contract or failure to perform an agreement does not, by itself, constitute a criminal offence unless fraudulent or dishonest intention exists from the inception of the transaction.

3.4. He relies upon the judgment of the Hon’ble Supreme Court in Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr. (2024) 10 SCC 690 , wherein it has been held that the offences of “cheating” and “criminal breach of trust” are mutually exclusive and cannot coexist for prosecution in respect of the same transaction.

3.5. Furthermore, it is submitted that this Court had earlier granted interim stay of investigation, which itself reflects that the petitioner has made out a prima facie case for interference. The petitioner, who was the Managing Director of the company at the relevant time, resigned from the said post on 12.10.2014, and his resignation was duly recorded by the Registrar of Companies on 02.12.2015. Hence, any action taken during his tenure was on behalf of the company in his official capacity, and therefore, no vicarious criminal liability can be fastened upon him. Reliance is placed on the decision of the Hon’ble Supreme Court in S.K. Alagh v. State of Uttar Pradesh & Ors., (2008) 5 SCC 662 , wherein it was held that criminal liability cannot be extended to the Managing Director or officers of a company in the absence of specific statutory provision creating such vicarious liability. Accordingly, it is prayed that the proceedings in the present crime be quashed.

4.1. Learned Assistant Government Pleader for Home, appearing for the respondents, submits that the de facto complainant lodged a report alleging that, on the assurance of the petitioner, about 75 farmers had supplied paddy seeds to the petitioner’s company. The de facto complainant acted as a mediator in facilitating the said transaction. It is alleged that, after the delivery of the seeds, an amount of Rs.38,41,000/- was paid out of the total consideration of