2025 Supreme(Online)(Guj) 12346

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
MRM
SUNILKUMAR RAMAKANT DWIVEDI @ RAJMANI – Appellant
Versus
STATE OF GUJARAT – Respondent

A mere breach of contract or non-payment in a commercial sale transaction, without entrustment or initial dishonest intention, does not constitute criminal breach of trust or cheating, and civil disputes should not be allowed to become criminal proceedings.

Headnote:(A) Indian Penal Code, 1860 - Sections 405, 406, 415 and 420 - Criminal breach of trust and cheating - Ingredients - Entrustment and dishonest inducement - Sale transaction between parties - Petitioner was director of a company that purchased goods from complainant - Part payment made, balance unpaid - FIR lodged after delay of over 4 years - Entrustment under Section 405 implies handing over property with continuity of ownership and fiduciary relationship - A mere sale does not amount to entrustment - For cheating under Section 415, there must be fraudulent or dishonest inducement from the inception, which is absent when a valid agreement and part payment exist.

(B) Criminal Procedure Code, 1973 (as per Section 528 of Bharatiya Nagarik Suraksha Sanhita, 2023) - Power to quash FIR - Inherent powers under Articles 226 and 227 of the Constitution - Abuse of process of law - When dispute is purely civil in nature, criminal proceedings cannot be used as a tool for recovery.

(C) Evidence - Delay in lodging FIR - Unexplained delay may be fatal - Delay often leads to embellishment and coloured version - Court must scrutinize facts carefully.

Facts of the case:
The petitioner, a former director of a company, had business transactions with the first informant's company. Goods worth 6,61,080.40 US dollars were sold in 2019-2020, of which 1,76,985 US dollars was paid, leaving a balance of 4,84,096.40 US dollars unpaid. The FIR was lodged in 2024 for offenses under Sections 406 and 420 of the Indian Penal Code (IPC). The petitioner argued he had resigned as director in 2022, the dispute was civil, and an arbitration clause existed in the agreement. The respondent argued that the non-payment, delay in raising quality issues, and other incidents against the petitioner indicated a modus operandi to cheat.

Issues: (i) Whether the ingredients of criminal breach of trust (Section 405 IPC) and cheating (Section 415 IPC) are made out against the petitioner on the facts of the transaction. (ii) Whether the dispute is essentially civil in nature, warranting quashing of the criminal FIR to prevent abuse of process. (iii) Whether the unexplained delay in lodging the FIR is fatal to the prosecution.

Findings of Court:
The court held that the transaction was a sale, not an entrustment, as the seller (respondent) had no continuity of ownership or dominion over the goods once sold (relying on State of Gujarat v. Jaswantlal Nathalal). The ingredients of cheating were also absent, as there was no fraudulent or dishonest inducement from the beginning; instead, a valid agreement and part payment existed (relying on Peethambaran v. State of Kerala and Deepak Gaba v. State of Uttar Pradesh). The delay in filing the FIR was not plausibly explained and could lead to embellishment (relying on Kishan Singh v. Gurpal Singh and Manoj Kumar Sharma v. State of Chhattisgarh). The dispute was held to be purely civil, with an arbitration clause available, and the attempt to give it a criminal color was an abuse of process (relying on Vinod Natesan and Sarabjit Kaur v. State of Punjab).

Ratio Decidendi: The court's reasoning was that a mere breach of contract or non-payment of money arising from a commercial transaction does not constitute criminal breach of trust or cheating unless there is an initial dishonest intention. The presence of an arbitration clause and the lack of entrustment (in a sale) or fraudulent inducement make the dispute civil. Courts should quash criminal proceedings when the allegations only constitute a civil wrong, to prevent harassment and abuse of legal process. Result : The application is allowed; the impugned FIR (C.R. No. 11191001240068 of 2024) and all consequential proceedings are quashed and set aside. Rule is made absolute to that extent.