Pagadala Yadaiah, S/o. Ramaiah vs State of Telangana, Through S.H.O., Choutuppal Police Station, rep.by its Public Prosecutor, High Court, Hyderabad

Headnote:(A) Indian Penal Code, 1860 - Sections 406 and 420 - Code of Criminal Procedure, 1973 - Section 482 - Quashment of proceedings - Dispute arising out of agreement of sale of agricultural land - Allegation of subsequent sale to third parties - Breach of contract vs. Cheating - Fraudulent or dishonest intention must exist at the inception of the transaction to attract Section 420 IPC (Paras 10, 11) - Mere breach of contract does not amount to cheating unless dishonest intention is established at the beginning (Para 11).

(B) Criminal Breach of Trust - Section 406 IPC - Requirement of entrustment - Payment of sale consideration pursuant to an agreement of sale does not amount to entrustment of property within the meaning of Section 405 IPC (Para 12).

(C) Locus Standi - Complaint filed by a person who is neither the direct aggrieved party nor authorized via power of attorney - In cases arising out of private disputes, criminal law should ordinarily be set in motion by a person who has suffered a legal injury (Paras 14, 15).

(D) Abuse of process - Criminal proceedings initiated in matters of predominantly civil nature, particularly by persons not directly aggrieved, may indicate mala fide intent and are liable to be quashed to prevent abuse of the process of law (Paras 16, 17).

Facts of the case:
Petitioners entered into an agreement of sale for agricultural land for a specified consideration. It was alleged that the entire sale consideration was paid and possession was delivered. Subsequently, the petitioners allegedly sold the same property to third parties. A criminal complaint was lodged by the brother-in-law of the alleged purchaser for offences punishable under Sections 406 and 420 of the Indian Penal Code.

Findings of Court:
The dispute is essentially contractual and civil in nature. The material on record does not prima facie disclose fraudulent or dishonest intention at the inception of the transaction. The essential ingredient of entrustment required for an offence under Section 406 IPC is absent. Furthermore, the de facto complainant is a third party who has neither suffered a direct legal injury nor established legal authorization to represent the victim.

Issues: Whether a breach of a sale agreement and subsequent alienation of property constitutes the offences of cheating and criminal breach of trust, and whether the proceedings are an abuse of process when initiated by a non-aggrieved party.

Ratio Decidendi: To attract Section 420 IPC, dishonest intention must exist at the time of inducement; a mere breach of contract is insufficient. Payment of sale consideration in a property transaction does not constitute entrustment under Section 406 IPC. Criminal proceedings should not be used as a weapon of harassment in civil disputes, especially when the complainant lacks locus standi.

Result: Criminal Petition allowed; proceedings quashed.

Legal Category Hierarchy

1. Quashing of criminal proceedings for cheating and criminal breach of trust arising from an agreement of sale. (Para 1 , 3 , 4 )

ORDER :

N. TUKARAMJI, J.

This Criminal Petition is filed under Section 482 of the Code of Criminal Procedure, 1973 (for short, “Cr.P.C.”), seeking quashment of the proceedings against the petitioners/Accused Nos.1 and 2 in C.C. No.437 of 2023 on the file of the learned Judicial First Class Magistrate, Choutuppal.

2. Heard the submissions of learned counsel for the petitioners, the learned Additional Public Prosecutor appearing for respondent No.1/State; and Sri Y. Jayanth Naidu, learned counsel representing Sri Kothapalli Sai Sri Harsha, learned counsel for respondent No.2/defacto complainant.

3. The petitioners are arrayed as Accused Nos.1 and 2 in the above calendar case for the offences punishable under Sections 406 and 420 of the Indian Penal Code, 1860 (IPC).

4. The brief facts, as borne out from the record, are that the brother- in-law of the de facto complainant allegedly entered into an agreement of sale dated 22.03.2018 with the petitioners for the purchase of agricultural land admeasuring Ac. 2.22 guntas in Sy. No. 90 of Toopranpet Village, Choutuppal Mandal, for a total consideration of Rs. 26,00,000/-. It is stated that the entire sale consideration was paid and possession of the property was delivered, with an understanding that a registered sale deed would be executed as and when required. Subsequently, it is alleged that the petitioners sold the very same property to third parties, who attempted to raise construction thereon. On the basis of the complaint, Crime No. 716 of 2022 came to be registered.

5.1. Learned counsel for the petitioners contends that the dispute is purely civil in nature, arising out of an alleged breach of contract, and has been given a criminal colour with an ulterior motive. It is further submitted that the de facto complainant is not the aggrieved party and that the complaint has been lodged on behalf of his brother-in-law without any legal authorization, such as a power of attorney. It is argued that even if the allegations are accepted in their entirety, the essential ingredients of the offences under Sections 406 and 420 of the Indian Penal Code, 1860 are not made out. According to the learned counsel, the appropriate remedy, if any, lies in instituting civil proceedings for specific performance or recovery of damages.

5.2. It is further contended that there are material inconsistencies regarding the date and authenticity of the alleged agreement of sale, and that the said document does not bear the signatures of the petitioners. In the absence of a valid and enforceable agreement, the continuation of criminal proceedings is contended to be an abuse of the process of law.

5.3. In support of the above submissions, learned counsel places reliance on the following judgments of the Hon’ble Supreme Court:

In Hridaya Ranjan Prasad Verma v. State of Bihar , (2000) 4 SCC 168, it was held that mere breach of contract does not amount to cheating unless it is shown that there was fraudulent or dishonest intention at the inception of the transaction.

In International Advanced Research Centre for Powder Metallurgy and New Materials (ARCI) v. Nimra Cerglass Technics (P) Ltd., (2016) 1 SCC 348, it was reiterated that a purely contractual dispute, in the absence of initial fraudulent intent, cannot attract criminal liability.

In Md. Ibrahim v. State of Bihar , (2009) 8 SCC 751, the Hon’ble Supreme Court emphasized that criminal proceedings should not be permitted to be used as a tool for settling civil disputes.

In Mitesh Kumar J. Sha v. State of Karnataka , 2021 SCC OnLine SC 976, and Satishchandra Ratanlal Shah v. State of Gujarat , 2019 SCC OnLine SC 196, the Hon’ble Supreme Court cautioned against the misuse of criminal law in commercial and contractual disputes.

6.1. Per contra, learned counsel for respondent No.2 submits that the complaint discloses the commission of cognizable offences. It is contended that the petitioners, having received the entire sale consideration and delivered possession, subseque