Rajasthan High Court Rejects Plea to Quash Cheating FIR Against Filmmaker Vikram Bhatt Over Alleged Fund Siphoning

Introduction

In a significant ruling for cases straddling the line between civil contractual disputes and criminal misconduct, the Rajasthan High Court at Jodhpur has refused to quash an FIR lodged against renowned filmmaker Vikram Bhatt and several associates in connection with the alleged siphoning and misappropriation of funds meant for film production. Delivered by Hon'ble Mr. Justice Sameer Jain on January 5, 2026, the decision underscores that allegations of dishonest intent and fund diversion in a contractual setup can prima facie justify criminal proceedings under the Bharatiya Nyaya Sanhita (BNS), 2023, rather than being dismissed as a mere breach of contract. The case stems from a complaint by Ajay Murdiya, who accused Bhatt and others of diverting approximately Rs. 2.5 crore out of a Rs. 47 crore investment for producing four films. The petitioners, including Bhatt's family members, business partners, and officials from the Federation of Western India Cine Employees (FWICE), sought quashing under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, arguing the matter was purely civil. However, the court found sufficient material from a preliminary enquiry to warrant investigation into offences under Sections 318(4) (cheating), 316(2) (criminal breach of trust), 336(3) (forgery), 340(2) (criminal misappropriation), and 61(2) (criminal conspiracy) of the BNS. This judgment reinforces judicial caution against premature interference in ongoing probes, particularly in high-stakes financial dealings within the entertainment industry.

The ruling comes amid growing scrutiny of financial transparency in Bollywood productions, where investor funds are often funneled through complex LLP structures and vendor networks. By dismissing the petitions, the court not only upholds the investigative process but also signals to legal practitioners that courts will not lightly quash FIRs when evidence of criminal elements like fictitious invoices and intermediary routing emerges early in the process.

Case Background

The dispute traces its roots to April 2024, when Ajay Murdiya, a Udaipur-based businessman operating through his firm Indira Enterprises, was introduced to Vikram Bhatt via a mutual acquaintance, Dinesh Katariya. Murdiya, inspired by his personal life story, expressed interest in funding a biopic. Discussions evolved into a formal collaboration for film production. On May 24, 2024, the parties executed a First Term Sheet Agreement between VSB LLP (Bhatt's firm) and Indira Enterprises for two films, with Murdiya committing Rs. 40 crore. This agreement included an exclusive jurisdiction clause favoring Mumbai courts.

By June 21, 2024, an Addendum expanded the deal to four films, increasing the investment to Rs. 47 crore. A grand launch event in September 2024 at JW Marriott, Mumbai, publicized the project, drawing industry attention. Initial payments commenced, with Rs. 2.5 crore transferred via RTGS on May 31, 2024, earmarked for production costs. One film was reportedly completed and released in March 2025, but it underperformed commercially, prompting Murdiya to allegedly rollback the financing model and demand clarifications on expenditures.

Tensions escalated when Murdiya accused Bhatt's team of lacking transparency in fund utilization. Between March and September 2025, Murdiya's employees reportedly accessed and removed confidential financial documents from Bhatt's office, leading to a counter-FIR on October 10, 2025, at Versova Police Station, Mumbai, against those employees for theft and misappropriation under BNS Sections 316(4) and 3(5).

On October 28, 2025, Murdiya filed a 'parivad' (complaint) with Udaipur police, alleging that the Rs. 2.5 crore initial tranche—and subsequent funds—were siphoned through intermediary accounts, inflated invoices from unrelated vendors (like caterers and makeup artists), and fictitious refunds, with no substantial production activity. A preliminary enquiry, directed by Superintendent of Police Yogesh Goyal and conducted by Investigating Officer Chhagan Purohit, involved site visits to Mumbai, examination of WhatsApp chats, transaction trails, and vendor statements. It uncovered diversions to settle old dues of Bhatt's firm, which was facing insolvency proceedings before the National Company Law Tribunal (NCLT), Mumbai.

Notices were issued to the petitioners on November 23 and 29, 2025, but their replies were deemed evasive. Consequently, FIR No. 213/2025 was registered on November 8, 2025, at Bhupalpura Police Station, Udaipur. An additional agreement allegedly shifting jurisdiction to Udaipur was highlighted as suspicious.

The petitioners—Bhatt, his wife Shwetambari Bhatt, daughter Krishna Vikram Bhatt, associates Mehbub Ansari and Mudit Buttan, plus FWICE officials Gangeshwar Lal Shrivastava (Treasurer) and Ashok Dubey (Dispute Redressal Chairman)—filed petitions in October 2025 to quash the FIR, claiming it was a counterblast and civil in nature. They also sought anticipatory bail, which was denied by the Bombay High Court. FWICE's role involved mediating under Clause 17A of its bylaws, but petitioners alleged coercion for an Rs. 11 crore settlement.

The core legal questions were: Does the FIR disclose cognizable offences warranting investigation, or is it a misconstrued civil dispute? Can inherent powers under Section 528 BNSS be invoked to quash proceedings at this nascent stage, especially with a contractual backdrop and jurisdictional conflicts?

Arguments Presented

The petitioners, represented by counsel including Mr. Prem Prakash and Mr. P.D. Shukla, mounted a multi-pronged defense emphasizing the civil-commercial nature of the dispute. They argued that the agreements were acted upon transparently, with two films completed and the rest stalled due to Murdiya's unilateral withdrawal of support post the flop release. Citing Indian Oil Corporation v. NEPC India Ltd. (2006 (3) SCC (Crl.) 188), they contended that criminalizing a pure breach of contract—without initial dishonest intent—abuses the process of law. The FIR was portrayed as a retaliatory move following the Mumbai FIR against Murdiya's employees, fitting the mala fide criteria under State of Haryana v. Bhajan Lal (1992 Supp. (1) SCC 335) for quashing.

Jurisdictional foul play was highlighted: The original agreement vested exclusive power in Mumbai courts, and a purported addendum shifting to Udaipur was invalid or coerced. They invoked Lalita Kumari v. Government of Uttar Pradesh (2014 (2) SCC 1) to claim no preliminary enquiry preceded the FIR, violating mandatory safeguards. Distinguishing breach of contract from criminal breach of trust, they relied on Delhi Race Club (1940) Ltd. v. State of U.P. (2024 (10) SCC 690), asserting no evidence of fraud from inception. Finally, they decried police haste in potential arrests, breaching Arnesh Kumar v. State of Bihar (2014 (8) SCC 273) and Sundar Babu v. State of Tamil Nadu (2009 (14) SCC 244). FWICE officials positioned themselves as neutral mediators pressured into the fray, with demands for Rs. 11 crore as evidence of Murdiya's overreach.

Opposing counsel, including Additional Advocate General Mr. Deepak Choudhary, Public Prosecutors Mr. Hanuman Prajapat and Mr. R.S. Bhati, and senior advocate Mr. Vikas Balia for Murdiya, rebutted vigorously. They accused petitioners of unclean hands, suppressing the Bombay High Court's bail denial and insolvency details. A detailed preliminary enquiry was affirmed: Post-parivad on October 28, 2025, IO Purohit's probe revealed Rs. 2.5 crore diverted via layered transactions to unrelated parties, backed by invoice trails and chats. The Udaipur jurisdiction shift via addendum (executed by Shwetambari Bhatt) was legitimate, they argued.

Murdiya's side detailed a modus operandi: Funds routed exclusively through petitioners' control, with no production transparency despite timelines. Investigations exposed inflated bills refunded personally after commissions, linking to Bhatt's distressed finances (FIR No. 205/2023 and NCLT proceedings). They cited Niharika Infrastructure Pvt. Ltd. v. State of Maharashtra (2021 SCC OnLine SC 315) to argue courts cannot conduct mini-trials at quashing stage. Evidence tampering risks justified arrests, and the FIR's allegations met BNS ingredients for cheating and misappropriation. Citing Dineshbhai Chandubhai Patel v. State of Gujarat (2018 (3) SCC 104), Ramveer Upadhyay v. State of Uttar Pradesh (2022 Live Law (SC) 396), CBI v. Aryan Singh (2023 SCC OnLine SC 379), Mahendra KC v. State of Karnataka (2022 (2) SCC 201), Punit Beriwal v. State of NCT of Delhi (2025 SCC OnLine SC 983), and Preeti Saraf v. State of NCT of Delhi (2021 (16) SCC 142), they urged dismissal, emphasizing that contractual ties do not immunize criminal acts. The Rs. 11 crore demand was framed as petitioners' coercion attempt during FWICE mediation.

Legal Analysis

Justice Sameer Jain's reasoning meticulously navigates the thin line between civil remedies and criminal liability, emphasizing restraint under Section 528 BNSS (mirroring old Section 482 CrPC). The court held that while contractual foundations exist, allegations of deliberate diversion transcend mere non-performance, invoking cognizable offences. Prima facie material from the enquiry—transaction logs, vendor verifications, and insolvency links—disclosed dishonest intent essential for BNS Sections 316(2) (breach of trust requiring entrustment and dishonest conversion) and 318(4) (cheating with deception for wrongful gain).

Key to the analysis was rejecting the "civil dispute" blanket: As per Bhajan Lal (supra), quashing is exceptional, reserved for manifest absurdities or malice, neither evident here. The court clarified that a preliminary enquiry complied with Lalita Kumari (supra), involving document scrutiny and notices, negating Arnesh Kumar violations. Notices on November 23 and 29, 2025, yielded evasive responses, justifying FIR registration on November 8, 2025.

Distinctions were sharply drawn: Breach of contract involves obligation failure without initial fraud ( Delhi Race Club , supra), but here, inception diversions via intermediaries suggested criminality ( Indian Oil , supra, limited to pure breaches). Jurisdictional shift was investigable, not a quashing bar. Precedents like Niharika Infrastructure (supra) prohibited "mini-trials," with courts assessing FIR contents "as they stand" ( Mahendra KC , supra). Dineshbhai Patel (supra) barred veracity probes at threshold, while Ramveer Upadhyay (supra) dismissed grudge-based quashing if offences disclosed. Aryan Singh (supra) critiqued overreach, and Punit Beriwal / Preeti Saraf (supra) reinforced probe primacy in financial crimes.

The analysis integrated other sources' details, like the other_sources' emphasis on "siphoning upto Rs. 2.5 Crore" and "use of intermediary accounts," naturally weaving them into the narrative of opaque fund flows in film ventures. This holistic view affirmed that societal interest in probing white-collar crimes outweighs premature relief, especially with tampering risks.

Key Observations

The judgment is replete with incisive observations that legal professionals will find instructive for future quashing petitions:

1. "Prima facie, the material emerging from the enquiry conducted by the State, as well as the allegations levelled by the complainant, disclose sufficient grounds warranting investigation.…merely because a transaction has a contractual foundation does not ipso facto bar criminal proceedings, where the allegations disclose ingredients of cognizable offences." This encapsulates the court's pivot from contract law to criminal scrutiny.

2. "The material on record indicates that the prosecution case is not confined to non-performance of contractual obligations, but extends to allegations of deliberate diversion of funds, lack of transparency, and dishonest utilisation of monies entrusted for film production." Here, Justice Jain highlights the escalation from civil to criminal thresholds.

3. "... the FIR, read as a whole, along with the material collected during the preliminary enquiry, prima facie discloses allegations of siphoning of enormous amount upto the tune of Rs. 2.5 Crore qua the total amount in question being 47 Crore approximately, diversion and misappropriation of entrusted funds, involving dishonest intent, use of intermediary accounts and inflated or fictitious invoices, which cannot be reduced to a mere breach of contract at this stage."

4. "It is note-worthy that it prima facie appears that the petitioners have approached the Court with unclean hands, nonetheless, concealing material facts, for instance, the anticipatory/transit bail application so moved..." This underscores ethical lapses impacting judicial relief.

5. "At this juncture, this Court cannot conclusively determine whether the dispute is purely one of breach of contract or constitutes the offence of criminal breach of trust." A reminder of the investigatory domain's primacy.

These excerpts, drawn verbatim from the judgment, illuminate the balance between inherent powers and statutory duties.

Court's Decision

The Rajasthan High Court unequivocally dismissed both connected petitions—S.B. Criminal Misc(Pet.) No. 10419/2025 and No. 10167/2025—on January 5, 2026, ruling that no grounds existed for quashing the FIR or proceedings under Section 528 BNSS. All interim protections were vacated, and pending applications disposed of. The operative order: "Accordingly, the present petitions are dismissed, at the threshold."

Practically, this greenlights the Udaipur police investigation, potentially leading to arrests, deeper financial audits, and chargesheets. Bhatt and associates must now navigate trial courts, possibly re-agitating bail or jurisdictional issues. For Murdiya, it validates pursuing recovery alongside criminal remedies, perhaps via civil suits in Udaipur per the addendum.

Broader implications are profound for legal practice. In an era of rising investor disputes in creative industries, this decision cautions filmmakers and producers against opaque accounting, as courts will probe for BNS offences if diversions suggest mens rea. It bolsters Lalita Kumari -compliant enquiries, reducing arbitrary FIRs while enabling swift probes in fund-heavy sectors. Future cases may cite it to resist quashing in white-collar matters, emphasizing "unclean hands" as a bar. For lawyers, it advocates thorough preliminary disclosures to avoid dismissal. Ultimately, it promotes accountability, deterring the conflation of business risks with outright fraud, and could influence NCLT overlaps in insolvency-linked crimes. As Bollywood's financial ecosystem evolves, this ruling serves as a judicial beacon, ensuring contractual freedoms do not shield criminality.