Court quashed FIR under Sections 120B, 420, and 506 IPC involving yarn supply disputes. It held that despite default on payments, the existence of a purchase contract, long-term business history, and large transaction volume negated fraudulent intent required for cheating.
FIR in Crime No.28 of 2018 quashed; connected miscellaneous petitions closed.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED: 29.04.2019
CORAM:
THE HONOURABLE MR.JUSTICE G.K.ILANTHIRAIYAN
CRL.O.P.No.2541 of 2019 and Crl.MP.Nos. 1629 & 2331 of 2019
For Petitioner : Mr.G.Ravikumar For Respondents For R1 : Mr.Mohammed Riyaz Additional Public Prosecutor. For R2 : Mr.Sathish Parasaran Senior Counsel For Mr.S.John J. Raja Singh O R D E R
This petition is directed as against the FIR in Crime No.28 of 2018 on the file of the first respondent registered for the offences under Sections 120B, 420 and 506(i) of IPC, on the complaint of the second respondent herein.
between the petitioners and the second respondent commenced from the year 2015. The entire allegations averd in the complaint did not disclose any offence as registered by the first respondent. He further submitted that there was a yarn business between the petitioners and the second respondent from the year 2015, in which there is an amount due payable by the petitioners and as such it is a civil in nature and no offence is made out as against the petitioners. He further submitted that the petitioners were purchasing yarn from the second respondent from the year 2015-16 to 2018-19, in the petitioners' company in the name and style of Liberty Clothing Company in totaling 506 transactions to the tune of Rs.51,55,54,672/-. Like wise the petitioners' another company viz., M/s. LCC Mill Private Limited were procured yarn from the defacto complainant from the year 2017 to 2019 for the total business 486 transactions to the tune of Rs.23,11,53,714/-. He further submitted that from the above business transactions between the petitioners and the defacto complainant to the tune of more than Rs.74 cores received from the petitioners clearly establishes routine business transactions. If any dispute arose between them in the routine business transactions, it cannot be termed as commission of criminal offence.
2.1. He further submitted that in the alleged FIR, the commission of offences from 08.01.2018 to 05.07.2018 as per the complaint. Whereas it is seen from the records on 05.07.2018 a sum of Rs.54 lakhs was received by the defacto complainant/second respondent in eight payments towards supply of yarn to the petitioners' company. The contemporaneous statement of account clearly shows that entire business are bonafide civil transactions between them. Further he submitted that the Purchase Contract executed on 01.07.2017 between the petitioner's company and the second respondent would clearly show that the entire transactions are commercial business transactions and no offence is made out as alleged by the second respondent.
2.2. He further submitted that the petitioners filed a civil suit in O.S.No.383 of 2017 before the District Court, Tiruppur, for injunction restraining the second respondent from supplying yarn to other companies and after the appearance of the second respondent, there was a compromise between them. Once again on the basis of the Purchase Contract dated 01.07.2017, the petitioners filed another suit in O.S.No.265 of 2018 before the Principal District Court, Tiruppur, for injunction restraining the second respondent from carrying business with some other third parties and an interim injunction was also granted, which is still in force. Therefore, the entire transactions are civil in nature. In fact, as against the interim injunction order, the second respondent filed an appeal in CMA.No.2264 of 2018 before
this Court and the same is pending on the file of this Court. Therefore, the allegation of inducement to deliver yarn by the petitioners with dishonest intention is not there, as such the offence under Section 420 of IPC is not at all attracted as against the petitioners. Further he submitted that the petitioners lodged a complaint on 05.12.2018, and the same has been registered in Crime No.1488 of 2018, for the offences under Sections 294(b) and 506(i) of IPC on the file of the Inspector of Police, Tiruppur North Police Station. The present complaint is nothing but to overcome the above said civil suit as against the petitioners, foisted by the second respondent and got registered.
2.3. He further submitted that a Joint letter signed by the defacto company and the petitioner's company executed on 24.08.2018, specifically stated that any false rumours that might be circulating in the market of a strained relationship between the petitioners and the second respondent are untrue. Thereby, they request all customers not to believe such rumours. It shows that it is clear business transactions between them and no question of inducement by the petitioners to supply the goods on false presumption. He further submitted that the entire business transactions in connection with the supply of yarn were made through their bankers of the defacto complainant. So far, the second respondent received a sum of Rs. 74 croes from the year 2015-16, towards the purchase of yarn and continuing the business till 26.07.2018. Therefore, there is no offence of cheating and the FIR is nothing but arm twisting method to extract the money from the petitioners. He also relied upon the following judgments :-
i) (2000) 4 SCC 168 - Hridaya Ranjan Prasad Verma Vs. State of Bihar and another
ii) (2001) 3 SCC 513 - Alpic Finance Ltd., Vs. P.Sadasivan and another
iii) (2018) 15 SCC 273 - M.Suresh and ors Vs. Sate of Andhra Pradesh and anr
iv) 2018 SCC Online Mad 2874 - S.S.Janagarajan Vs. The State of Tamil Nadu and anr
v) 2019 SCC Online SC 196 - Sathishchandra Ratanlal Shah Vs. State of Gujarat and anr.
vi) 2019 SCC Online SC 208 - Pro. R.K.Vijayasarathy and anr Vs. Sudha Seetharaman and anr. Therefore, he prayed for quashment of the present complaint.
3.1. He further submitted that again the petitioners had conspired together to cheat the defacto complainant and stated that they will repay that amount, on condition that fresh supply of yarn worth about another Rs.1.5 crore should be done by the second respondent and further promised that total payment of Rs.3 crores will be done within a period of 15 days. Believing the said promise, the second respondent supplied yarn worth to the tune of Rs.1.25 crores and as such there was total outstanding amount to the tune of Rs.2.75 crores. Thereafter, on making several representation, the petitioner did not make any payment and cheat the second respondent and to achieve wrongful gain.
3.2. The learned Senior Counsel further submitted that the petitioners also filed a suit in O.S.Nos.383 of 2017 and 265 of 2018, before the District Court, Tiruppur to subdue the criminal offence committed by them. In fact, as against the injunction order, the second respondent filed C.M.A.No.2264 of 2018 before this Court and the same is pending. Therefore, it is clear that they approached the defacto complainant with an intention to cheat him and as such the offence under Section 420 of IPC are clearly made out. He also relied upon the following judgements :-
i) 1992 Supp(1) SCC 335 - State of Haryana and ors Vs. Bhajanlal and ors
ii) (1996) 1 SCC 542 - State of Maharastra Vs. Ishwar Piraji Kalpartri and ors.
iii) (2001) 7 SCC 659 - S.M.Datta Vs. State of Gujarat and anr.
iv) Criminal Appeal No.255 of 2019 dated 12.02.2019 passed by the Hon'ble Supreme Court of India in the case Sau.Kamal
Shivaji Pokarnekar Vs. The State of Maharashtra & ors. Hence, he prayed for dismissal of the quash petition.
"Purchase Contract
Dated : 01.07.2017 The terms of the purchase contract made with Manufacurer M/s.Selvakumar Spinners Pvt. Ltd., SR.No.10/3 & 936 Selvanagar, Thandamapalayam (PO) - 638109, Tirupur Dt, Tin : 33553081770, are as follows:-
For Liberty Clothing Company Sd/For Selvakumar Spinnners Pvt Ltd., Sd/-"
District Court, Tirupur. Thereafter they entering into compromise and the said suit was closed. Once again the petitioners filed another suit in O.S.No.265 of 2018 on the file of the Principal District Court, Tirupur for the violation of purchase contract dated 01.07.2017 and for seeking injunction, in which the learned Principal District Judge, Tirupur granted interim injunction restrained the second respondent from carrying the business to some other third parties. In fact, as against the said order the second respondent has also filed an appeal in C.M.A.No.2264 of 2018 before this Court and the same is pending without any interim order. It shows that the petitioners had business transactions from the year 2015 onwards in two names viz., Liberty Cloth Company and M/s.LCC Mill Private Limited. It is also seen from the invoice and E-mail correspondence between the petitioners and the second respondent, a sum of Rs. 74 crores has been received by the second respondent and it shows that they have been in business transactions from the year 2015 till 2018.
received a demand notice dated 04.03.2019 from the second respondent under the Insolvency Bankruptcy Code, 2016, demanding a sum of Rs.3,52,93,018/-. In the said demand notice dated 04.03.2019, this Court finds that the second respondent demanded a sum of Rs.3,52,93,018/- towards supply of hosiery yarn. It is also reflected that the last payment received on 02.08.2018 by the second respondent and claiming the said amount through the invoice. Therefore, it is clear business transactions between the petitioners and the second respondent from the year 2015 onwards and it is also confirmed from the E-mail series and ledger accounts of the petitioners and the second respondent herein.
"14. Now coming to the charge under Section 415 punishable under Section 420 of IPC. In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. (See Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168).In the case before us, admittedly the appellant was trapped in economic crisis and therefore, he had approached the respondent no. 2 to ameliorate the situation of crisis. Further,in order to recover the aforesaid amount, the respondent no. 2 had instituted a summary civil suit seeking recovery of the loan amount which is still pending adjudication. The mere inability of the appellant to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.
15.Moreover, this Court in a number of cases has usually cautioned against criminalizing civil disputes, such as breach of contractual obligations [refer
to Gian Singh v. State of Punjab, (2012) 10 SCC 303]. The legislature intended to criminalize only those breaches which are accompanied by fraudulent, dishonest or deceptive inducements, which resulted in involuntary and inefficient transfers, under Section 415 of IPC.
16.However, the High Court appears to have been carried away by the moral element involved in the breach of promise and made certain observations. Being a policy consideration, such suggestions need to be restricted. The aforementioned observations of the High Court were not only unnecessary for the adjudication of this matter, but the same could have been understood as casting some kind of aspersions on the accused. This clearly reflected a loaded dice situation against the appellant herein.
17.In our considered opinion, the High Court should have maintained judicial restraint and desisted from making such general observations at this stage of the criminal proceeding,as they may have had a bearing on the adjudication of the trial. Therefore, the observations made in paragraphs 42 and43 of the impugned judgment stand expunged.
18.In view of the above, we are unable to uphold the impugned order passed by the High Court in Criminal Miscellaneous Application No. 4033 of 2012 and the same is hereby set aside. The application filed by the appellant under Section 482 of Cr.P.C. is allowed and the proceedings initiated based on the FIR instituted at the instance of respondent no. 2 are hereby quashed."
In the above case, the Hon'ble Supreme Court of India held that in the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea.
civil suits on the ground of violation of terms and conditions of the purchase contract as against the second respondent, in which one suit is pending. Therefore, merely inability of the petitioner to return the balance cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the business transactions, as it is this mens rea which is the crux of the offence. In overall reading of the complaint, there is no such dishonest representation or inducement could be found or inferred. The present complaint is nothing but an attempt of the second respondent to cloak a civil dispute with a criminal nature despite the absence of the ingredients necessary to constitute a criminal offence. The impugned FIR as against the petitioners constitutes an abuse of process of Court and is liable to be quashed.
The Hon'ble Supreme Court of India held that the criminal proceedings cannot be quashed on the ground that the allegations made therein appear to be a civil nature. If the ingredients of
the offence are prima facie made out in the complaint, the complaint cannot be quahsed.
3 issues framed by the court
Whether the allegations in the FIR disclose the offence of cheating under Section 420 IPC arising out of a mere breach of business contract.
Whether the distinction between cheating and civil breach requires proof of fraudulent inducement and mens rea from the inception of transactions.
Whether the FIR constitutes abuse of process of court liable to be quashed.
Colour shows how this judgement treated each authority
Hridaya Ranjan Prasad Verma Vs. State of BiharExplained¶61
(2000) 4 SCC 168 - Hridaya Ranjan Prasad Verma Vs. State of Bihar and another · Who else cites this
Alpic Finance Ltd., Vs. P.SadasivanReferred
(2001) 3 SCC 513 - Alpic Finance Ltd., Vs. P.Sadasivan and another · Who else cites this
M.Suresh and ors Vs. State of Andhra PradeshReferred
(2018) 15 SCC 273 - M.Suresh and ors Vs. Sate of Andhra Pradesh and anr · Who else cites this
S.S.Janagarajan Vs. The State of Tamil NaduReferred
2018 SCC Online Mad 2874 - S.S.Janagarajan Vs. The State of Tamil Nadu and anr · Who else cites this
Sathishchandra Ratanlal Shah Vs. State of GujaratFollowed¶61
2019 SCC Online SC 196 - Sathishchandra Ratanlal Shah Vs. State of Gujarat and anr. · Who else cites this
Pro. R.K.Vijayasarathy and anr Vs. Sudha SeetharamanReferred
2019 SCC Online SC 208 - Pro. R.K.Vijayasarathy and anr Vs. Sudha Seetharaman and anr. · Who else cites this
State of Haryana and ors Vs. BhajanlalDistinguished¶72
1992 Supp(1) SCC 335 - State of Haryana and ors Vs. Bhajanlal and ors · Who else cites this
State of Maharastra Vs. Ishwar Piraji KalpartriDistinguished¶72
(1996) 1 SCC 542 - State of Maharastra Vs. Ishwar Piraji Kalpartri and ors. · Who else cites this
S.M.Datta Vs. State of GujaratDistinguished¶72
(2001) 7 SCC 659 - S.M.Datta Vs. State of Gujarat and anr. · Who else cites this
Kamal Shivaji Pokarnekar Vs. State of MaharashtraDistinguished¶72
Criminal Appeal No.255 of 2019 dated 12.02.2019 ... Sau.Kamal Shivaji Pokarnekar Vs. The State of Maharashtra & ors.
2 provisions across 2 enactments
Meharaj
A.Hakkim
State
P.Praveen
G.K.ILANTHIRAIYAN
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
