2024 INSC 626

Criminal Appeal No. 3114 of 2024 Page 1 of 31

REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 3114 OF 2024

Delhi Race Club (1940) Ltd. & Ors. …Appellant(s)

Versus

State of Uttar Pradesh & Anr. …Respondent(s)

J U D G M E N T

J. B. PARDIWALA, J.:

1. This appeal arises from the order passed by the High Court of Judicature at

Allahabad dated 03.04.2024 in Application No. 15453 of 2023 filed by the

appellant herein by which, the High Court rejected the same and thereby declined

to quash and set aside the summoning order dated 28.02.2023 passed by the

Additional Chief Judicial Magistrate, Khurja, Bulandshahar in Complaint Case

No. 547 of 2021.

Criminal Appeal No. 3114 of 2024 Page 2 of 31

2. Facts giving rise to this appeal may be summarised as under:

(i) The respondent No. 2 herein is the original complainant. He lodged a

private complaint in the court of Additional Chief Judicial Magistrate,

Khurja, Bulandshahar against the appellants herein for the offence

punishable under Sections 406, 420 & 120B respectively of the Indian

Penal Code, 1860 (for short, “IPC”).

The complaint reads thus:

“It is most respectful that the Applicant Vipin Kumar Agarwal,

son of Late Shri Bhagwat Swaroop Agarwal, who is the owner of

a firm Agarwal Udyog, New Mandi, Khurja. The applicant’s firm

used to supply horse feed, barley and oats to Delhi Race Club

1940 Limited, New Delhi since 1990. In the year 1995, the then

head of the Race Club, Shri PS Vedi and the then Secretary

Sehgal told the applicant that from now on the bills for the supply

of horse grain and oats would be made in the name of Delhi

Horse Trainers Association, Race Course Road, New Delhi. And

the Head and Secretary of the same association have now been

made separate, they will pay you for the goods supplied. Till the

year 2017, the payment of the applicant’s firm continued to be

regular and now at present Delhi Horse Trainers Association

President Kazim Ali Khan and Secretary Sanjeev Charan owe a

payment of Rs 9,11,434/- to the applicant's firm. Whenever the

applicant makes demands, they keep evading when the applicant

tried to talk to the current President of the Race Club, J. S. Vedi

and the current Secretary about this. Then the Secretary GS Vedi

said that you should demand your dues from Delhi Horse

Trainers Association only, we have no relation with them, then

the applicant tried to meet Kazim Ali Pradhan along with

Manish Kumar Sharma, son of Mahesh Kumar Sharma, resident

of Nawalpura Khurja and Chirag Agarwal, son of Vijay

Agarwal, resident of Malpura, Khurja but they refused to talk to

the applicant and threatened that if he came here again, it would

be very bad and started a scuffle. The applicant feels that both

the above mentioned officials of Delhi Race Club 1940 Limited,

New Delhi and Delhi Horse Trainers Association, in connivance

with each other, cheated the applicant and dishonestly obtained

Criminal Appeal No. 3114 of 2024 Page 3 of 31

the goods from the applicant's firm in bad faith and they used it

for their club and association and now they do not want to pay

for the goods given by the applicant. All of them under

conspiracy want to grab the money of the applicant's firm, after

which the applicant had given a legal notice to the above

mentioned people through his advocate on 18th June 2020 but

even after receiving the notice, the above people neither gave

any reply to the notice nor was the applicant's outstanding

amount paid. In this context, the applicant gave an application

to Inspector-in-charge of Kotwali Khurja Nagar on 25.07.2021

and on 06.08.2021, an application letter was sent to SSP Sir

Bulandshahar through postal registry, but till date no action has

been taken nor has the applicant's report been registered.

Therefore, it is prayed that after the investigation, please

summon the accused along with evidence to the court and punish

them for the crime committed by them.

Date 27.08.2021”

(ii) The plain reading of the complaint would indicate that the appellant No. 1

is a legal entity. The appellant No. 2 is the Secretary of the appellant No.

1 Company, and the appellant No. 3 is the Honorary President and Non-

Executive Director of the appellant No. 1 Company. They used to

purchase grains and oats from the complainant meant to be fed to the

horses maintained by the appellant No. 1 Company. According to the

complainant, an amount of Rs. 9,11,434/- (Rupees Nine Lakh Eleven

Thousand Four Hundred Thirty Four) is due and payable to him by the

appellants towards the sale of horse grains and oats over a period of time.

It is alleged that as the appellants failed to make the payment, he thought

fit to file the complaint as according to him he has been cheated by the

appellants.

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(iii) The court concerned initially took cognizance upon the complaint but

postponed the issuance of process as it thought fit to initiate magisterial

inquiry under Section 202 of the Code of Criminal Procedure, 1973 (for

short, “CrPC”). The statement of the complainant recorded by the

Additional Chief Judicial Magistrate in the course of the magisterial

inquiry under Section 202 of the CrPC reads thus:

“Name of the witness Ankit Agarwal S/o Vipin Agarwal aged

about 34 years, Occupation-Businessman, resident of 13,

Malpura, Subhash Road, Khurja, PS-Khurja Nagar, District

Bulandshahar today on 08.3.22 on oath gave statement that:-

Vipin Kumar Agarwal is the owner of a firm Agarwal Udyog

which is located in New Mandi Khurja. Delhi Race Course Club

1940 Limited has been purchasing horse feed from the above

mentioned firm for a long time and payment for the same has

been done on time After the year 2017, Delhi Horse Trainers

Association President Kazim Ali and Secretary Sanjeev Charan

kept paying the goods. Since thereafter, the above mentioned

people owe Rs 9,11,434/- to the above firm. After repeated

requests, both the above mentioned firms have been telling to

make payment to each other but the opposite party has also not

made the payment.

Delhi Race Course Club President JS Bedi and Secretary HK

Uppal are delaying the payment of horse feed purchased by

them. The people of the above two firms have colluded with each

other and do not want to pay for the goods taken. Vipin Agarwal,

proprietor of Agarwal Udyog, is my father hence I am aware of

the entire matter”

(iv) The Magistrate also recorded the statement of one Manish Kumar in

course of the inquiry under Section 202 of the CrPC. The statement reads

thus:

“Witness name Manish Kumar Sharma father's name aged 33

Criminal Appeal No. 3114 of 2024 Page 5 of 31

years occupation labourer resident of Nawalpura, Khurja Police

Station Khurja Nagar District Bulandshahar today on 08.03.22

on oath gave statement that:-

I have been working as a bookkeeper for the last 17 years at

Vipin Kumar Agarwal's firm Agarwal Udyog, which is located

in New Mandi Khurja. From the above mentioned firm, Delhi

Race Course Club 1940 Limited which is a New Delhi based

firm. Have been buying horse grain and oats. President of this

firm J S Bedi and Secretary H K Uppal have been coming to our

firm to buy horse feed and oats and the firm has been paying for

the purchased goods. It was said by the above two that now the

bills for horse feed and oats will be made in the name of Delhi

Horse Trainers Association Delhi and the Head of this firm,

Kazim Ali and Secretary Sanjeev Charan will pay it. On the

request of the above people, horse grain and oats continued to

be supplied from our firm. The above mentioned people owes Rs.

9,11,434/- to our firm, upon being repeatedly asked for payment,

the above mentioned people are evading. Once Chirag Agarwal

and I went to their office in New Delhi, they refused to talk to

Vipin Agarwal and us and they threatened that if they come here

again, it will be very bad and they started scuffle. The

outstanding amount of Rs. 9,11,434/- has not yet been paid by

the officials of the above two firms. The above mentioned people

have fraudulently obtained the goods from our firm in bad faith

and do not want to pay for the same. They have used the supplied

goods. Certified after reading and listening.”

(v) At the end of the magisterial inquiry, the court issued process for the

offence punishable under Section 406 of the IPC. The order issuing

process reads thus:

“Date:- 28.02.2023

The file was presented for orders. The complainant has been

heard on the question of summons on an earlier date.

On behalf of the complainant Vipin Kumar Aggarwal, the above

complaint was presented against the opposite parties Delhi Race

Club etc. to the effect that the firm of the complainant was

Criminal Appeal No. 3114 of 2024 Page 6 of 31

supplying horse grain, barley and oats to Delhi Race Club since

the year 1990. In the year 1995, the President of the Race Club,

Mr. P.S. Vedi and the then Sachin Sehgal ji said that the bill

would be made in the name of Delhi Horse Trainers Association,

Race Course Road, New Delhi and the Head and Secretary of

the same association have now been made separately. They will

make the payment for the goods given by you. Till the year 2017,

the applicant's firm's payment continued to be regular and now

at present the payment of Rs 9,11,434/- is outstanding from the

applicant's firm when the applicant talked about this to the

current President of the Race Club, J.S. Vedi and the current

Secretary then the secretary said that you should demand your

dues from Delhi Horse Trainers Association only. Then the

applicant tried to meet Kajim Ali but he refused to talk to the

applicant and got into a scuffle. The above two associations and

officials unanimously cheated the applicant and obtained goods

from the applicant's firm and do not want to pay for the goods

given by the applicant. The applicant had given a legal notice to

the above people through his advocate on 18 June 2020 but even

after receiving the notice, the above people neither gave any

reply to the notice nor paid the outstanding amount of the

applicant. In this context, the applicant gave an application to

Khurja Nagar police station and on 06.08.2021 an application

was given to SSP Bulandshahar but no action has been taken till

date.

On behalf of the complainant, he got himself examined under

Section 200 of the Code of Criminal Procedure and under

Section 202 CrPC, the statement of witnesses Ankit Aggarwal as

PW-1 and Manish Kumar Sharma as PW-2 was recorded. In

which they supported the statements mentioned in the complaint.

One copy of the application sent by the complainant to the Senior

Superintendent of Police as documentary evidence in support of

his statements, a photocopy of the registry receipt, one copy of

the net receipt postal registry, five copies of the bill book, one

true copy of the remaining balance, one copy of receipt of goods,

one copy of remaining balance, one copy of legal notice were

filed per receipt.

The complainant has stated in his statement under Section 200

CrPC, "after five years of 1990, these people said that we will

not make the payment. A separate organization has been formed

for payment, which will do it. An organization named Delhi

Criminal Appeal No. 3114 of 2024 Page 7 of 31

Trainers Association has been formed. Now I owe these people

nine lakh eleven thousand four hundred thirty-four rupees. When

we asked for money several times, we did not receive it. The

President of Delhi Race Course is not ready to talk. I am

suffering from cancer. Business is seen by children only. We also

gave them legal notice but nothing happened.”

Perused the entire evidence material available on file.

On the basis of the evidence presented by the complainant under

section 200 CrPC and section 202 CrPC, there is prima facie

basis for summoning the opposition parties Delhi Race Course

Club, Delhi Race Horse Trainers Association, JS Bedi, HK

Uppal, Kazim Ali Khan and Sanjeev Charan for consideration

under section 406 IPC. There are sufficient grounds for

summoning for trial of a punishable offense under Section 406

IPC.

ORDER

The opposite parties Delhi Race Course Club, Delhi Race Horse

Trainers Association, JS Bedi, HK Uppal, Kazim Ali Khan and

Sanjeev Charan are summoned for trial for the offense under

section 406 of the Indian Penal Code. The complainant should

process the summons against the opposition parties within a

week, every summons should be issued along with a copy of the

complaint letter, the complainant list should be filed and the

witnesses should be filed.

The case file be put up on 27.04.2023 for appearance.”

3. In such circumstances referred to above, the appellants preferred an application

under Section 482 of the CrPC in the High Court, praying for quashing of the

summoning order dated 28.02.2023 passed by the Additional Chief Judicial

Magistrate, Khurja, Bulandshahar.

4. The High Court rejected the application filed by the appellants herein, observing

as under:

Criminal Appeal No. 3114 of 2024 Page 8 of 31

“15. On the basis of averments made in the complaint, it is a

case of the complainant who was regularly supplying Oats, used

for horses. In the year 1995, the complainant was asked to raise

invoice in favour of the 'Association'. The complainant agreed

and continued to raise invoice in favour of the 'Association'. After

2017, an amount of Rs. 9,11,434/- became due upon the

applicants. He contacted Delhi Race Club (1940) Ltd. and he

was directed to contact the 'Association'. The applicant Delhi

Race Club (1940) Ltd. and 'Association' are not separate legal

entity. The applicants and the 'Association' were in collusion and

committed fraud with complainant. The goods supplied by

complainant were received but its payment was not made.

16. Admittedly, no civil proceedings are pending for the amount

in question between the parties. It is not the case of the applicants

that transaction was a commercial transaction whereas the case

of opposite party No. 2 is for the supply made by him. He is bound

to raise his payment on the direction of the Delhi Race Club

(1940) Ltd. He raised invoices in favour of the 'Association' from

1995. There is no change in the manner of raising invoices by

the complainant. Delhi Race Club (1940) Ltd. continued to make

payment upto the year 2017. The complainant was not being paid

Rs. 9,11,434/- by the applicants who instead transferred their

responsibility to the 'Association’.

17. Suffice to mention here that the copies of the invoices are

brought on record through counter affidavit by the complainant

and the same are not controverted by the applicants. Prima facie,

it reflects that the invoices were raised by complainant in

accordance with the advice received by him and he continued to

receive payment on the basis of such invoices and when the

payment of Rs. 9,11,434/- was not paid to the complainant he

contacted Delhi Race Club (1940) Ltd. which averted him to the

'Association'. It appears that Delhi Race Club (1940) Ltd. and

the 'Association' are not separate entity.

18. On the face of record, it appears that originally complainant

was supplying oats to the 'Company'. In the year 1995, the

complainant was directed to raise invoices in favour of the

'Association'. The Company continued to receive supply of Oats

made by the complainant even after 1995, whereas invoices were

raised in favour of the 'Association'. This direction of the

company goes to show that there was some mala fide intention

Criminal Appeal No. 3114 of 2024 Page 9 of 31

on the part of the Company. The complainant bona fide

continued to make supply under the direction of the Company.

The invoices were raised by the complainant in similar manner

since 1995 to 2017 and thereafter. It appears that there was an

oral direction to raise invoices in favour of 'Association' made

by the Company, which indicates mala fide of the Company.

19. After hearing the learned counsel for the parties and after

perusing the impugned order, this Court is of the opinion that

impugned order has been passed on the basis of facts and

circumstances of the case after considering the evidence on

record. There is no legal infirmity in the impugned orders, which

may call for any interference by this Court in exercise of powers

conferred under Section 482 Cr.P.C.”

5. Thus, according to the High Court, the intention on the part of the company was

prima facie mala fide and the payment of Rs. 9,11,434/- could be said to be

intentionally withheld.

SCOPE OF INQUIRY UNDER SECTION 202 OF THE CRPC

6. It is by now well settled that at the stage of issuing process it is not the duty of

the Court to find out as to whether the accused will be ultimately convicted or

acquitted. The object of consideration of the merits of the case at this stage could

only be to determine whether there are sufficient grounds for proceeding further

or not. Mere existence of some grounds which would be material in deciding

whether the accused should be convicted or acquitted does not generally indicate

that the case must necessarily fail. On the other hand, such grounds may indicate

the need for proceeding further in order to discover the truth after a full and proper

investigation. If, however, a bare perusal of a complaint or the evidence led in

support of it shows essential ingredients of the offences alleged are absent or that

Criminal Appeal No. 3114 of 2024 Page 10 of 31

the dispute is only of a civil nature or that there are such patent absurdities in

evidence produced that it would be a waste of time to proceed further, then of

course, the complaint is liable to be dismissed at that stage only. What the

Magistrate has to determine at the stage of issue of process is not the correctness

or the probability or improbability of individual items of evidence on disputable

grounds, but the existence or otherwise of a prima facie case on the assumption

that what is stated can be true unless the prosecution allegations are so fantastic

that they cannot reasonably be held to be true. [See : D.N. Bhattacharjee v. State

of West Bengal : (1972) 3 SCC 414 : AIR 1972 SC 1607 : (1972 Cri LJ 1037)].

7. Further it is also well settled that at the stage of issuing process a Magistrate is

mainly concerned with the allegations made in the complaint or the evidence led

in support of the same and he is only to be prima facie satisfied whether there are

sufficient grounds for proceeding against the accused. It is not the province of the

Magistrate to enter into a detailed discussion of the merits or demerits of the case

nor can the High Court go into this matter in its inherent jurisdiction which is to

be sparingly used. The scope of the inquiry under Section 202 of the CrPC is

extremely limited — only to the ascertainment of the truth or falsehood of the

allegations made in the complaint — (i) on the materials placed by the

complainant before the Court (ii) for the limited purpose of finding out whether

a prima facie case for issue of process has been made out, and (iii) for deciding

the question purely from the point of view of the complainant without at all

Criminal Appeal No. 3114 of 2024 Page 11 of 31

adverting to any defence that the accused may have. In fact in proceedings under

Section 202 of the CrPC, the accused has got absolutely no locus standi and is not

entitled to be heard on the question whether the process should be issued against

him or not. It is true that in coming to a decision as to whether a process should

be issued the Magistrate can take into consideration inherent improbabilities

appearing on the face of the complaint or in the evidence led by the complainant

in support of the allegations but there appears to be a very thin line of demarcation

between a probability of conviction of the accused and establishment of a prima

facie case against him. The discretion given to the Magistrate on this behalf has

to be judicially exercised by him. Once the Magistrate has exercised his

discretion, it is not for the High Court or even the Supreme Court to substitute its

own discretion for that of the Magistrate or to examine the case on merits with a

view to find out whether or not the allegations in the complaint, if proved, would

ultimately end in the conviction of the accused. These considerations are totally

foreign to the scope and ambit of an inquiry under Section 202 of the CrPC which

culminates into an order under Section 204. [See : Smt. Nagawwa v. Veeranna

Shivalingappa Kanjalgi : (1976) 3 SCC 736]. It is no doubt true that in this very

decision this Court has enumerated certain illustrations as to when the order of

Magistrate issuing process against the accused can be quashed or set aside. These

illustrations are as under :—

“(1) Where the allegations made in the complaint or the

statement of the witnesses recorded in support of the same taken

at their face value make out absolutely no case against the

Criminal Appeal No. 3114 of 2024 Page 12 of 31

accused or the complaint does not disclose the essential

ingredients of an offence which is alleged against the accused.

(2) Where the allegations made in the complaint are patently

absurd and inherently improbable so that no prudent person

can ever reach a conclusion that there is sufficient ground for

proceeding against the accused.

(3) Where the discretion exercised by the Magistrate in issuing

process is capricious and arbitrary having been based either on

no evidence or on materials which are wholly irrelevant or

inadmissible; and

(4) Where the complaint suffers from fundamental legal defects,

such as want of sanction or absence of a complaint by legally

competent authority and the like.”

8. Each Penal Section of the Indian Penal Code or of the other laws can be subjected

to an analysis by posing and answering the following questions: -

I. What is the overt act stipulated in the Section, which overt act

has resulted in an injury?

II. What is the state of mind stipulated in respect of the accused

and which state of mind must precede or accompany the act of

the accused?

ANALYSIS

9. Having heard the learned counsel appearing for the parties and having gone

through the materials on record, the only question that falls for our consideration

is whether the High Court committed any error in passing the impugned order.

10. The case at hand is one of an unpaid seller. It is the case of the complainant that

he used to regularly supply consignments of grains & oats meant for horses at the

Criminal Appeal No. 3114 of 2024 Page 13 of 31

Delhi Race Club. The complainant used to raise invoices in favour of the Club

and the Club used to pay the requisite amount. However, according to the

complainant after 2017, the Club stopped making the payment. It is the case of

the complainant that an amount of Rs. 9,11,434/- is due and payable by the

appellants towards the supply of the consignment of oats.

11. The impugned order passed by the High Court is a fine specimen of total non-

application of mind. Although the complaint was filed for the offence punishable

under Sections 406, 420 and 120B respectively of the IPC yet the Additional

Chief Judicial Magistrate thought fit to take cognizance and issue process only

for the offence of criminal breach of trust as defined under Section 405 of the IPC

and made punishable under Section 406 of the IPC.

12. We are of the view that even if the entire case of the complainant is accepted as

true no offence worth the name is disclosed.

13. This Court has time and again reminded that summoning of an accused in a

criminal case is a serious matter. Criminal law cannot be set into motion as a

matter of course. It is not that the complainant has to bring only two witnesses to

support his allegations in the complaint to have the criminal law set into motion.

The order of the Magistrate summoning the accused must reflect that he has

applied his mind to the facts of the case and the law applicable thereto. He has to

examine the nature of allegations made in the complaint and the evidence both

Criminal Appeal No. 3114 of 2024 Page 14 of 31

oral and documentary in support thereof. It is not that the Magistrate is a silent

spectator at the time of recording of preliminary evidence before summoning of

the accused. The Magistrate has to carefully scrutinise the evidence brought on

record and may even himself put questions to the complainant and his witnesses

to elicit answers to find out the truthfulness of the allegations or otherwise and

then examine if any offence is prima facie committed by all or any of the accused.

[See: Pepsi Foods Ltd. v. Special Judicial Magistrate : (1998) 5 SCC 749]

14. Where a jurisdiction is exercised on a complaint petition filed in terms of Section

156(3) or Section 200 of the CrPC, the Magistrate is required to apply his mind.

The Penal Code does not contain any provision for attaching vicarious liability

on the part of the appellant Nos. 2 and 3 respectively herein who are none other

than office bearers of the appellant No. 1 Company. When the appellant No. 1 is

the Company and it is alleged that the company has committed the offence then

there is no question of attributing vicarious liability to the office bearers of the

Company so far as the offence of cheating or criminal breach of trust is concerned.

The office bearers could be arrayed as accused only if direct allegations are

levelled against them. In other words, the complainant has to demonstrate that he

has been cheated on account of criminal breach of trust or cheating or deception

practiced by the office bearers. The Magistrate failed to pose unto himself the

correct question viz. as to whether the complaint petition, even if given face value

and taken to be correct in its entirety, would lead to the conclusion that the

Criminal Appeal No. 3114 of 2024 Page 15 of 31

appellant Nos. 2 and 3 herein were personally liable for any offence. The

appellant No. 1 is a body corporate. Vicarious liability of the office bearers would

arise provided any provision exists in that behalf in the statute. Statutes

indisputably must contain provision fixing such vicarious liabilities. Even for the

said purpose, it is obligatory on the part of the complainant to make requisite

allegations which would attract the provisions constituting vicarious liability.

15. In Legal Remembrancer, West Bengal v. Abani Kumar Banerji reported in AIR

1950 Cal 437, a Division Bench of the Calcutta High Court speaking through

Justice K.C. Das Gupta (as he then was) held that a magistrate is not bound to

take cognizance of an offence merely because a complaint is filed before him. He

is required to carefully apply his mind to the contents of the complaint before

taking cognizance of any offence alleged therein. The relevant observations read

as under: -

“… As I read s. 190 of the Code of Criminal Procedure and

the subsequent sections, it seems to me to be clear that a

magistrate is not bound to take cognizance of an offence,

merely because a petition of complaint is filed before him. Mr.

Mukherji's argument is that a magistrate cannot possibly take

any action with regard to a petition of complaint, without

applying his mind to it, and taking cognizance of the offence

mentioned in the complaint necessarily takes place, when the

magistrate's mind is applied to the petition. Consequently Mr.

Mukherji argues, whenever a magistrate takes the action, say,

of issuing search warrant or asking the police to enquire and

to investigate, he has taken cognizance of the case. In my

judgment, this is putting a wrong connotation on the words

“taking cognizance”. What is “taking cognizance” has not

been defined in the Code of Criminal Procedure, and I have

no desire now to attempt to define it. It seems to me clear,

Criminal Appeal No. 3114 of 2024 Page 16 of 31

however, that before it can be said that any magistrate has

taken cognizance of any offence under s. 190(1)(a) of the Code

of Criminal Procedure, he must not only have applied his mind

to the contents of the petition, but he must have done so for the

purpose of proceeding in a particular way as indicated in the

subsequent provisions of this Chapter,—proceeding under s.

200, and thereafter sending it for enquiry and report under s.

202. When the magistrate applies his mind not for the purpose

of proceeding under the subsequent sections of this Chapter,

but for taking action of some other kind, e.g., ordering

investigation under s. 156(3), or issuing a search warrant for

the purpose of the investigation, he cannot be said to have

taken cognizance of the offence. My conclusion, therefore, is

that the learned magistrate is wrong in thinking that the Chief

Presidency Magistrate was bound to take cognizance of the

case as soon as the petition of complaint was filed.”

(Emphasis supplied)

16. The aforesaid observation of the Calcutta High Court was referred to and relied

upon with approval by this Court in its decision in R.R. Chari v. State of U.P.

reported in AIR 1951 SC 207.

17. In Tilak Nagar Industries Ltd. & Ors. v. State of A.P. reported in (2011) 15 SCC

571, this Court held that the power under Section 156(3) of the CrPC can be

exercised by a magistrate even before he takes cognizance provided the complaint

discloses the commission of cognizable offences and if the complaint does not

disclose commission of cognizable offences, such an order of the magistrate

directing investigation is liable to be quashed. The relevant observations read as

under: -

“11. After considering the rival submissions, we are of the

view that the contentions of Mr Luthra are correct in view of

Section 155(2) of the Code as explained in Bhajan Lal [1992

Supp (1) SCC 335 : 1992 SCC (Cri) 426] . We are of the

Criminal Appeal No. 3114 of 2024 Page 17 of 31

opinion that the statutory safeguard which is given under

Section 155(2) of the Code must be strictly followed, since they

are conceived in public interest and as a guarantee against

frivolous and vexatious investigation.

12. The order of the Magistrate dated 21-6-2010 does not

disclose that he has taken cognizance. However, power under

Section 156(3) can be exercised by the Magistrate even before

he takes cognizance provided the complaint discloses the

commission of cognizable offence. Since in the instant case the

complaint does not do so, the order of the Magistrate stated

above cannot be sustained in law and is accordingly

quashed.”

18. The aforesaid decision was in context with the power of the Magistrate to order

police investigation under Section 156(3) of the CrPC. What is sought to be

conveyed in the said decision is that when the Magistrate orders police

investigation under Section 156(3) of the CrPC he does not take cognizance upon

the complaint. It is only upon receipt of the police report that the Magistrate may

take cognizance. If at the stage of pre-cognizance, the Magistrate is expected to

be careful or to put it in other words, the Magistrate is obliged to look into the

complaint threadbare so as to reach to a prima facie conclusion whether the

offence is disclosed or not, then he is expected to be more careful when he is

actually taking cognizance upon a private complaint and ordering issue of

process.

19. The aforesaid aspect could be said to have been completely lost sight of by the

High Court, while rejecting the application filed by the appellant herein under

Section 482 of the CrPC, seeking quashing of the summoning order.

Criminal Appeal No. 3114 of 2024 Page 18 of 31

20. In Mehmood Ul Rehman v. Khazir Mohammad Tunda reported in (2015) 12

SCC 420, this Court held thus: —

“22… The satisfaction on the ground for proceeding would

mean that the facts alleged in the complaint would constitute

an offence, and when considered along with the statements

recorded, would, prima facie, make the accused answerable

before the court…In other words, the Magistrate is not to act

as a post office in taking cognizance of each and every

complaint filed before him and issue process as a matter of

course. There must be sufficient indication in the order passed

by the Magistrate that he is satisfied that the allegations in the

complaint constitute an offence and when considered along

with the statements recorded and the result of inquiry or

report of investigation under Section 202 of CrPC, if any, the

accused is answerable before the criminal court, there is

ground for proceeding against the accused under

Section 204 of CrPC, by issuing process for appearance.

Application of mind is best demonstrated by disclosure of

mind on the satisfaction…To be called to appear before

criminal court as an accused is serious matter affecting one's

dignity, self respect and image in society. Hence, the process

of criminal court shall not be made a weapon of harassment.”

(Emphasis supplied)

21. The Principle of law discernible from the aforesaid decision is that issuance of

summons is a serious matter and, therefore, should not be done mechanically and

it should be done only upon satisfaction on the ground for proceeding further in

the matter against a person concerned based on the materials collected during the

inquiry.

22. In the aforesaid circumstances, the next question to be considered is whether a

summons issued by a Magistrate can be interfered with in exercise of the power

Criminal Appeal No. 3114 of 2024 Page 19 of 31

under Section 482, CrPC. In the decisions in Bhushan Kumar v. State (NCT of

Delhi) reported in (2012) 5 SCC 424 and Pepsi Foods Ltd. (supra), this Court

held that a petition filed under Section 482, CrPC, for quashing an order

summoning the accused is maintainable. There cannot be any doubt that once it

is held that sine qua non for exercise of the power to issue summons is the

subjective satisfaction “on the ground for proceeding further” while exercising

the power to consider the legality of a summons issued by a Magistrate, certainly

it is the duty of the Court to look into the question as to whether the learned

Magistrate had applied his mind to form an opinion as to the existence of

sufficient ground for proceeding further and in that regard to issue summons to

face the trial for the offence concerned. In this context, we think it appropriate to

state that one should understand that ‘taking cognizance’, empowered under

Section 190, CrPC, and ‘issuing process’, empowered under Section 204, CrPC,

are different and distinct. [See the decision in Sunil Bharti Mittal v. C.B.I. :

(2015) 4 SCC 609].

23. In Sunil Bharti Mittal (supra), this Court interpreted the expression “sufficient

grounds for proceeding” and held that there should be sufficiency of materials

against the accused concerned before proceeding under Section 204 of

the CrPC. It was held thus: —

“53. However, the words “sufficient ground for proceeding”

appearing in Section 204 are of immense importance. It is

these words which amply suggest that an opinion is to be

Criminal Appeal No. 3114 of 2024 Page 20 of 31

formed only after due application of mind that there is

sufficient basis for proceeding against the said accused and

formation of such an opinion is to be stated in the order itself.

The order is liable to be set aside if no reason is given therein

while coming to the conclusion that there is prima facie case

against the accused, though the order need not contain

detailed reasons. A fortiori, the order would be bad in law if

the reason given turns out to be ex facie incorrect.”

(Emphasis supplied)

DIFFERENCE BETWEEN CRIMINAL BREACH OF TRUST AND

CHEATING

24. This Court in its decision in S.W. Palanitkar & Ors. v. State of Bihar & Anr.

reported in (2002) 1 SCC 241 expounded the difference in the ingredients

required for constituting an of offence of criminal breach of trust (Section 406

IPC) viz-a-viz the offence of cheating (Section 420). The relevant observations

read as under: -

“9. The ingredients in order to constitute a criminal breach

of trust are: (i) entrusting a person with property or with any

dominion over property, (ii) that person entrusted (a)

dishonestly misappropriating or converting that property to

his own use; or (b) dishonestly using or disposing of that

property or wilfully suffering any other person so to do in

violation (i) of any direction of law prescribing the mode in

which such trust is to be discharged, (ii) of any legal contract

made, touching the discharge of such trust.

10. The ingredients of an offence of cheating are: (i) there

should be fraudulent or dishonest inducement of a person by

deceiving him, (ii)(a) the person so deceived should be

induced to deliver any property to any person, or to consent

that any person shall retain any property; or (b) the person so

deceived should be intentionally induced to do or omit to do

anything which he would not do or omit if he were not so

deceived; and (iii) in cases covered by (ii)(b), the act of

Criminal Appeal No. 3114 of 2024 Page 21 of 31

omission should be one which causes or is likely to cause

damage or harm to the person induced in body, mind,

reputation or property.”

25. What can be discerned from the above is that the offences of criminal breach of

trust (Section 406 IPC) and cheating (Section 420 IPC) have specific ingredients.

In order to constitute a criminal breach of trust (Section 406 IPC): -

1) There must be entrustment with person for property or dominion over the

property, and

2) The person entrusted: -

a) dishonestly misappropriated or converted property to his own use, or

b) dishonestly used or disposed of the property or willfully suffers any other

person so to do in violation of:

i. any direction of law prescribing the method in which the trust is

discharged; or

ii. legal contract touching the discharge of trust (see: S.W.P.

Palanitkar (supra).

Similarly, in respect of an offence under Section 420 IPC, the essential

ingredients are: -

1) deception of any person, either by making a false or misleading

representation or by other action or by omission;

2) fraudulently or dishonestly inducing any person to deliver any

property, or

3) the consent that any persons shall retain any property and finally

intentionally inducing that person to do or omit to do anything which

he would not do or omit (see: Harmanpreet Singh Ahluwalia v. State

of Punjab, (2009) 7 SCC 712 : (2009) Cr.L.J. 3462 (SC))

Criminal Appeal No. 3114 of 2024 Page 22 of 31

26. Further, in both the aforesaid sections, mens rea i.e. intention to defraud or the

dishonest intention must be present, and in the case of cheating it must be there

from the very beginning or inception.

27. In our view, the plain reading of the complaint fails to spell out any of the

aforesaid ingredients noted above. We may only say, with a view to clear a serious

misconception of law in the mind of the police as well as the courts below, that if

it is a case of the complainant that offence of criminal breach of trust as defined

under Section 405 of IPC, punishable under Section 406 of IPC, is committed by

the accused, then in the same breath it cannot be said that the accused has also

committed the offence of cheating as defined and explained in Section 415 of the

IPC, punishable under Section 420 of the IPC.

28. Every act of breach of trust may not result in a penal offence of criminal breach

of trust unless there is evidence of manipulating act of fraudulent

misappropriation. An act of breach of trust involves a civil wrong in respect of

which the person may seek his remedy for damages in civil courts but, any breach

of trust with a mens rea, gives rise to a criminal prosecution as well. It has been

held in Hari Prasad Chamaria v. Bishun Kumar Surekha & Ors., reported

in (1973) 2 SCC 823 as under:

“4. We have heard Mr. Maheshwari on behalf of the

appellant and are of the opinion that no case has been made

out against the respondents under Section 420 Penal Code,

1860. For the purpose of the present appeal, we would assume

that the various allegations of fact which have been made in

Criminal Appeal No. 3114 of 2024 Page 23 of 31

the complaint by the appellant are correct. Even after making

that allowance, we find that the complaint does not disclose

the commission of any offence on the part of the respondents

under Section 420 Penal Code, 1860. There is nothing in the

complaint to show that the respondents had dishonest or

fraudulent intention at the time the appellant parted with Rs.

35.000/- There is also nothing to indicate that the respondents

induced the appellant to pay them Rs. 35,000/- by deceiving

him. It is further not the case of the appellant that a

representation was made, the respondents knew the same to

be false. The fact that the respondents subsequently did not

abide by their commitment that they would show the appellant

to be the proprietor of Drang Transport Corporation and

would also render accounts to him in the month of December

might create civil liability on the respondents for the offence

of cheating.”

29. To put it in other words, the case of cheating and dishonest intention starts with

the very inception of the transaction. But in the case of criminal breach of trust, a

person who comes into possession of the movable property and receives it legally,

but illegally retains it or converts it to his own use against the terms of the

contract, then the question is, in a case like this, whether the retention is with

dishonest intention or not, whether the retention involves criminal breach of trust

or only a civil liability would depend upon the facts of each case.

30. The distinction between mere breach of contract and the offence of criminal

breach of trust and cheating is a fine one. In case of cheating, the intention of the

accused at the time of inducement should be looked into which may be judged by

a subsequent conduct, but for this, the subsequent conduct is not the sole test.

Mere breach of contract cannot give rise to a criminal prosecution for cheating

unless fraudulent or dishonest intention is shown right from the beginning of the

Criminal Appeal No. 3114 of 2024 Page 24 of 31

transaction i.e. the time when the offence is said to have been committed.

Therefore, it is this intention, which is the gist of the offence. Whereas, for the

criminal breach of trust, the property must have been entrusted to the accused or

he must have dominion over it. The property in respect of which the offence of

breach of trust has been committed must be either the property of some person

other than the accused or the beneficial interest in or ownership’ of it must be of

some other person. The accused must hold that property on trust of such other

person. Although the offence, i.e. the offence of breach of trust and cheating

involve dishonest intention, yet they are mutually exclusive and different in basic

concept. There is a distinction between criminal breach of trust and cheating. For

cheating, criminal intention is necessary at the time of making a false or

misleading representation i.e., since inception. In criminal breach of trust, mere

proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the

offender is lawfully entrusted with the property, and he dishonestly

misappropriated the same. Whereas, in case of cheating, the offender fraudulently

or dishonestly induces a person by deceiving him to deliver any property. In such

a situation, both the offences cannot co-exist simultaneously.

31. At the most, the court of the Additional Chief Judicial Magistrate could have

issued process for the offence punishable under Section 420 of the IPC i.e.

cheating but in any circumstances no case of criminal breach of trust is made out.

The reason being that indisputably there is no entrustment of any property in the

Criminal Appeal No. 3114 of 2024 Page 25 of 31

case at hand. It is not even the case of the complainant that any property was

lawfully entrusted to the appellants and that the same has been dishonestly

misappropriated. The case of the complainant is plain and simple. He says that

the price of the goods sold by him has not been paid. Once there is a sale, Section

406 of the IPC goes out of picture. According to the complainant, the invoices

raised by him were not cleared. No case worth the name of cheating is also made

out.

32. Even if the Magistrate would have issued process for the offence punishable

under Section 420 of the IPC, i.e., cheating the same would have been liable to

be quashed and set aside, as none of the ingredients to constitute the offence of

cheating are disclosed from the materials on record.

33. It has been held in State of Gujarat v. Jaswantlal Nathalal reported in (1968) 2

SCR 408, “The term “entrusted” found in Section 405 IPC governs not only the

words “with the property” immediately following it but also the words “or with

any dominion over the property” occurring thereafter—see Velji Raghvaji

Patel v. State of Maharashtra [(1965) 2 SCR 429]. Before there can be any

entrustment there must be a trust meaning thereby an obligation annexed to the

ownership of property and a confidence reposed in and accepted by the owner or

declared and accepted by him for the benefit of another or of another and the

owner. But that does not mean that such an entrustment need conform to all the

technicalities of the law of trust — see Jaswantrai Manilal Akhaney v. State of

Criminal Appeal No. 3114 of 2024 Page 26 of 31

Bombay [1956 SCR 483]. The expression “entrustment” carries with it the

implication that the person handing over any property or on whose behalf that

property is handed over to another, continues to be its owner. Further the person

handing over the property must have confidence in the person taking the property

so as to create a fiduciary relationship between them. A mere transaction of sale

cannot amount to an “entrustment””.

34. Similarly, in Central Bureau of Investigation, SPE, SIU(X), New Delhi v.

Duncans Agro Industries Ltd., Calcutta reported in (1996) 5 SCC 591 this Court

held that the expression “entrusted with property” used in Section 405 of the

IPC connotes that the property in respect of which criminal breach of trust can

be committed must necessarily be the property of some person other than the

accused or that the beneficial interest in or ownership thereof must be in the other

person and the offender must hold such property in trust for such other person or

for his benefit. The relevant observations read as under: -

“27. In the instant case, a serious dispute has been raised by

the learned counsel appearing for the respective parties as to

whether on the face of the allegations, an offence of criminal

breach of trust is constituted or not. In our view, the

expression “entrusted with property” or “with any dominion

over property” has been used in a wide sense in Section 405

IPC. Such expression includes all cases in which goods are

entrusted, that is, voluntarily handed over for a specific

purpose and dishonestly disposed of in violation of law or in

violation of contract. The expression ‘entrusted’ appearing in

Section 405 IPC is not necessarily a term of law. It has wide

and different implications in different contexts. It is, however,

necessary that the ownership or beneficial interest in the

Criminal Appeal No. 3114 of 2024 Page 27 of 31

ownership of the property entrusted in respect of which

offence is alleged to have been committed must be in some

person other than the accused and the latter must hold it on

account of some person or in some way for his benefit. The

expression ‘trust’ in Section 405 IPC is a comprehensive

expression and has been used to denote various kinds of

relationships like the relationship of trustee and beneficiary,

bailor and bailee, master and servant, pledger and pledgee.

When some goods are hypothecated by a person to another

person, the ownership of the goods still remains with the

person who has hypothecated such goods. The property in

respect of which criminal breach of trust can be committed

must necessarily be the property of some person other than the

accused or the beneficial interest in or ownership of it must be

in the other person and the offender must hold such property

in trust for such other person or for his benefit. In a case of

pledge, the pledged article belongs to some other person but

the same is kept in trust by the pledgee. [...]”

(Emphasis supplied)

35. The aforesaid exposition of law makes it clear that there should be some

entrustment of property to the accused wherein the ownership is not transferred

to the accused. In case of sale of movable property, although the payment may be

deferred yet the property in the goods passes on delivery as per Sections 20 and

24 respectively of the Sale of Goods Act, 1930.

“20. Specific goods in a deliverable state. — Where there is

an unconditional contract for the sale of specific goods in a

deliverable state, the property in the goods passes to the buyer

when the contract is made and it is immaterial whether the time

of payment of the price or the time of delivery of goods, or both,

is postponed.

xxx xxx xxx

24. Goods sent on approval or “on sale or return”. — When

goods are delivered to the buyer on approval or “on sale or

return” or other similar terms, the property therein passes to

the buyer—

Criminal Appeal No. 3114 of 2024 Page 28 of 31

(a) when he signifies his approval or acceptance to the seller

or does any other act adopting the transaction;

(b) if he does not signify his approval or acceptance to the seller

but retains the goods without giving notice of rejection, then, if

a time has been fixed for the return of the goods on the

expiration of such time, and, if no time has been fixed, on the

expiration of a reasonable time.”

36. From the aforesaid, there is no manner of any doubt whatsoever that in case of

sale of goods, the property passes to the purchaser from the seller when the goods

are delivered. Once the property in the goods passes to the purchaser, it cannot be

said that the purchaser was entrusted with the property of the seller. Without

entrustment of property, there cannot be any criminal breach of trust. Thus,

prosecution of cases on charge of criminal breach of trust, for failure to pay the

consideration amount in case of sale of goods is flawed to the core. There can be

civil remedy for the non-payment of the consideration amount, but no criminal

case will be maintainable for it. [See : Lalit Chaturvedi and Others v. State of

Uttar Pradesh and Another : 2024 SCC OnLine SC 171 & Mideast Integrated

Steels Ltd. (MESCO Steel Ltd.) and Others v. State of Jharkhand and Another :

2023 SCC OnLine Jhar 301]

37. The case at hand falls in category No. 1 as laid in Smt. Nagawwa (supra) referred

to in para 7 of this judgment.

38. If it is the case of the complainant that a particular amount is due and payable to

him then he should have filed a civil suit for recovery of the amount against the

Criminal Appeal No. 3114 of 2024 Page 29 of 31

appellants herein. But he could not have gone to the court of Additional Chief

Judicial Magistrate by filing a complaint of cheating and criminal breach of trust.

39. It appears that till this date, the complainant has not filed any civil suit for

recovery of the amount which according to him is due and payable to him by the

appellants. He seems to have prima facie lost the period of limitation for filing

such a civil suit.

40. In such circumstances referred to above, the continuation of the criminal

proceeding would be nothing but abuse of the process of law.

FINAL CONCLUSION

41. Before we close this matter, we would like to say something as regards the casual

approach of the courts below in cases like the one at hand. The Indian Penal Code

(IPC) was the official Criminal Code in the Republic of India inherited from the

British India after independence. The IPC came into force in the sub-continent

during the British rule in 1862. The IPC remained in force for almost a period of

162 years until it was repealed and replaced by the Bharatiya Nyaya Sanhita

(“BNS”) in December 2023 which came into effect on 1

st

July 2024. It is indeed

very sad to note that even after these many years, the courts have not been able

to understand the fine distinction between criminal breach of trust and cheating.

Criminal Appeal No. 3114 of 2024 Page 30 of 31

42. When dealing with a private complaint, the law enjoins upon the magistrate a

duty to meticulously examine the contents of the complaint so as to determine

whether the offence of cheating or criminal breach of trust as the case may be is

made out from the averments made in the complaint. The magistrate must

carefully apply its mind to ascertain whether the allegations, as stated, genuinely

constitute these specific offences. In contrast, when a case arises from a FIR, this

responsibility is of the police – to thoroughly ascertain whether the allegations

levelled by the informant indeed falls under the category of cheating or criminal

breach of trust. Unfortunately, it has become a common practice for the police

officers to routinely and mechanically proceed to register an FIR for both the

offences i.e. criminal breach of trust and cheating on a mere allegation of some

dishonesty or fraud, without any proper application of mind.

43. It is high time that the police officers across the country are imparted proper

training in law so as to understand the fine distinction between the offence of

cheating viz-a-viz criminal breach of trust. Both offences are independent and

distinct. The two offences cannot coexist simultaneously in the same set of facts.

They are antithetical to each other. The two provisions of the IPC (now BNS,

2023) are not twins that they cannot survive without each other.

44. In view of the aforesaid, the appeal succeeds and is hereby allowed.

45. The impugned order passed by the High Court is set aside so also the order passed

Criminal Appeal No. 3114 of 2024 Page 31 of 31

by the Additional Chief Judicial Magistrate, Khurja, Bulandshahar taking

cognizance upon the complaint.

46. Pending applications, if any, shall stand disposed of.

47. We direct the Registry to send one copy each of this judgment to the Principal

Secretary, Ministry of Law & Justice, Union of India and also to the Principal

Secretary, Home Department, Union of India.

.......................................................... J.

(J.B. Pardiwala)

.......................................................... J.

(Manoj Misra)

New Delhi;

23

rd

August, 2024.