2026 INSC 772

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REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. OF 2026

(Arising out of Special Leave Petition (Criminal) No.10294 of 2025)

G. SAMINATHAN & AN OTHER … APPELLANTS

VERSUS

THE STATE, REPRESENTED BY THE

SUB-INSPECTOR OF POLICE & AN OTHER … RESPONDENTS

J U D G M E N T

NAGARATHNA, J.

Leave granted.

2. The present criminal appeal arises out of the impugned order

dated 28.03.2025, passed by the High Court of Judicature at

Madras in Crl. O.P No.15131 of 2023 refusing to quash the

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proceedings in C.C. No.2776 of 2023 pending on the file of the

Metropolitan Magistrate for Special Court CCB, CBCID, Egmore,

Chennai (hereinafter referred to as “trial court”) against the

appellants herein under Sections 406, 420 read with Sections 109

and 34 of the Indian Penal Code, 1860 (for short “IPC”).

3. Briefly stated, the facts of the case are that respondent No.2

(hereinafter referred to as the “complainant”) is the Joint Managing

Director and authorised representative of M/s Barath Building

Construction (India) Pvt. Ltd., (hereinafter referred to as the

“construction company”), which is involved in the business of

property development. Appellant Nos.1 and 2 herein, namely G.

Saminathan and his wife S. Radhika Malini (hereinafter referred to

as the “accused”) are the owners of vacant land bearing Old Plot

No.B-1, New Plot No.30A, admeasuring 0.50 acres and Old Plot

No.B-2, New Plot No.31, admeasuring 0.50 acres, totalling 43,560

square feet comprised in Survey No.602/13 , situated at

Sholinganallur village and Taluk, Kancheepuram District

(hereinafter referred to as the “disputed property”). The disputed

property formed part of a layout known as Classic Retreat located

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at 1

st Main Road, Sholinganallur, Chennai and was originally

purchased by the accused under sale deeds dated 31.05.1996 and

12.08.1996.

3.1 On 23.05.2012, an unregistered Joint Development

Agreement was executed between the appellants-accused and the

respondent No.2-complainant for the construction, development

and promotion of the disputed property into residential flats. On

the same date, the accused executed a General Power of Attorney

(for short “GPA”) bearing Document No.711 of 2012 in favour of the

complainant. Subsequent to the execution of the GPA, the

complainant, in terms of Clause 4(b) of the Joint Development

Agreement, paid a refundable security to the tune of

Rs.3,00,00,000/- (Rupees three crore) to the appellants-accused,

through two cheques.

3.2 Thereafter, the construction company submitted a Planning

Permission Application to the Member Secretary of the Chennai

Metropolitan Development Authority (hereinafter referred to as the

“Development Authority”) for the construction of a basement floor,

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stilt floor and a four-storey residential building on the disputed

property. The Member Secretary of the Development Authority, by

way of a letter bearing No.B1/13485/2012 dated 26.08.2013,

rejected the Permission Application on the ground that the

disputed property was part of an unapproved layout. The relevant

portion of the said letter is reproduced as follows:

“The Planning permission application received in the

reference cited has been examined and observed the

following defects/violations.

1) The Sale under reference forms part of an

unapproved layout made after 31.12.1989. Hence the site

under reference is not regularisable.

2) Qualifying public road to a length of 250 meters was

not established.

In view of above, your planning permission Application is

Prima-facie returned herewith unapproved.”

3.3 Subsequently, the complainant became aware that on

05.01.2018, that the appellants-accused had cancelled the GPA

executed in favour of the respondent-complainant vide Document

No.116 of 2018 and had, on the very same day, sold the disputed

property to one Smt. Banumathi by way of Sale Deed bearing

Document No.117 of 2018.

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3.4 On 09.01.2018, a written complaint was filed by the

complainant against the accused before the Commissioner of

Police, Chennai. The allegations in the said complaint are

crystallised hereunder:

i) The Joint Development Agreement was entered into by

the complainant on the assurance by the accused-

owners that the disputed property was free from all

encumbrances, and that there would not be any

hindrance in obtaining a planning permission and

developing the property.

ii) After the payment of the refundable security to the

accused, in terms of the Joint Development

Agreement, a registered GPA dated 23.05.2012 with

respect to the disputed property was executed in

favour of the complainant, and subsequently,

possession of the disputed property, as well as the

original title documents were also handed over to the

complainant.

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iii) In furtherance of the development agreement, the

construction company had levelled the disputed

property by filling up to 5 feet; raised compound walls;

installed a sign board; engaged security personnel and

also submitted an application seeking planning

permission before the Chennai Metropolitan

Development Authority.

iv) It was only when the aforesaid permission was sought

that it came to light that the disputed property formed

part of an unapproved layout plan and suffered from

legal flaws which the accused-owners had suppressed

at the time of the execution of the agreement.

v) The Joint Development Agreement entered into

between the parties was never cancelled by the

complainant and attempts were made to obtain

approval from the statutory authority. The accused

also kept reassuring the complainant that the flaws

would be cleared by them in a short span of period.

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vi) However, later it came to light that the accused-

owners, in collusion and connivance with one Smt.

Banumathi, illegally and unilaterally cancelled the

GPA executed in favour of the complainant on

05.01.2018, without any prior intimation and on the

same date sold the disputed property to her for a

valuable sale consideration.

vii) In fact, the property was sold by the accused during

the subsistence of the binding Joint Development

Agreement.

viii) The sale of the disputed property in favour of Smt.

Banumathi could not have been legally effected when

the original title deeds were in the custody of the

complainant.

ix) As per the Joint Development Agreement, the GPA was

a sine qua non for execution of the Agreement and

therefore, the GPA could not have been cancelled or

rescinded.

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x) The construction company incurred a huge loss to the

tune of Rs.10,00,00,000/- (Rupees ten crore) in the

development of the disputed property within a period

of five years.

xi) Thus, the accused-owners in collusion with each other

with a dishonest intention of cheating the complainant

illegally cancelled the GPA and executed a sale deed in

favour of a third party.

3.5 Pertinently, on the same day i.e. on 09.01.2018, the

appellants-accused had issued a legal notice to the complainant

demanding the handover of all the original title documents and for

receiving repayment of the refundable security deposit of

Rs.3,00,00,000/- (Rupees three crore). By way of reply dated

17.01.2018, the complainant refused to accept the offer of refund.

3.6 Meanwhile, since the complaint filed before the Commissioner

of Police was closed, an application under Section 156(3) of the

Code of Criminal Procedure, 1973 (for short “CrPC”) was preferred

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by the complainant before trial court for registration of FIR based

on the allegations contained in the written complaint.

3.7 Subsequent to the order dated 09.09.2021 passed by the trial

court, directing registration of FIR, on 06.10.2021, P.S. Central

Crime Branch-I, District Chennai-CCB, registered FIR No.181 of

2021 against the appellants-accused and Smt. Banumathi under

Sections 406 and 420 of IPC.

3.8 Initially, the appellants-accused had filed a petition bearing

Crl. O.P. No.19953 of 2021 before the High Court seeking quashing

of FIR No.181 of 2021 registered against them. However, during the

pendency of the aforesaid petition , a chargesheet dated

23.03.2023, came to be filed before the trial court, against the

appellants-accused under Sections 406, 402 read with Sections

109 and 34 of IPC. Subsequently, the criminal machinery was set

in motion against the appellants -accused herein, with the

committal of criminal case bearing C.C. No.2776 of 2023 before the

trial court.

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3.9 Since the aforementioned petition bearing Crl. O.P. No.19953

of 2021 filed before the High Court for quashing of FIR No.181 of

2021 had become infructuous subsequent to the filing of the

chargesheet and the same was dismissed by the High Court by

order dated 09.06.2023.

3.10 Thereafter, the appellants-accused filed another petition

bearing Crl. O.P. No.15131 of 2023 before the High Court for

quashing of the proceedings in C.C. No.2776 of 2023 pending

before the trial court. By way of the impugned judgment and final

order dated 28.03.2025, the High Court refused to quash the

criminal proceedings pending against the appellants-accused. The

High Court, while taking note of the counter affidavit filed by the

complainant, recorded that the accused, being the owners of the

disputed property, were aware that it was an unapproved property

and thus, with the said knowledge, they entered into a Joint

Development Agreement with the complainant and received a sum

of Rs.3,00,00,000/- (Rupees three crore) as a refundable security

deposit. Later, the planning permission sought by the construction

company came to be rejected by the Development Authority on the

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ground that the layout of the disputed property was an unapproved

one. Since the permission was rejected, the complainant made

repeated requests to the accused for return of the security deposit;

however, the same was never returned. Subsequently, on

05.01.2018, the accused unilaterally cancelled the GPA executed

in favour of the complainant without any notice or without consent

from him. In complete disregard of the fact that the construction

company, in furtherance of the development agreement, had

started developing the property by putting up a compound wall in

and around the disputed property and had spent around

Rs.1,50,00,000/- (Rupees one crore fifty lakhs) for the same, the

accused after unilaterally cancelling the power of attorney

proceeded to sell the disputed property to a third party on the same

day. It was only after effecting the sale in favour of the third party

that the accused, as a means to escape from the clutches of law,

sent a legal notice along with copies of the demand drafts of the

refundable security amount. Thus, it was clear that from the very

inception, the accused had an intention to cheat the complainant

by entering into a Joint Development Agreement in respect of an

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unapproved property with complete awareness of the fact that the

planning permission would not be granted. Moreover, after

entering into the development agreement, the accused received

Rs.3,00,00,000/- (Rupees three crore) as a refundable security

deposit.

3.11 In the above backdrop, the Court arrived at an authoritative

finding that the offences under Sections 406 and 420 of IPC were

made out against the accused. Further, in view of the nature of the

allegations made against the accused and having regard to the fact

that the veracity of the allegations and counter-allegations by the

accused and the complainant should be tested at the stage of trial,

the High Court was of the view that the case did not warrant any

interference. Being aggrieved, the appellants-accused have

preferred the instant criminal appeal.

4. We have heard learned counsel for the appellants and

respondent no.2-complainant, as well as learned counsel

appearing for the State.

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4.1 Learned counsel for the appellants-accused contended that

the FIR and chargesheet in the present case reveal grievances of

respondent No.2-complainant, which are completely contractual in

nature arising out of the Joint Development Agreement, defective

title of the subject property non-grant of planning permission,

cancellation of GPA, sale of property and refund of money. It was

submitted that the said issues have already been adjudicated upon

in the arbitration proceedings invoked by the appellants-accused

by an award dated 12.04.2023 , whereby respondent No.2-

complainant was directed to return all the original title documents

in respect of the disputed property and the appellants-accused

were directed to return the security deposit of Rs.3,00,00,000/-

(Rupees three crore) to respondent No.2-complainant.

4.2 It was argued that respondent No.2-complainant admitted to

not carrying out any comprehensive due diligence before entering

into the agreement, despite Clause 6 of the Joint Development

Agreement, which placed the onus on the construction company to

carry out due diligence and obtain a legal opinion. Therefore, the

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subsequent failure to obtain planning permission could not be

attributed to the appellants.

4.3 Learned counsel for the appellants -accused further

submitted that there was no allegation at the time of execution of

the Joint Development Agreement that they had a fraudulent or

dishonest intention to cheat respondent No.2-complainant. In fact,

the record demonstrates that both parties actively pursued the

project and the venture failed only at a subsequent stage for which

the appellants-accused could not be faulted.

4.4 It was contended that the present criminal proceeding

instituted against the appellants-accused is a classic example of

an attempt to give a criminal colour to a purely civil dispute and

that mere breach of contractual obligations or non-payment of

money per se does not constitute offences of cheating or criminal

breach of trust.

4.5 Learned counsel for the appellants-accused emphatically

argued that there was an unexplained delay of eight years in the

filing of the FIR and that the same was an afterthought, having

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been filed after respondent No.2-complainant suffered adverse

orders in the arbitration proceedings.

4.6 It was submitted that upon a collective reading of the Joint

Development Agreement, it could be gathered that the clauses in

the said agreement allocated commercial risks and obligations for

approvals, title and development . Thus, the respondent -

complainant ought to have carried out due diligence and obtained

approvals, and the appellants-accused were to cooperate and

provide documents/affidavits. Even otherwise, by no stretch of

imagination, failure on the part of the appellants to honour their

contractual covenants could constitute the offences under Sections

406 and 420 of IPC.

4.7 Learned counsel for the appellants-accused submitted that

respondent No.2-complainant has challenged the award passed by

the arbitrator by filing a petition under Section 34 of the Arbitration

and Conciliation Act, 1996 (for short “Arbitration Act”) and thus is

actively pursuing civil remedies contemplated under the Joint

Development Agreement and the Arbitration Act in respect of the

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very same subject matter that underlies the FIR in question.

Moreover, if respondent No.2-complainant was dissatisfied with

any other monetary relief or damages due to him apart from the

refundable security deposit, it was argued that the proper recourse

would have been to avail civil remedies rather than initiating

parallel criminal proceedings on the same substratum of facts.

5. Per contra, learned counsel appearing for respondent No.2-

complainant submitted that the impugned judgment passed by the

High Court does not call for any interference inasmuch as the

present appeal does not raise any substantial question of law but

merely attempts to re-agitate the issues already dealt with by the

High Court.

5.1 It was further argued that the appellants-accused dishonestly

misappropriated the refundable security deposit of

Rs.3,00,00,000/- (Rupees three crore) by retaining it even after the

Development Authority rejected the planning permission; the

project was impossible to execute; the accused themselves

requested the cancellation of the Joint Development Agreement.

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Moreover, the appellants-accused proceeded to sell the disputed

property to Smt. Banumathi without refunding a single rupee to

respondent No.2-complainant.

5.2 Highlighting appellants’ intention to cheat and cause

wrongful loss to the construction company, it was submitted that

the appellants-accused were in ownership of the disputed property

since 1996 i.e. for more than sixteen years and despite the

knowledge about unapproved layout, at the time of entering into

the contract, they made affirmative and unambiguous

representations that the disputed property had a clear marketable

title, free from encumbrances and suitable for residential

development. It was only based on these representations and

assurances that the construction company entered into the Joint

Development Agreement and parted with Rs.3,00,00,000/-

(Rupees three crore) towards security deposit.

5.3 It was further submitted that, despite being in custody of the

original title documents of the disputed property, the appellants-

accused proceeded to sell the said property in favour of Smt.

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Banumathi, and the said conduct, in conjunction with the

surrounding circumstances, clearly showed their dishonest

intention and the fraudulent inducement from the very inception.

5.4 Rebutting the argument of the appellants-accused, learned

counsel for respondent No.2-complainant submitted that,

undisputedly, when there is evidence of dishonest intention and

clear prima facie allegations of mens rea and fraudulent

inducement from the inception, then even though the matter

transcends to a civil dispute, it must be tried as a criminal case.

5.5 It was further argued that there was no delay in filing the

FIR, and such a defence taken by the appellants was wholly

misconceived inasmuch as the criminal complaint was filed on

09.01.2018, the same day when the complainant became aware of

the clandestine sale of the disputed property to Smt. Banumathi.

Thereafter, the period between 2018 and 2021 involved pursuing

statutory remedies, including police complaints, High Court

proceedings and obtaining a Magistrate’s order under Section

156(3) of CrPC for registration of FIR. Suppressing these material

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facts, the appellants-accused were attempting to mischaracterise

the legitimate legal process as a delay.

6. Before examining the facts of the present case, we deem it

necessary to refer to the offences under the IPC invoked against the

appellants-accused herein. For ease of reference the said

provisions are extracted as hereunder:

6.1 Section 405 of IPC defines the offence of criminal breach of

trust in the following manner:

“405. Criminal breach of trust.—Whoever, being in any

manner entrusted with property, or with any dominion

over property, dishonestly misappropriates or converts to

his own use that property, or dishonestly uses or disposes

of that property in violation of any direction of law

prescribing the mode in which such trust is to be

discharged, or of any legal contract, express or implied,

which he has made touching the discharge of such trust,

or wilfully suffers any other person so to do, commits

“criminal breach of trust”.

Note: Explanations 1 and 2 to Section 405 are not relevant

for the purpose of this case.

The offence under Section 405 of IPC is made punishable under

Section 406, which reads as follows:

“406. Punishment for criminal breach of trust .—

Whoever commits criminal breach of trust shall be

punished with imprisonment of either description for a

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term which may extend to three years, or with fine, or with

both.”

6.2 Section 420 of IPC provides for the offence of cheating and

dishonestly inducing the delivery of property. For attracting the

offence under Section 420 of IPC, the essential ingredients of the

offence of cheating enumerated in Section 415 of IPC have to be

satisfied. The said provisions are extracted as under:

“415. Cheating.—Whoever, by deceiving any person,

fraudulently or dishonestly induces the person so deceived

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

any person shall retain any property, or intentionally

induces the person so deceived to do or omit to do anything

which he would not do or omit if he were not so deceived,

and which act or omission causes or is likely to cause

damage or harm to that person in body, mind, reputation

or property, is said to “cheat”.

Explanation.—A dishonest concealment of facts is a

deception within the meaning of this section.

xxx

420. Cheating and dishonestly inducing delivery of

property.—Whoever cheats and thereby dishonestly

induces the person deceived to deliver any property to any

person, or to make, alter or destroy the whole or any part

of a valuable security, or anything which is signed or

sealed, and which is capable of being converted into a

valuable security, shall be punished with imprisonment of

either description for a term which may extend to seven

years, and shall also be liable to fine.”

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6.3 Section 109 of IPC deals with the punishment for abetment

of an act or an offence. The said provision reads as follows:

“109. Punishment of abetment if the act abetted is

committed in consequence and where no express

provision is made for its punishment.—Whoever abets

any offence shall, if the act abetted is committed in

consequence of the abetment, and no express provision is

made by this Code for the punishment of such abetment,

be punished with the punishment provided for the offence.

Explanation.—An act or offence is said to be committed in

consequence of abetment, when it is committed in

consequence of the instigation, or in pursuance of the

conspiracy, or with the aid which constitutes the

abetment.”

6.4 Section 34 of IPC talks about common intention and reads

as follows:

“34. Acts done by several persons in furtherance of

common intention.— When a criminal act is done by

several persons in furtherance of the common intention of

all, each of such persons is liable for that act in the same

manner as if it were done by him alone.”

7. Upon a plain reading of the aforesaid provisions, the following

principles can be discerned:

7.1 Section 406 of IPC , as extracted above, prescribes

punishment for criminal breach of trust, which may extend to three

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years imprisonment or with fine or with both, when the ingredients

of Section 405 of IPC are satisfied. Thus, for Section 406 of IPC to

get attracted, there must be a criminal breach of trust in terms of

Section 405 of IPC. The essential ingredients for invoking Section

405 of IPC are as follows:

(a) the accused was entrusted with property, or entrusted

with dominion over property;

(b) the accused had dishonestly misappropriated or

converted to their own use that property, or

dishonestly used or disposed of that property or

wilfully suffer any other person to do so; and

(c) such misappropriation, conversion, use or disposal

should be in violation of any direction of law

prescribing the mode in which such trust is to be

discharged, or of any legal contract which the person

has made, touching the discharge of such trust.

In other words, for the invocation of the offence of criminal

breach of trust, it is expedient that the use or disposal of the

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property is made by a person entrusted with or who has dominion

over the property. Furthermore, such an act must not only be done

dishonestly but also in violation of any direction of law or any

contract, express or implied, relating to carrying out the trust.

7.2 For the invocation of Section 420 of IPC, which provides for

cheating and dishonestly inducing the delivery of property, the

ingredients of Section 415 of IPC have to be established. To

constitute the offence under Section 415 of IPC, it is essential that,

by way of certain acts, a fraudulent or dishonest inducement is

made and the person so deceived was made to deliver any property

on account of such inducement. The said provision lays down two

separate classes of acts which the person deceived may be induced

to do, as follows:

i) In the first class of acts he may be induced

fraudulently or dishonestly to deliver the property to

any person or consent that any person shall retain any

property.

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ii) The second class of acts set forth in the Section is the

intentional inducement of doing or omitting to do

anything which the person deceived would not do or

omit to do if he were not so deceived.

7.3 While explaining the contours of the said provision, this Court

in Deepak Gaba vs. State of U.P., (2023) 3 SCC 423 observed

that the sine qua non of Section 415 of IPC is “fraudulence”,

“dishonesty”, or “intentional inducement” and that the absence of

the said elements would debase the offence of cheating.

8. Now coming to the facts of the present case, the complainant

has alleged that the accused continued to retain the refundable

security deposit even after the planning permission was rejected by

the development authority and the project had failed. It was also

alleged that, in furtherance of the dishonest intention and despite

being bound by the Joint Development Agreement , the accused

sold off the disputed property to a third party while not even a

single rupee of the refundable security deposit was returned. Thus,

the accused committed the offence of criminal breach of trust as

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defined under Section 405 of IPC. As discussed above, to constitute

the offence under Section 405 of IPC, it must be proved that the

accused was entrusted with the property and the property so

entrusted was misappropriated, converted or disposed of by the

accused with a dishonest intention and in contravention of any law

or legal contract prescribing the mode in which such trust was to

be discharged. In the present case, mere payment of a refundable

security deposit by the complainant to the accused cannot be

treated as entrustment of property inasmuch as the same was paid

as a consideration in lieu of the execution of GPA in favour of the

complainant. Even otherwise the FIR as well as the chargesheet in

question are silent on the method and mode in which the

appellants-accused misappropriated, converted, or disposed of the

so-called entrusted property in the form of refundable security

deposit for their own use to the disadvantage of the complainant in

contravention of the Joint Development Agreement. Furthermore,

a perusal of the legal notice dated 09.01.2018 issued by the

accused reveals that the complainant was called upon to return

the original title deeds pertaining to the disputed property and to

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receive the refundable security deposit lying with the accused. In

view of the aforesaid circumstances, we are prima facie of the view

that the allegation of dishonest intention on the part of the accused

to retain the refundable security deposit and cause wrongful loss

to the complainant is untenable. Therefore, a mere bald and

omnibus allegation against the accused with regard to their

dishonest intention to misappropriate the refundable security

deposit, uncorroborated with any cogent material, cannot by itself

sustain the charge under Section 405 of IPC against them.

8.1 In this regard, we find it apposite to refer to this Court’s

decision in Binod Kumar vs. State of Bihar, (2014) 10 SCC 663

wherein it considered a criminal complaint arising out of retention

of bill amount in the course of a commercial transaction and found

that the essential ingredients of criminal breach of trust or

dishonest intention of inducement, which formed the foundation of

the complaint missing. The relevant portion of the judgment reads

as follows:

“18. In the present case, looking at the allegations in the

complaint on the face of it, we find that no allegations are

made attracting the ingredients of Section 405 IPC.

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Likewise, there are no allegations as to cheating or the

dishonest intention of the appellants in retaining the

money in order to have wrongful gain to themselves or

causing wrongful loss to the complainant. Excepting the

bald allegations that the appellants did not make payment

to the second respondent and that the appellants utilised

the amounts either by themselves or for some other work,

there is no iota of allegation as to the dishonest intention

in misappropriating the property. To make out a case of

criminal breach of trust, it is not sufficient to show that

money has been retained by the appellants. It must also

be shown that the appellants dishonestly disposed of the

same in some way or dishonestly retained the same. The

mere fact that the appellants did not pay the money to the

complainant does not amount to criminal breach of trust.”

(underlining by us)

8.2 On a prima facie view of the allegations contained in the FIR

and the chargesheet, it appears that the complainant has

attempted to hold the accused persons criminally liable for breach

of a contract. This court in Hridaya Ranjan Prasad Verma v s.

State of Bihar, (2000) 4 SCC 168, held that a mere breach of

contract cannot give rise to criminal prosecution unless a

fraudulent and dishonest intention of the accused is proved from

the very inception of the transaction. The relevant portion of the

judgment reads as follows:

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“15. In determining the question it has to be kept in mind

that the distinction between mere breach of contract and

the offence of cheating is a fine one. It depends upon the

intention of the accused at the time of inducement which

may be judged by his subsequent conduct but for this

subsequent conduct is not the sole test. Mere breach of

contract cannot give rise to criminal prosecution for

cheating unless fraudulent or dishonest intention is

shown right at the beginning of the transaction, that is the

time when the offence is said to have been committed.

Therefore it is the intention which is the gist of the offence.

To hold a person guilty of cheating it is necessary to show

that he had fraudulent or dishonest intention at the time

of making the promise. From his mere failure to keep up

promise subsequently such a culpable intention right at

the beginning, that is, when he made the promise cannot

be presumed.”

8.3 The aforesaid dictum was reiterated by this Court in the case

of Dalip Kaur vs. Jagnar Singh, (2009) 14 SCC 696, wherein it

was held as under:

“10. The High Court, therefore, should have posed a

question as to whether any act of inducement on the part

of the appellant has been raised by the second respondent

and whether the appellant had an intention to cheat him

from the very inception. If the dispute between the parties

was essentially a civil dispute resulting from a breach of

contract on the part of the appellants by non-refunding the

amount of advance the same would not constitute an

offence of cheating. Similar is the legal position in respect

of an offence of criminal breach of trust having regard to

its definition contained in Section 405 of the Penal Code.”

(underlining by us)

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8.4 It is trite law that for establishing the offence of cheating, the

complainant was required to show that the accused had a

fraudulent or dishonest intention at the time of making a promise

or representation of not fulfilling the joint development agreement.

Such a culpable intention right at the beginning when the promise

was made cannot be presumed but has to be made out with cogent

facts. In the present case, the accused and the complainant

entered into an unregistered Joint Development Agreement on

23.05.2012 with the objective of carrying out construction,

development and promotion of the disputed property into

residential flats. For the said purpose, the accused executed a GPA

bearing Document No.711 of 2012 in favour of the complainant,

and on the same day, the complainant, by way of two cheques, paid

a refundable security deposit to the accused in terms of the

development agreement. Thus, it cannot be said that the accused

at the time of entering into the agreement had a fraudulent and

dishonest intention to induce the complainant to part with the

refundable security deposit inasmuch as both parties, pursuant to

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the execution of the development agreement, acted with the

intention of performing their respective contractual obligations. It

is only when the planning permission application sought by the

complainant came to be rejected that the project was stalled. The

complainant has alleged that the accused had knowledge that the

disputed property was part of an unapproved layout, yet they

suppressed the said fact from the complainant at the time of

entering into the Joint Development Agreement. It is trite that

before entering into a venture, the developer ought to conduct a

comprehensive due diligence of the land sought to be developed. In

the present case, the complainant failed to carry out a

comprehensive due diligence before entering into the joint

development agreement with the accused. In the aforesaid

circumstances, any subsequent defects or legal flaws with respect

to the disputed property could not have been used by the

complainant as a means to criminally prosecute the accused-

owners.

8.5 We therefore find force in the argument advanced by the

learned counsel for the accused that the inability of the

31

complainant to obtain planning permission from the development

authority cannot give rise to criminal prosecution against the

accused inasmuch as their obligation was limited to furnishing the

required documents for the complainant to apply before the

Development Authority. Furthermore, viewed in the backdrop of

the totality of the circumstances, the mere allegation that the

disputed property was subsequently sold to a third party, by itself,

does not prima facie disclose the commission of the offence of

cheating. We are therefore of the prima facie view that the

allegations against the accused in the FIR as well as the

chargesheet do not satisfy the ingredients for constituting the

offence of cheating as defined under Section 415 of IPC.

8.6 We find that at this juncture, it would be useful to refer to the

judgment of this Court in Delhi Race Club (1940) Ltd. vs. State

of U.P., (2024) 10 SCC 690, (“Delhi Race Club”) wherein it was

held that offences of cheating and criminal breach of trust cannot

be sustained on the same set of allegations. The relevant portion of

the judgment is reproduced as under:

32

“40. 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.

41. 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 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.

42. 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.

43. 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

33

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 misappropriates 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.”

8.7 In the present case, the prosecution has alleged that

Rs.3,00,00,000/- (Rupees three crore) paid by the complainant to

the accused persons as a refundable security deposit constituted

entrustment of property and that the said amount was dishonestly

misappropriated by the accused as they continued to retain it after

the Development Authority had rejected their planning permission

and even after the accused had fraudulently sold the disputed

property to a third party. It is alleged that the same was in

complete disregard of the contractual obligations of the accused

enumerated in the Joint Developm ent Agreement. Thus, the

accused committed the offence of criminal breach of trust. In

addition to this, the prosecution has also alleged that the accused

committed the offence of cheating by misrepresenting to the

complainant that the disputed property wa s free from all

34

encumbrances, which, in fact, the accused, from the very inception

of the Agreement, knew was false. Thus, based on the said false

representation coupled with a dishonest intention, the accused

induced the complainant to part with the refundable security

deposit.

8.8 This Court, in the case of Delhi Race Club, while explaining

the difference between the offences of criminal breach of trust and

cheating, observed that to constitute the offence of cheating, it has

to be sufficiently proved that the offender fraudulently or

dishonestly induced a person by deceiving him to deliver any

property and that the said dishonest intention was from the very

inception of the transaction. Whereas, in the case of criminal

breach of trust, what is to be proved is the act of dishonest

misappropriation of the property which the offender was legally

entrusted with, but illegally misappropriated or converted it to his

own use against the terms of the contract. Thus, in view of the

aforesaid fundamental distinction between the offences of criminal

breach of trust and cheating, this Court in the abovementioned

case observed that both the offences cannot co-exist simultaneously.

35

On a careful perusal of both the provisions as well as the aforesaid

dictum of this Court, we find that with regard to the same property

and on the same set of facts, the offences of criminal breach of trust

and cheating cannot be sustained as against the accused. We say

so because, on one hand, the prosecution alleges that the

refundable security deposit was lawfully entrusted to the accused

by the complainant, which the accused continued to retain even

after the project had failed and after the disputed property was sold

by them to a third party. On the other hand, it is also alleged that

the accused cheated the complainant by inducing him to part with

Rs.3,00,00,000/- (Rupees three crore) as refundable security

based on a false representation that the disputed property was free

from all encumbrances. In other words, the allegation by the

prosecution is that the accused was entrusted with the refundable

security deposit, which he later on dishonestly misappropriated

and the allegation that the accused, with a dishonest intention,

induced the complainant to part with the refundable security

deposit based on a false representation, are not tenable on the

same substratum of facts. If there was a lawful entrustment of

36

Rs.3,00,00,000/- (Rupees three crore) to the accused under the

Joint Development Agreement, it cannot be a case of cheating and

if so, the non-return of the amount by the accused as the plan

sanction was not granted is not a case of criminal breach of trust.

The dispute between the parties is essentially civil in nature. The

subsequent sale of the subject property by the accused to a third

party may give rise to a cause of action on the civil side to the

complainant but not a case of cheating or criminal breach of trust

as the said act of sale per se is not a criminal act.

8.9 Thus, on perusal of the material on record as well as from the

aforesaid discussion, we hold that continuation of criminal

proceedings instituted against the accused by the complainant

would be nothing but a sheer abuse of the process of law inasmuch

as on a consideration of the allegations, none of the offences

invoked in the FIR as well as the chargesheet appear to be made

out against the accused.

37

8.10 This Court in Indian Oil Corporation vs. NEPC India Ltd.,

(2006) 6 SCC 736, while taking judicial notice of the surge of civil

disputes being given a criminal flavour, observed as follows:

“13. While on this issue, it is necessary to take notice of a

growing tendency in business circles to convert purely civil

disputes into criminal cases. This is obviously on account

of a prevalent impression that civil law remedies are time

consuming and do not adequately protect the interests of

lenders/creditors. Such a tendency is seen in several

family disputes also, leading to irretrievable breakdown of

marriages/families. There is also an impression that if a

person could somehow be entangled in a criminal

prosecution, there is a likelihood of imminent settlement.

Any effort to settle civil disputes and claims, which do not

involve any criminal offence, by applying pressure through

criminal prosecution should be deprecated and

discouraged. In G. Sagar Suri v. State of U.P. [(2000) 2

SCC 636 : 2000 SCC (Cri) 513] this Court observed: (SCC

p. 643, para 8)

“It is to be seen if a matter, which is essentially of

a civil nature, has been given a cloak of criminal

offence. Criminal proceedings are not a short cut

of other remedies available in law. Before issuing

process a criminal court has to exercise a great

deal of caution. For the accused it is a serious

matter. This Court has laid certain principles on

the basis of which the High Court is to exercise its

jurisdiction under Section 482 of the Code.

Jurisdiction under this section has to be exercised

to prevent abuse of the process of any court or

otherwise to secure the ends of justice.”

14. While no one with a legitimate cause or grievance

should be prevented from seeking remedies available in

38

criminal law, a complainant who initiates or persists with

a prosecution, being fully aware that the criminal

proceedings are unwarranted and his remedy lies only in

civil law, should himself be made accountable, at the end

of such misconceived criminal proceedings, in accordance

with law. One positive step that can be taken by the courts,

to curb unnecessary prosecutions and harassment of

innocent parties, is to exercise their power under Section

250 CrPC more frequently, where they discern malice or

frivolousness or ulterior motives on the part of the

complainant. Be that as it may.”

9. We have given our careful consideration to the submissions

advanced by the learned counsel for the respective parties as well

as the material placed on record and analysed the same. In our

view, the complainant in the present case has sought to give a

criminal colour to a purely civil dispute. We must also hasten to

add that the accused, in terms of the joint development agreement,

has already invoked the arbitration clause, and an arbitral award

dated 12.04.2023 has already been passed by the learned

arbitrator determining the liabilities of both parties in terms of their

contractual obligations. Moreover, the said award has been

challenged under Section 34 of the Arbitration Act by the

complainant. Thus, while the parties in the present case are also

pursuing their civil remedies, we find that it will be in complete

39

disregard of the criminal justice system to permit the continuation

of criminal prosecution against the accused herein for the offences

under Section 406 and 420 of IPC. This aspect of the matter has

not been noticed by the High Court.

9.1 At this juncture, we find it expedient to refer to the judgment

in the case State of Haryana vs. Bhajan Lal, 1992 Supp (1) SCC

335, (“Bhajan Lal”) wherein this Court enumerated the categories

of cases warranting the exercise of extraordinary judicial powers

under Article 226 of the Constitution of India or the inherent

powers under Section 482 of CrPC by the courts either to prevent

the abuse of the process of law or otherwise to secure the ends of

justice. The relevant para 102 of the said judgment reads as

follows:

“102. In the backdrop of the interpretation of the various

relevant provisions of the Code under Chapter XIV and of

the principles of law enunciated by this Court in a series

of decisions relating to the exercise of the extraordinary

power under Article 226 or the inherent powers under

Section 482 of the Code which we have extracted and

reproduced above, we have given the following categories

of cases by way of illustration wherein such power could

be exercised either to prevent abuse of the process of any

court or otherwise to secure the ends of justice, though it

may not be possible to lay down any precise, clearly

40

defined and sufficiently channelised and inflexible

guidelines or rigid formulae and to give an exhaustive list

of myriad kinds of cases wherein such power should be

exercised.

(1) Where the allegations made in the first information

report or the complaint, even if they are taken at their

face value and accepted in their entirety do not prima

facie constitute any offence or make out a case against

the accused.

(2) Where the allegations in the first information report

and other materials, if any, accompanying the FIR do

not disclose a cognizable offence, justifying an

investigation by police officers under Section 156(1) of

the Code except under an order of a Magistrate within

the purview of Section 155(2) of the Code.

(3) Where the uncontroverted allegations made in the FIR

or complaint and the evidence collected in support of

the same do not disclose the commission of any

offence and make out a case against the accused.

(4) Where, the allegations in the FIR do not constitute a

cognizable offence but constitute only a non -

cognizable offence, no investigation is permitted by a

police officer without an order of a Magistrate as

contemplated under Section 155(2) of the Code.

(5) Where the allegations made in the FIR or complaint

are so absurd and inherently improbable on the basis

of which no prudent person can ever reach a just

conclusion that there is sufficient ground for

proceeding against the accused.

(6) Where there is an express legal bar engrafted in any of

the provisions of the Code or the concerned Act (under

which a criminal proceeding is instituted) to the

institution and continuance of the proceedings and/or

41

where there is a specific provision in the Code or the

concerned Act, providing efficacious redress for the

grievance of the aggrieved party.

(7) Where a criminal proceeding is manifestly attended

with mala fide and/or where the proceeding is

maliciously instituted with an ulterior motive for

wreaking vengeance on the accused and with a view to

spite him due to private and personal grudge.”

9.2 We find that the categories (1), (3), (5) and (7) enlisted in

Bhajan Lal are squarely applicable to the facts of the present case,

making it a fit case for quashing of the criminal proceedings

pending against the accused. Therefore, the High Court, by way of

the impugned judgment and final order dated 28.03.2025, erred in

dismissing the quashing petition filed by the accused. The High

Court overlooked the fact that the allegations in the FIR and the

chargesheet did not prima facie make out the offences under

Section 406 and 420 of IPC. In fact, the allegations on the face of

it point to a purely civil dispute between the parties.

9.3 We, therefore, set aside the judgment and final order dated

28.03.2025 passed by the High Court in Crl. O.P No.15131 of 2023.

Consequently, the said petition filed under Section 482 of CrPC

42

stands allowed and all consequential proceedings emanating from

FIR No.181 of 2021, including chargesheet dated 23.03.2023 as

well as the criminal case bearing C.C. No.2776 of 2023 pending on

the file of the Metropolitan Magistrate for Special Court CCB,

CBCID, Egmore, Chennai against the appellants -accused under

Sections 406, 420 read with Sections 109 and 34 of IPC are hereby

quashed.

9.4 It is needless to observe that the findings and observations

made by this Court in the instant appeal will not come in the way

of the parties pursuing appropriate civil remedies, and the same

shall be decided on its own merits and in accordance with law.

10. The appeal is allowed in the aforesaid terms.

…………………………………..J.

(B.V. NAGARATHNA)

…………………………………..J.

(UJJAL BHUYAN)

NEW DELHI;

JULY 31, 2026.