REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 2048 OF 2008

(Arising out of SLP (Crl.) No.1491 of 2007)

V.Y. Jose & Anr. … Appellants

Versus

State of Gujarat & Anr. …

Respondents

J U D G M E N T

S.B. Sinha, J.

1.Leave granted.

2.This appeal is directed against a judgment and order dated 4.12.2006

passed by the High Court of Gujarat at Ahmedabad dismissing an

application filed by the appellants herein under Section 482 of the Code of

Criminal Procedure.

3.Appellant No.1 is a partner of a partnership firm known as M/s.

Premionics (hereinafter referred to as ‘the firm’ for the sake of brevity).

Appellant No.2 is an employee of the said firm.

Respondent No.2, the complainant is also a partnership firm. On or

about 18.10.1997, it placed an order on the firm to manufacture and install a

machine to purify and desalt the dyes of a particular quality and quantity

with the firm. The total manufacturing cost of the said machine worked out

to be at Rs.17,96,488/- including excise duty and other incidental charges.

Second respondent paid a sum of Rs.3,00,000/- to the firm as advance and

part payment of the said consideration. There has been a change in the

specifications of the said machine purported to be on the request of the

second respondent in terms whereof two extra modules thereto were

provided. A revised offer was made. The said machine, although was to be

manufactured and supplied within a period of three months, the same was

not complied with.

4.A partner of the second respondent along with its technical engineer

visited the site of the firm. Allegedly, it was found that the said machine

did not conform to the specifications contained in the order placed with the

firm. It refused to take the delivery thereof. To the said effect, the second

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respondent, by a letter dated 7.4.1998 called upon the firm to return the

amount of advance, stating :

“Please take a trial your Laboratory as discussed

and concentrate between 25 to 30% & collect it in

a new plastic drum after good cleaning. I am quite

sure that this dye has got a molecular wt. around

400 and p/h in between 4.5 to and I am hopeful

that your R.O. Machine should work for this dye

only and you have manufactured for another. This

is not fair and if you cannot manufacture

accordingly, please return our money.

As per specific order an advance 3 lacs of

Rupees in October 1997, please send stamped

receipt which we have not received so far.”

5.Second respondent by another letter dated 9.7.1999 called upon the

firm to refund the said amount together with interest thereon, stating :

“Please send demand draft payable at Nadiad of

Rs.3,97,674/- as per accounts below :

Rs.3,00,000

Rs. 22,500 Interest of 5 months.

Rs.3,22,500

Rs. 58,050 Interest of 1998-99

Rs.3,80,550

Rs. 17,124 Interest of 1999-200

(April, May & June)

Rs.3,97,674

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We hope you will do the needful

immediately.”

The firm, by its letter dated 14.7.1999, responded to the said letter of

the Second respondent as under :

“We are in receipt of your letter No.KPH/31/99-

2000 dated 9.7.1999 and are surprised to note your

content therein. As per your order we have

manufactured the system and you had inspected

the system also. We have been reminding you to

take delivery of the system but no action had been

taken from your end so far. We have blocked

material worth more than fourteen lakhs for the

last so many months.”

6.Thereafter, a criminal complaint was filed.

The learned Chief Judicial Magistrate took cognizance of the offences

against the appellants under Section 417, 420 read with Section 114 of the

Indian Penal Code. Summons were issued.

Appellants filed an application for quashing of the said proceedings

before the Gujarat High Court which by reason of the impugned judgment

has been dismissed.

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7.Mr. Dayan Krishnan, learned counsel appearing on behalf of the

appellant, would submit :

1.The allegations made in the complaint petition even if given face

value and taken to be correct in its entirety do not disclose an offence

under Section 420 of the Indian Penal Code.

2.A breach of contract simpliciter does not constitute an offence under

Section 420 of the Indian Penal Code.

3.There is no averment in the complaint petition to the effect that the

appellant has an intention to cheat at the time of entering into the

contract.

8.Mr. Sushil Kumar Jain, learned counsel appearing on behalf of the

respondent No.2, on the other hand, would urge :

(1)The firm manufactured a machine different from the one for which

order was placed which was found out on inspection of the site of the

firm.

(2)Although a sum of Rs.3,00,000/- was paid by way of advance, the

said amount has not been returned which manifests dishonest

intention on the part of the firm.

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(3)In any event, the High Court has rightly refused to exercise its

jurisdiction under Section 482 of the Code of Criminal Procedure

which can be resorted to only in rarest of rare cases.

9.We have been taken through the complaint petition in its entirety.

Indisputably, the parties entered into a contract in terms whereof the firm

was to manufacture a machine to purify and desalt the dyes of a particular

quality and quantity. The specifications for the machine were changed.

First appellant issued a letter dated 20.2.1998 to the complainant, stating :

“Further to our letter No.P:G:971:97 dated 2.2.98

and subsequent visit of our Mr. Sunil Rao. Please

find enclosed herewith our revised offer for your

reference. You may note that we are giving two

module extra free of charge in the system so that

the total number of modules becomes 105 no’s

instead of the committed 103 no’s. We are also

enclosing herewith the detailed assembly drawing

for your reference. Since the system is totally skid

mounted the system can be installed on a leveled

platform.

I am sure this will fulfill your pre-dispatch

requirement. In case you need any additional

details kindly let us know so that we can provide

the same.”

10.Inspection of the machine was admittedly made on 6.4.1998. During

the period 18.10.1997 (when the order was placed) and 6.4.1998, no

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allegation was made in regard to any false design or bad intention on the

part of the appellants.

The complainant-respondent No.2 in letters dated 7.4.1998 and

9.7.1999 did not also make any allegation in regard to existence of a

dishonest intention on the part of the appellants herein when the contract

was entered into.

Ordinarily, we would not have referred to the correspondences passed

between the parties but, indisputably, the said correspondences have been

referred to in the complaint petition itself. Even before us, a contention had

been raised by Mr. Jain that the appellants’ letter dated 7.4.1998 was not

replied to.

11.Section 415 of the Indian Penal Code defines cheating as under :

“Section 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’.”

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An offence of cheating cannot be said to have been made out unless

the following ingredients are satisfied :

“i) deception of a person either by making a

false or misleading representation or by

other action or omission;

(ii)fraudulently or dishonestly inducing any person to

deliver any property; or

(iii)To consent that any person shall retain any property and

finally intentionally inducing that person to do or omit to

do anything which he would not do or omit.”

12.For the purpose of constituting an offence of cheating, the

complainant is required to show that the accused had fraudulent or

dishonest intention at the time of making promise or representation. Even

in a case where allegations are made in regard to failure on the part of the

accused to keep his promise, in absence of a culpable intention at the time

of making initial promise being absent, no offence under Section 420 of the

Indian Penal Code can be said to have been made out.

13.No exception can be taken to the submission of Mr. Jain that it is not

necessary to reproduce the wordings of a penal provision in the complaint

petition, but, there cannot be any doubt whatsoever that the facts disclosing

the ingredients of the offence must be averred.

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There cannot, furthermore, be any doubt that only because civil law

can be taken recourse to would not necessarily mean that criminal

proceedings should be barred as has been opined by this Court in Pratibha

Rani v. Suraj Kumar & Anr. [(1985) 2 SCC 370].

We are, however, not concerned in a case of this nature where the

allegations were clear, specific and unambiguous and, therefore, the

complainant should have been given a chance to prove her case as has been

noticed by the High Court in the said judgment. This Court therein also,

while laying down the law that the High Court would have no jurisdiction to

examine the correctness of the allegations, opined :

“In case no offence is committed on the allegation

and the ingredients of Section 405 and 406, IPC

are not made out, the High Court would be

justified in quashing the proceedings.”

Reliance has also been placed by Mr. Jain on Rajesh Bajaj v. State

NCT of Delhi & Ors. [(1999) 3 SCC 259], wherein Thomas, J. opined :

“10. It may be that the facts narrated in the present

complaint would as well reveal a commercial

transaction or money transaction. But that is

hardly a reason for holding that the offence of

cheating would elude from such a transaction. In

fact, many a cheatings were committed in the

course of commercial and also money transactions.

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One of the illustrations set out under Section 415

of the Indian Penal Code (Illustration f) is worthy

of notice now :

‘(f)A intentionally deceives Z into a

belief that A means to repay any money that

Z may lend to him and thereby dishonestly

induces Z to lend him money, A not

intending to repay it. A cheats’.”

Similar observations have also been made by the same learned Judge

in Trisuns Chemical Industry v. Rajesh Agarwal & Ors. [(1999) 8 SCC 686]

in the following terms :

“9. We are unable to appreciate the reasoning that

the provision incorporated in the agreement for

referring the disputes to arbitration is an effective

substitute for a criminal prosecution when the

disputed act is an offence. Arbitration is a remedy

for affording reliefs to the party affected by breach

of the agreement but the arbitrator cannot conduct

a trial of any act which amounted to an offence

albeit the same act may be connected with the

discharge of any function under the agreement.

Hence, those are not good reasons for the High

Court to axe down the complaint at the threshold

itself. The investigating agency should have had

the freedom to go into the whole gamut of the

allegations and to reach a conclusion of its own.

Pre-emption of such investigation would be

justified only in very extreme cases as indicated in

State of Haryana v. Bhajan Lal.”

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14.We may hereat refer to the decision of this Court in State of Haryana

& Ors. v. Bhajan Lal & Ors. [(1992) Supp.(1) SCC 335], whereupon

reliance has been placed by this Court. In the aforementioned decision

relied upon by Mr. Jain, it was stated :

“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 give 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 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

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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 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.

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103. We also give a note of caution to the effect

that the power of quashing a criminal proceeding

should be exercised very sparingly and with

circumspection and that too in the rarest of rare

cases; that the court will not be justified in

embarking upon an enquiry as to the reliability or

genuineness or otherwise of the allegations made

in the FIR or the complaint and that the

extraordinary or inherent powers do not confer an

arbitrary jurisdiction on the court to act according

to its whim or caprice.”

The High Court, although noticed some of the principles laid down in

Bhajan Lal (supra), failed to assign any reason as to why in a case of this

nature the provisions of Section 482 of the Code of Criminal Procedure

should not be applied and how the allegations made in the complaint

petition, even if given face value and taken to be correct in its entirety, make

out an offence.

15.There exists a distinction between pure contractual dispute of civil

nature and an offence of cheating. Although breach of contract per se

would not come in the way of initiation of a criminal proceeding, there

cannot be any doubt whatsoever that in absence of the averments made in

the complaint petition wherefrom the ingredients of an offence can be found

out, the court should not hesitate to exercise its jurisdiction under Section

482 of the Code of Criminal Procedure.

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We may reiterate that one of the ingredients of cheating as defined in

Section 415 of the Indian Penal Code is existence of an intention of making

initial promise or existence thereof from the very beginning of formation of

contract.

Section 482 of the Code of Criminal Procedure, saves the inherent

power of the court. It serves a salutary purpose viz. a person should not

undergo harassment of litigation for a number of years although no case has

been made out against him.

It is one thing to say that a case has been made out for trial and as

such the criminal proceedings should not be quashed but it is another thing

to say that a person should undergo a criminal trial despite the fact that no

case has been made out at all.

16.In Hira Lal Hari Lal Bhagwati v. CBI [(2003) 5 SCC 257], this Court

held :

“40. It is settled law, by a catena of decisions, that

for establishing the offence of cheating, the

complainant is required to show that the accused

had fraudulent or dishonest intention at the time of

making promise or representation. From his

making failure to keep promise subsequently, such

a culpable intention right at the beginning that is at

the time when the promise was made cannot be

presumed. It is seen from the records that the

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exemption certificate contained necessary

conditions which were required to be complied

with after importation of the machine. Since the

GCS could not comply with it, therefore, it rightly

paid the necessary duties without taking advantage

of the exemption certificate. The conduct of the

GCS clearly indicates that there was no fraudulent

or dishonest intention of either the GCS or the

appellants in their capacities as office-bearers

right at the time of making application for

exemption. As there was absence of dishonest and

fraudulent intention, the question of committing

offence under Section 420 of the Indian Penal

Code does not arise. We have read the charge-

sheet as a whole. There is no allegation in the first

information report or the charge-sheet indicating

expressly or impliedly any intentional deception or

fraudulent/dishonest intention on the part of the

appellants right from the time of making the

promise or misrepresentation. Nothing has been

said on what those misrepresentations were and

how the Ministry of Health was duped and what

were the roles played by the appellants in the

alleged offence. The appellants, in our view, could

not be attributed any mens rea of evasion of

customs duty or cheating the Government of India

as the Cancer Society is a non-profit organisation

and, therefore, the allegations against the

appellants levelled by the prosecution are

unsustainable. The Kar Vivad Samadhan Scheme

certificate along with Duncan and Sushila Rani

judgments clearly absolve the appellants herein

from all charges and allegations under any other

law once the duty so demanded has been paid and

the alleged offence has been compounded. It is

also settled law that once a civil case has been

compromised and the alleged offence has been

compounded, to continue the criminal proceedings

thereafter would be an abuse of the judicial

process.

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[See also Indian Oil Corporation v. NEPC India Ltd. & Ors. [(2006)

6 SCC 736]

17.Recently, in Vir Prakash Sharma v. Anil Kumar Agarwal [(2007) 7

SCC 373], noticing, inter alia, the aforementioned decisions, this Court

held:

“13. The ingredients of Section 420 of the Penal

Code are as follows:

(i) Deception of any persons;

(ii) Fraudulently or dishonestly inducing any

person to deliver any property; or

(iii) To consent that any person shall retain any

property and finally intentionally inducing

that person to do or omit to do anything

which he would not do or omit.

No act of inducement on the part of the appellant

has been alleged by the respondent. No allegation

has been made that he had an intention to cheat the

respondent from the very inception.

14. What has been alleged in the complaint

petition as also the statement of the complainant

and his witnesses relate to his subsequent conduct.

The date when such statements were allegedly

made by the appellant had not been disclosed by

the witnesses of the complainant. It is really

absurd to opine that any such statement would be

made by the appellant before all of them at the

same time and that too in his own district. They,

thus, appear to be wholly unnatural.

15. In law, only because he had issued cheques

which were dishonoured, the same by itself would

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not mean that he had cheated the complainant.

Assuming that such a statement had been made,

the same, in our opinion, does not exhibit that

there had been any intention on the part of the

appellant herein to commit an offence under

Section 417 of the Penal Code.

16. Furthermore, admittedly, their residences are

in different districts. Whereas the appellant is a

resident of the district of Ajamgarh, the

respondent is a resident of the district of Rampur.

Cheques were admittedly issued by the appellant

at his place. There is nothing on record to show

that any part of the cause of action arose within

the jurisdiction of the court concerned. Even if

such statements had been made, the same

admittedly have been made only at the place where

the appellant resides. The learned Magistrate,

therefore, had no jurisdiction to issue the

summons. (See Mosaraf Hossain Khan v.

Bhagheeratha Engg. Ltd.)”

The said principle has been reiterated in All Carogo Movers (I) Pvt.

Ltd. v. Dhanesh Badarmal Jain & Anr. [2007 (12) SCALE 391], stating :

“For the said purpose, allegations in the complaint

petition must disclose the necessary ingredients

therefor. Where a civil suit is pending and the

complaint petition has been filed one year after

filing of the civil suit, we may for the purpose of

finding out as to whether the said allegations are

prima facie cannot notice the correspondences

exchanged by the parties and other admitted

documents. It is one thing to say that the Court at

this juncture would not consider the defence of the

accused but it is another thing to say that for

exercising the inherent jurisdiction of this Court, it

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is impermissible also to look to the admitted

documents. Criminal proceedings should not be

encouraged, when it is found to be mala fide or

otherwise an abuse of the process of the Court.

Superior Courts while exercising this power

should also strive to serve the ends of justice.”

18.A matter which essentially involves dispute of a civil nature should

not be allowed to be the subject matter of a criminal offence, the latter being

not a shortcut of executing a decree which is non-existent. The Superior

Courts, with a view to maintain purity in the administration of justice,

should not allow abuse of the process of court. It has a duty in terms of

Section 483 of the Code of Criminal Procedure to supervise the

functionings of the trial courts.

19.An offence of cheating may consist of two classes of cases :

(1) where the complainant has been induced fraudulently or dishonestly.

Such is not the case here;

(2)When by reason of such deception, the complainant has not done or

omitted to do anything which he would not do or omit to do if he was not

deceived or induced by the accused.

20.It is in that sense, a distinction between a mere breach of contract and

the offence of cheating should be borne in mind. We, having regard to the

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facts and circumstances of the case, are of the opinion that no case has been

made out and against the appellant so as to hold that he should face the

criminal trial.

21.Before parting, however, we may notice a decision of this Court in

from State of Madhya Pradesh v. Awadh Kishore Gupta [(2004) 1 SCC 691]

whereupon strong reliance has been placed by Mr. Jain. This Court, therein

upon referring to Bhajan Lal (supra) opined as under :

“11. As noted above, the powers possessed by the

High Court under Section 482 of the Code are

very wide and the very plenitude of the power

requires great caution in its exercise. Court must

be careful to see that its decision in exercise of this

power is based on sound principles. The inherent

power should not be exercised to stifle a legitimate

prosecution. The High Court being the highest

court of a State should normally refrain from

giving a prima facie decision in a case where the

entire facts are incomplete and hazy, more so,

when the evidence has not been collected and

produced before the Court and the issues involved,

whether factual or legal, are of magnitude and

cannot be seen in their true perspective without

sufficient material. Of course, no hard-and-fast

rule can be laid down in regard to cases in which

the High Court will exercise its extraordinary

jurisdiction of quashing the proceedings at any

stage. (See Janata Dal v. H.S. Chowdhary and

Raghubir Saran (Dr) v. State of Bihar) It would

not be proper for the High Court to analyse the

case of the complainant in the light of all

probabilities in order to determine whether a

conviction would be sustainable and on such

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premises, arrive at a conclusion that the

proceedings are to be quashed. It would be

erroneous to assess the material before it and

conclude that the complaint cannot be proceeded

with. In proceedings instituted on complaint,

exercise of the inherent powers to quash the

proceedings is called for only in a case where the

complaint does not disclose any offence or is

frivolous, vexatious or oppressive. If the

allegations set out in the complaint do not

constitute the offence of which cognizance has

been taken by the Magistrate, it is open to the

High Court to quash the same in exercise of the

inherent powers under Section 482 of the Code. It

is not, however, necessary that there should be

meticulous analysis of the case before the trial to

find out whether the case would end in conviction

or acquittal. The complaint has to be read as a

whole. If it appears that on consideration of the

allegations in the light of the statement made on

oath of the complainant that the ingredients of the

offence or offences are disclosed and there is no

material to show that the complaint is mala fide,

frivolous or vexatious, in that event there would

be no justification for interference by the High

Court. When an information is lodged at the police

station and an offence is registered, then the mala

fides of the informant would be of secondary

importance. It is the material collected during the

investigation and evidence led in the court which

decide the fate of the accused person. The

allegations of mala fides against the informant are

of no consequence and cannot by itself be the

basis for quashing the proceedings.”

(Emphasis supplied)

22.No exception can be taken to the aforementioned principles of law, as

therein also it has categorically been held that exercise of inherent power

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under Section 482 is permissible where allegations set out in the complaint

do not constitute the offence for which cognizance has been taken by the

Magistrate. It is evidently a case of that nature.

23.For the reasons aforementioned, the judgment of the High Court

cannot be sustained. It is set aside accordingly. Criminal proceedings

against the appellants are quashed. The appeal is allowed.

..…………………………..…J.

[S.B. Sinha]

..…………………………..…J.

[Cyriac Joseph]

New Delhi;

December 16, 2008

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