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Naresh Kumar & Anr. v. State of Karnataka & Anr.

Case No.: Criminal Appeal No.         of 2024

                 (Arising out SLP (CRL.) No. 1570 of 2021).

Date: March 12, 2024.

Court: Supreme Court of India.

Quorum: Hon’ble J. Sudhanshu Dhulia, J. Prasanna B. Varale.

 

Facts of the Case

The appellants, Naresh Kumar (Assistant Manager-Marketing) and the Managing Director of a bicycle manufacturing company, challenged the Karnataka High Court’s order dismissing their petition to quash an FIR filed against them by Respondent. The respondent, a contractor, was given a contract by the appellants’ company to assemble, transport, and deliver bicycles at a rate of Rs. 122 per bicycle. After assembling 83,267 bicycles and raising invoices amounting to Rs. 1,01,58,574, Respondent No. 2 was paid only Rs. 35,37,390 by the appellants, leading to a dispute over the outstanding amount.

Consequently, an FIR No. 113/2017 was filed against the appellants under Sections 406 (criminal breach of trust), 420 (cheating), and 506 (criminal intimidation) of the Indian Penal Code (IPC) at P.S. Doddaballapura, Bengaluru Rural District. Subsequently, a chargesheet dated 30.05.2019 was filed in the court, making both the appellants accused in the case.

However, later a compromise deed was executed on 27.12.2017, wherein the appellants agreed to pay an additional Rs. 26 lakhs as a full and final settlement to Respondent. This additional amount of Rs. 25,75,442 (after deducting TDS) was duly paid to Respondent through a NEFT bank transaction on 29.12.2017, taking the total amount paid by the appellants to Rs. 62 lakhs against the claimed amount of Rs. 1,01,58,574. The appellants claimed that this settlement was reached to bring a quietus to the dispute and to avoid further litigation.

Legal Issues:

1. Whether the dispute between the parties was of a civil nature or had criminal elements?
2. Whether the High Court erred in refusing to quash the criminal proceedings under Section 482 of the Code of Criminal Procedure (CrPC)?

Legal Provisions:

1. Indian Penal Code, 1860:

• Section 406 – Criminal breach of trust.
• Section 420 – Cheating.
• Section 506 – Criminal intimidation.

2. Section 482 of the CrPC grants inherent powers of the High Court to prevent abuse of the process of any court or to secure the ends of justice.

Contentions of petitioners:

The petitioners put forth several arguments to contend that the High Court erred in dismissing their petition to quash the FIR. Firstly, they argued that the central dispute between the parties was primarily civil in nature, centring around the number of bicycles assembled by Respondent and the consequent amount payable by the appellants’ company. They asserted that this did not constitute a criminal offense.

Secondly, the petitioners highlighted the fact that a compromise deed was executed, wherein they agreed to pay an additional sum of Rs. 26 lakhs as a full and final settlement. They contended even after paying an additional amount pursuant to a settlement, it cannot be construed that the parties had the intent to cheat. the act of payment was not admission to a fraudulent intent, but the act intended to settle the matter. The settlements are often reached to bring a quietus to disputes and avoid protracted litigation, even in cases where the parties may not agree on the precise quantum of claims. The petitioners argued that Respondent had accepted the additional amount paid under the compromise deed without any protest or allegation of coercion at that time. This negated the respondent’s subsequent claim that he was coerced into entering the settlement.

The petitioners asserted that the High Court failed to appreciate the civil nature of the dispute and should have exercised its inherent powers under Section 482 of the CrPC to quash the criminal proceedings, which amounted to an abuse of the process of the court.

Contentions of Respondents:

The learned counsel for the respondent, on the other hand, alleged that the appellants had harboured a dishonest intention to cheat him from the very beginning. This was evident from the fact that the appellants paid an additional amount that was significantly higher than what they initially claimed was due, based on their assessment of the number of bicycles assembled. The respondent further alleged that he was coerced into entering the settlement agreement, and therefore, the compromise deed should not be treated as a voluntary and binding settlement. He argued that the prosecution of the appellants was necessary under criminal law to hold them accountable for their alleged misdeeds.

Analysis of Judgement:

The Supreme Court carefully evaluated the arguments put forth by both parties and sided with the petitioners. The Court agreed that the dispute was of a civil nature, relating to the number of bicycles assembled and the consequent amount payable. It held that merely paying an additional amount pursuant to a settlement cannot be presumed as an act of cheating, as settlements are often made to bring a quietus to disputes and avoid litigation.

Significantly, the Court observed that respondent had accepted the additional amount paid under the compromise deed, casting doubt on his subsequent allegation of coercion. The Court relied on several precedents, including Paramjeet Batra v. State of Uttarakhand, Randheer Singh v. State of U.P., and Usha Chakraborty & Anr. v. State of West Bengal & Anr., to reinforce the principle that where a dispute is civil in nature, the High Court should exercise its inherent powers under Section 482 of the CrPC to quash criminal proceedings and prevent an abuse of the process of the court.

The Court also drew a clear distinction between a mere breach of contract and the offense of cheating, emphasizing that every breach of contract would not give rise to the offense of cheating unless it is shown that the accused had fraudulent or dishonest intention at the time of making the promise.

Conclusion

The Supreme Court’s judgement reaffirms the principle that criminal proceedings should not be initiated in disputes that are civil in nature unless there is unambiguous evidence of fraudulent or dishonest intention from the outset. The Court rightly exercised its inherent powers to quash the criminal proceedings, which were an abuse of the process of the court and prevented the misuse of criminal law in a contractual dispute.

Judgement reviewed by Maria Therese Syriac.

Click here to read the Judgement.

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