Mere breach of contract cannot result in criminal prosecution for cheating or breach of trust: Telangana High Court

the Telangana High Court recently found that a simple breach of contract can not give rise to criminal proceedings for fraud or breach of trust.

The bench of Judge G. Radha Rani further clarified that any breach of trust cannot result in a criminal offense of criminal breach of trust unless there is evidence of a mental act of fraudulent misappropriation.

The case in brief

Essentially, the Court was dealing with a plea filed under Section 482 CrPC seeking to vacate and FIR registered under Petitioner under Items 409 [Criminal breach of trust by public servant, or by banker, merchant or agent]406 [Punishment for criminal breach of trust], 418 [Cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect], 420 [Cheating and dishonestly inducing delivery of property] read with 34 PICs.

The FIR was filed at the request of the 2nd respondent-fact plaintiff, the managing director of a company named Mrs. Agastya Agro Limited.

According to the FIR, the said company was engaged in the manufacture of pesticides and distributed them through dealers, agents and merchants. The petitioner and his son were the partners of the said company and were also their resellers and their job was to buy the pesticides from his company, resell them and reimburse the amount.

It has been alleged that since 2011, the petitioner has failed to pay the amount and whenever he contacted him, he kept postponing the same under one pretext or another and avoided the payment. Now, based on these facts, an FIR has been filed against the petitioner under the aforementioned articles.

Advanced Arguments

Addressing the court, the claimant argued that the allegations would only show that he had defaulted on payment of the value of the pesticides purchased from the complainant company, since there was no transfer of ownership or dishonest or fraudulent intent on the part of the applicant. since the beginning of the commercial transaction, violations of articles 418 or 420 CPI will therefore not be attracted.

Court’s observations

Initially, the Court took into account the basic elements to constitute an offense of criminal breach of trust and Cheating and subsequently the Court referred to the case of Hridaya Ranjan Prasad Verma v. State of Bihar (2000) 4 SCC 168in which the Apex Court issued the following opinion:

The simple breach of contract cannot give rise to criminal proceedings for cheating unless the fraudulent or dishonest intention is demonstrated from the start of the transaction, i.e. when the offense is deemed to have been committed. . It is therefore the intention that is the essence of the offence. To hold a person guilty of cheating, it must be shown that he had a fraudulent or dishonest intention when making the promise.

In view of this, emphasizing that the intent to deceive must exist at the time the inducement was made, the Court further clarified that if a representation was made and not subsequently maintained , criminal liability cannot be imposed and the only remedy available to the plaintiff is for breach of contract in civil court.

In the present case, the plaintiff after taking over the agency of the 2nd defendant returned the sums due to the 2nd defendant from 2002 to 2011, so it cannot be said that he intended to deceive the 2nd defendant from the start. himself. According to the assertion of the 2nd defendant in the complaint, the plaintiff was owing the payment of the amounts since the year 2011. Therefore, the remedy for the recovery of the amount owed would be by filing a case in the civil court“, observed the Court in quashing the FIR after allowing the plea.

Case title – Ch. Anjaneyulu, Medak Sangareddy c. Telangana State


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