Criminal law cannot be used to ‘recover money’ unless offense of cheating/breach of trust is established: Karnataka High Court

The Karnataka High Court has stated that criminal law cannot be enforced for the recovery of money paid under a contract unless the offense of cheating or even criminal breach of trust be established.

A single bench of judges of Justice M Nagaprasanna granted the petition filed by a certain Amit Garg and set aside the proceedings brought against him under Sections 419 and 420 of the IPC and Sections 66C and 66D of the Information Technology Act 2000.

The bench said,

“The substandard contract between the parties or supply would undoubtedly fall within the realm of civil suits of whatever nature which the plaintiff would seek to bring, but not the recording of a crime. It is well settled in right that criminal law cannot be triggered for the recovery of money unless the offense of fraud or even criminal breach of trust is established.”

Garg had gone to court to seek the quashing of the FIR dated August 2, 2021, filed against him by a certain Neeraj Kukreja, Director of M/S Pegasi Spirits Pvt Ltd, for allegedly supplying substandard N95 masks.

The petitioner argued that the whole issue was in the area of ​​the contract. There was no cheating on the part of the petitioner and there was no dishonest intention in the first place.

Moreover, without waiting for the report on the quality of the mask sample that was provided by the Claimant, the Complainant/Respondent insisted that the delivery be made immediately and, therefore, the Complainant cannot now claim that this that was provided was not what was promised. The whole intention of registering the crime against the petitioner is the recovery of the money.

The Complainant refuted the arguments saying that although the dispute is in the area of ​​contract, the Petitioner’s dishonest intent to cheat was there from the time of inspection i.e. when the supply was made and he would argue that the entire batch of masks could not be put into service because they were of poor quality. In the bargain, the plaintiff lost Rs.47/- lakhs which he paid and registered the crime on the grounds that the petitioner deceived the plaintiff by supplying shoddy masks.

Court findings:

The bench relied on IPC Section 415 and said: “It states that whoever, by fraudulently or dishonestly deceiving a person, induces the person so deceived to deliver any property shall be deemed to be cheating.”

Whereupon he said,

“In this case, believing that the claimant company was well equipped for the production and delivery of masks to be marketed on behalf of the claimant company, the latter had placed an order and purchased masks of poor quality at a later time. This cannot constitute cheating or deception at the start of the contract, as masks were required and were provided after the samples were provided.If the complainant could not wait for the samples to be verified by the laboratory, the offense of cheating cannot be held against the petitioner.”

He added, “Therefore, none of the ingredients of Article 415 of the ICC are considered to exist in the dispute between the petitioner and the plaintiff, which is a contract and the allegation is a breach of contract.”

Furthermore, the court held, “There was no cheating in the present case and the offense under Article 419 of the IPC cannot be brought against the applicant either.”

Regarding the inclusion of Sections 66C and 66D of the Information Technology Act, the bench said:

“These provisions of the Act are reckless inclusions in the crime as the facts recounted above would not even remotely touch Sections 66C and 66D of the Act. Therefore, these offenses cannot be brought against the petitioner either. .”

Based on the Supreme Court judgment in Sushil Sethi v. State of Arunachal Pradesh, (2020) 3 SCC 240, in which the court considered the whole of the law with respect to the interplay between contract and cheating, the bench said:

“The case under consideration involves both incurable infirmities for the setting in motion of the criminal law – one is committed for breach of contract and the other is committed for the recovery of money. Therefore , other proceedings, if allowed to proceed against the petitioner, would degenerate into harassment and result in a miscarriage of justice, for which the present case becomes a proper case for the exercise of jurisdiction of this Court in under article 482 of the Cr.PC and destroy the impugned proceedings.”

The bench clarified, “This Court has not ruled on Plaintiff’s right to commence civil proceedings for the recovery of money. If such proceedings are commenced, submissions made in this Order will not influence any court proceeding on the substance of the said claim.”


Case No: 2021 CRIMINAL PETITION No. 4856

Citation: 2022 LiveLaw (Kar) 298

Order date: JULY 26, 2022

Appearance: Lawyer BHARATH KUMAR V for the applicant; HCGP KPYASHODHA, FOR R1; Master D.VIJAY RAJ, FOR R2

Click here to read/download the order