SUPREME COURT REAFFIRMS THAT HIGH COURTS SHOULD NOT HESITATE TO DISMISS CRIMINAL PROCEEDINGS THAT ARE ESSENTIALLY CIVIL

A two-Judge Bench of the Supreme Court comprising of Justice Sudhanshu Dhulia and Prasanna B. Varale passed a Judgement dated 12-03-2024 in the matter of Naresh Kumar & Anr. vs. The State of Karnataka & Anr., Special Leave Petition (CRL.) NO. 1570 of 2021 and held that the High Court must exercise its inherent powers under Section 482 (Saving of inherent powers of High Court) of the Criminal Procedure Code (CrPC), 1973 because these powers are intended to curtail the abuse of legal procedures and uphold the principles of justice.

FACTS:

1) That the Appeal mentioned above was filed before the Supreme Court by one, Naresh Kumar and Rajesh Kapoor (Appellants) against the State of Karnataka (Respondent No. 1). One Waseem Ahmed (Respondent No. 2), challenged the Order dated 02.12.2020 of the Hon’ble High Court of Karnataka at Bengaluru, (High Court) in which the High Court dismissed their petition under Section 482 of the CrPC for quashing the FIR.

2) The Appellants, who are the Assistant Manager (Marketing) and the Managing Director of a bicycle manufacturing company, were accused of criminal breach of trust and cheating. The Respondent No. 2 alleged that they had been contracted for bicycle assembly, transport, and delivery but were not fully paid according to the agreed terms.

3) An FIR (No. 113 of 2017) was filed against Appellant No. 1 by the Respondent No. 2 under Sections 406 (Punishment for criminal breach of trust), 420 (Cheating and dishonestly inducing delivery of property) and 506 (Punishment for criminal intimidation) of the Indian Penal Code (IPC), 1860 at P.S. Doddaballapura, Bangalore Rural District.

4) Subsequently, on 30.05.2019, a Chargesheet was filed in Court, where both the Appellants were made the Accused.

5) However, after the FIR, the Appellants and Respondent no.2 entered into a Compromise Deed on 27.12.2017, where the Appellants agreed to pay an additional amount of Rs. 26 lakhs as a full Settlement. This amount was duly paid by the Appellants and accepted by the Respondent No. 2, bringing the total paid to Rs. 62 lakhs out of the initially claimed Rs. 1,01,58,574.

6) However, the Complainant / Respondent no. 2 alleged that there was a coercion in settling and insisted on pursuing criminal charges against the Appellants. Subsequently, the High Court was also convinced by the contention of the Complainant / Respondent No. 2 and rejected the Appellants’ argument, that there was no cheating on their part and the High Court held that a prima facie case of cheating existed against them.

7) Further, the Appellants contended that the entire criminal proceedings against them was an abuse of process of law because the dispute arose regarding the payment for the assembled bicycles, with the Complainant / Respondent no. 2 claiming an amount of Rs. 1,01,58,574/-, while the Appellants disputed that number of bicycles assembled by the Complainant / Respondent No. 1 was less than the number agreed between the Parties.

8) The High Court rejected the Appellants’ contention that the dispute was primarily civil and held that there was a prima facie case of cheating against them.

HIGH COURT:

i) The High Court in this case primarily focused on rejecting the Appellants’ argument that the dispute between the Parties was purely civil in nature. Further, the High Court noted that although the Appellants claimed only 28,995 bicycles were assembled, they had paid a much higher amount, indicating a discrepancy. Based on this, the High Court inferred that there was an intention to cheat Complainant / Respondent No. 2 from the beginning.

ii) Furthermore, the High Court highlighted the Settlement reached between the Parties. The High Court also noted that on 30.05.2019, a Chargesheet was filed in Court, accusing both Appellants. The High Court held that the Appellants had accepted the fact that they had made additional payment under the Settlement.

iii) Overall, the High Court’s observations centred on the finding that there was a prima facie case of cheating against the Appellants, given the discrepancy between the number of bicycles assembled and the amount paid.

SUPREME COURT:

Aggrieved by the Order dated 02.12.2020 of the High Court, the Appellant filed SLP Criminal No. 1570 / 2021 before the Hon’ble Supreme Court, which was registered on 18.02.2021. The Apex Court, vide Order dated 12.03.2024, made the following observations:

ISSUES:

I) The primary issue before the Supreme Court in this case was whether the High Court’s decision to dismiss the Appellants’ Petition to quash the FIR was justified.

II) Secondly, the Supreme Court had to determine whether the dispute between the Parties was primarily civil in nature or if there was sufficient evidence to establish a criminal element, particularly the offence of cheating.

OBSERVATIONS:

(1) The Supreme Court noted that the dispute between the Parties primarily revolved around contractual obligations regarding bicycle assembly and payment. Further, the Bench emphasized that disputes over contractual terms and payments are typically civil matters.

(2) The Apex Court acknowledged the Settlement reached between the parties, where the Appellants agreed to make an additional payment to the Respondent to resolve the dispute. It was noted that this Settlement was made to bring about a peaceful resolution and avoid further litigation.

(3) The Supreme Court observed that there was no evidence presented to suggest that the Settlement was coerced. Moreover, the Apex Court highlighted that no FIR or complaint had been filed alleging coercion, and the Respondent had accepted the additional payment made by the Appellants.

(4) Based on the above observations, the Supreme Court concluded that the Criminal Proceedings initiated against the Appellants were an abuse of process. The Bench emphasized that the dispute was essentially civil and that the Criminal Proceedings were unwarranted.

(5) Finally, the Court cited the High Court’s inherent powers vested in it under Section 482 of the Criminal Procedure Code to prevent abuse of the legal process and secure the ends of justice. The Supreme Court after considering all the facts quashed the FIR and the criminal proceedings arising from it.

CONCLUSION:

Based on the aforementioned facts, the Supreme Court upheld the Appellants’ Appeal and set aside the High Court’s decision and quashed the criminal proceedings initiated against the Appellants. This decision reaffirms the principle that criminal law should not be invoked in purely civil disputes, ensuring justice and fairness in legal proceedings.

Further, the Apex Court meticulously examined the dispute and emphasized that the case was primarily civil. Further, the Bench emphasised the importance of distinguishing between civil disputes and criminal offences, cautioning against the misuse of criminal proceedings for harassment. After a thorough analysis of the facts, the Apex Court found no evidence of fraudulent intent, rendering the criminal proceedings an abuse of process.

 

Sakshi Raghuvanshi

Legal Associate

Hansen International Law Firm