The case in question stems from a dispute between the Delhi Race Club (1940) Ltd. and Agarwal Udyog, a firm owned by Vipin Kumar Agarwal. Agarwal Udyog had been supplying horse feed, barley, and oats to Delhi Race Club since 1990. In 1995, the Delhi Race Club directed Agarwal Udyog to raise invoices in favour of the Delhi Horse Trainers Association. Payments continued regularly until 2017, after which an outstanding amount of โน9,11,434 remained unpaid. When repeated requests for payment were ignored, Agarwal filed a complaint, leading to the initiation of criminal proceedings under Sections 406 (Criminal Breach of Trust), 420 (Cheating), and 120B (Criminal Conspiracy) of the Indian Penal Code.
Legal Issues Involved:
The central issue before the Supreme Court was whether the failure to pay the consideration amount for goods sold could attract the charge of criminal breach of trust under Section 406 IPC. The legal question raised significant implications regarding the distinction between civil liability and criminal liability in commercial transactions.
Supreme Court’s Observations and Decision:
The Supreme Court bench comprising Justice J.B. Pardiwala and Justice Manoj Misra examined whether the allegations in the complaint, even if taken at face value, made out a case for criminal breach of trust. The Court observed that the complaint lacked any prima facie evidence of entrustment of property or dishonest misappropriation by the accused, which are essential ingredients of Section 406 IPC.ย
In its judgment, the Court clarified:
– Distinction between Criminal Breach of Trust and Cheating: The Court emphasized that criminal breach of trust requires the entrustment of property, whereas cheating involves dishonest inducement to deliver property. In this case, there was no entrustment, and the goods were sold outright, making Section 406 IPC inapplicable.
– Civil vs. Criminal Liability: The Court highlighted that a mere failure to pay the consideration amount constitutes a breach of contract, leading to civil liability, but does not automatically result in criminal liability under Section 406 IPC. The Court noted that the appropriate remedy for the complainant would have been to file a civil suit for recovery of the amount due.
– Importance of Judicial Scrutiny in Issuing Summons: The Court reiterated that summoning an accused in a criminal case is a serious matter and should not be done mechanically. The Magistrate must apply their mind to the facts and determine whether the allegations, if proven, would constitute the offense alleged.
Quoting the judgment, the Court stated, “The case of the complainant is plain and simple. He says that the price of the goods sold by him has not been paid. Once there is a sale, Section 406 IPC goes out of the picture. According to the complainant, the invoices raised by him were not cleared. No case worth the name of cheating is also made out.”
Final Verdict:
The Supreme Court allowed the appeal, setting aside the order of the High Court of Judicature at Allahabad and the summoning order passed by the Additional Chief Judicial Magistrate, Khurja, Bulandshahar. The Court concluded that the continuation of the criminal proceedings would amount to an abuse of the process of law. The judgment also directed the Ministry of Law & Justice and the Ministry of Home Affairs to ensure proper training for police officers to understand the distinction between civil and criminal liabilities in commercial transactions.
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Case Details:
– Case Number: Criminal Appeal No. 3114 of 2024
– Bench: Justice J.B. Pardiwala and Justice Manoj Misra
– Appellants: Delhi Race Club (1940) Ltd. & Ors.
– Respondents: State of Uttar Pradesh & Anr.
– Date of Judgment: 23rd August 2024
