The Supreme Court of India, in a significant ruling, has quashed criminal proceedings in a property dispute, holding that the offences of cheating under Section 420 and criminal breach of trust under Section 406 of the Indian Penal Code (IPC) are antithetical to each other and cannot co-exist in the same set of facts. A bench of Justice B.V. Nagarathna and Justice R. Mahadevan set aside a Jharkhand High Court order, terming the criminal proceedings an abuse of process and an attempt to settle a civil dispute through vindictive prosecution.
Background of the Case
The case originated from an agreement for sale dated February 16, 2013, between the appellant, Arshad Neyaz Khan, and the complainant, Md. Mustafa (respondent No. 2). Khan agreed to sell two adjacent properties in Ranchi for a total consideration of Rs. 43,00,000, out of which he received an advance of Rs. 20,00,000.
Nearly eight years later, on January 29, 2021, Md. Mustafa filed a criminal complaint alleging that Khan had failed to transfer the properties or return the advance money. The complaint, which led to the registration of FIR No. 18 of 2021, accused Khan of offences under Sections 406 (criminal breach of trust), 420 (cheating), and 120B (criminal conspiracy) of the IPC. The complainant alleged that he was induced to enter the agreement based on assurances from Khan that the property titles were clear and that he held the power of attorney to sell the adjacent plot.
Following the FIR, the parties were referred to mediation, where Khan agreed to pay Rs. 24,00,000 in instalments. After paying the first instalment of Rs. 5,00,000, he defaulted, which led to the cancellation of his anticipatory bail. Khan then approached the Jharkhand High Court under Section 482 of the Code of Criminal Procedure (CrPC) to quash the FIR and the complaint. The High Court, by its order dated January 19, 2023, refused to quash the proceedings but granted him the liberty to apply for fresh anticipatory bail. Aggrieved, Khan appealed to the Supreme Court.
Court’s Analysis and Findings
The Supreme Court conducted a thorough analysis of the ingredients of the alleged offences and the facts presented in the complaint.
On Cheating (Section 420 IPC): The bench found that the complaint failed to establish the fundamental requirement of cheating: a fraudulent or dishonest intention on the part of the accused at the time of making the promise. The court observed that a mere subsequent failure to keep a promise cannot lead to a presumption of a culpable intention from the beginning.
The judgment noted, “Mere allegations by the complainant/respondent No.2 that the appellant failed to execute the agreement for sale and failed to refund the money paid by the complainant/respondent No.2 does not satisfy the test of dishonest inducement to deliver a property or part with a valuable security as enshrined under Section 420 IPC.”
On Criminal Breach of Trust (Section 406 IPC): Similarly, the court held that the ingredients for criminal breach of trust were not met. It stated that the complainant failed to show how any property was ‘entrusted’ to the appellant and subsequently ‘dishonestly misappropriated’. The court clarified, “…every act of breach of trust may not result in a penal offence unless there is evidence of a manipulating act of fraudulent misappropriation of property entrusted to him.”
Offences are Mutually Exclusive: The most critical observation by the court was the distinction between cheating and criminal breach of trust. Citing its judgment in Delhi Race Club (1940) Limited vs. State of Uttar Pradesh, (2024) 10 SCC 690, the bench held that the two offences are fundamentally different and cannot apply to the same act.
The court stated, “For cheating, criminal intention is necessary at the time of making false or misleading representation i.e. since inception. In criminal breach of trust, mere proof of entrustment is sufficient… In case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriates the same. Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver a property. In such a situation, both offences cannot co-exist simultaneously.”
Delay and Mala Fide Intent: The bench also cast suspicion on the bona fides of the complainant due to the unexplained delay of nearly eight years in filing the complaint. It pointed out that the dispute was essentially civil in nature and that the complainant had the remedy of filing a civil suit for damages, which was not pursued.
The court issued a strong caution against the misuse of criminal law, stating, “Criminal law ought not to become a platform for initiation of vindictive proceedings to settle personal scores and vendettas.”
The Decision
Applying the principles laid down in State of Haryana vs. Bhajan Lal, the Supreme Court concluded that the criminal proceedings were instituted with mala fide intent. The court found that the allegations, even if taken at face value, did not constitute any offence.
In its final order, the bench allowed the appeal, set aside the impugned order of the Jharkhand High Court, and quashed Complaint Case No. 619 of 2021 and FIR No. 18 of 2021, along with all subsequent proceedings.
