The Supreme Court of India, in a significant ruling, has quashed a First Information Report (FIR) and all subsequent proceedings against several individuals in a property dispute, holding that a mere breach of an Agreement to Sell (ATS), without evidence of fraudulent or dishonest intent from the outset, constitutes a civil wrong and cannot be given the “cloak of a criminal offence.”
A Division Bench comprising Justice Sudhanshu Dhulia and Justice Ahsanuddin Amanullah allowed the appeal filed by S. N. Vijayalakshmi and others, setting aside a Karnataka High Court order that had refused to quash the criminal case for cheating and criminal breach of trust. The Court concluded that the dispute was “essentially of a civil nature” and allowing the criminal prosecution to continue would amount to an “abuse of the process of the Court.”
The judgment also took serious note of the role of the Bangalore Development Authority (BDA) in the long-standing litigation over the subject property, observing that the “interest of the common citizens… has been compromised” due to what appeared to be “collusive litigation.”
Background of the Case
The case originates from a Private Complaint (PCR) filed by Keerthiraj Shetty (Complainant) in 2022, which led to the registration of an FIR against the appellants. The dispute pertains to a property in Bhoopasandra Village, Bangalore, jointly owned by the appellants’ family.
The complainant alleged that the appellants, through a long and complex history of litigation concerning the property’s acquisition by the BDA, had sought the help of one Ravishankara Shetty to clear the title. Based on assurances that the property would be sold to him upon becoming marketable, Ravishankara Shetty allegedly spent significant time and money on the litigation.
This understanding culminated in an Agreement to Sell (ATS) dated November 30, 2015, executed between the appellants and the complainant (as Ravishankara Shetty’s nominee) for a sale consideration of ₹3.50 crores. A General Power of Attorney (GPA) was also executed in the complainant’s favour.
Following successful litigation that declared the BDA’s acquisition to have lapsed, the complainant alleged that the appellants, motivated by an increase in the property’s market value, refused to honour the ATS. Instead, they revoked the GPA and subsequently transferred the property amongst themselves through a Release Deed and a Gift Deed in 2022.
This prompted the complainant to first file a civil suit for specific performance of the ATS and soon after, the criminal complaint alleging offences under Sections 405, 406 (criminal breach of trust), 415, 420 (cheating), and 120B (criminal conspiracy) of the Indian Penal Code, 1860. The appellants’ petition to quash the FIR was dismissed by the Karnataka High Court, leading to the present appeal before the Supreme Court.
Arguments of the Parties
Appellants’ Submissions: The appellants, represented by senior counsel, argued that the dispute was purely civil. It was contended that the essential ingredients of cheating and criminal breach of trust were “conspicuously absent” from the FIR. They highlighted the complainant’s own averment that the accused “started cheating the complainant” only after the property’s market value increased, which, they argued, negated any claim of dishonest intention at the inception of the ATS. Citing Delhi Race Club (1940) Limited v State of Uttar Pradesh, it was argued that offences under Sections 406 and 420 IPC are mutually exclusive and cannot co-exist in a single transaction.
Complainant’s Submissions: The complainant argued that the FIR, on its face, disclosed the commission of offences. It was submitted that the appellants, after using the complainant’s efforts to clear the property’s title, took steps to “defraud and cheat” him by cancelling the GPA and transferring the property to frustrate the ATS. It was contended that these actions revealed their dishonest intent.
State of Karnataka’s Submissions: The State supported the prosecution, stating that the investigation, which had culminated in a chargesheet, revealed that the appellants had a “dishonest intention from the inception” and never intended to honour the agreement.
Court’s Analysis and Findings
The Supreme Court framed two primary questions for consideration: first, whether any criminal offence was made out from the facts, and second, whether civil and criminal proceedings could run simultaneously.
No Criminal Offence Made Out: The Bench meticulously analyzed the ingredients of the alleged offences.
- On Criminal Breach of Trust (Section 406 IPC): The Court found that the very basis for this offence was missing. It reasoned, “From a bare reading of Section 405 of the IPC, criminal breach of trust would arise only in a situation where the accused in any manner has been entrusted with property… Here, it is not a case where the accused were entrusted with the subject property. The subject property belongs to them and they had rights over it as owners with title. Thus, the very foundation for invoking Section 406 of the IPC falls to the ground.”
- On Cheating (Section 420 IPC): The Court found no evidence of deception or dishonest inducement at the time of the agreement. It noted that the complainant’s own pleadings were contradictory regarding possession. The Court held that a subsequent failure to honour a promise cannot be the basis for a cheating case. Quoting from an illustration to Section 415 IPC, the judgment implicitly drew a parallel: “…if A, at the time of obtaining the money, intends to deliver the indigo plant, and afterwards breaks his contract and does not deliver it, he does not cheat, but is liable only to a civil action for breach of contract.”
The Court also reiterated the legal principle that charges under Sections 406 and 420 IPC cannot be simultaneously applied to the same transaction.
Civil vs. Criminal Proceedings: Addressing the second question, the Court acknowledged that there is no absolute bar on simultaneous proceedings. However, it cautioned against allowing a purely civil dispute to be prosecuted criminally. Quoting its decision in Paramjeet Batra v State of Uttarakhand, the Court observed:
“The High Court must see whether a dispute which is essentially of a civil nature is given a cloak of criminal offence. In such a situation, if a civil remedy is available and is, in fact, adopted as has happened in this case, the High Court should not hesitate to quash the criminal proceedings to prevent abuse of process of the court.”
Finding that the “element of criminality is absent,” the Court concluded that the continuation of the criminal case was an abuse of process.
Decision
For the reasons stated, the Supreme Court allowed the appeal and quashed FIR Crime No.260/2023, the subsequent chargesheet, and the cognizance order taken by the Magistrate. In the interest of justice, the Court extended the benefit of its order to a co-accused who was not a party to the appeal, stating, “Parity would so demand… as also to serve the cause of justice.”
Observations on BDA and Status Quo Order
In a remarkable epilogue to the judgment, the Bench expressed that its “judicial conscience… is ill at ease” regarding the larger circumstances of the case, particularly the actions of the Bangalore Development Authority (BDA). The Court noted with suspicion that the BDA, after its de-notification of the land was quashed, later challenged a High Court order favouring the appellants only to withdraw the appeal.
The Court termed this a potential “miscarriage of justice” and suspected “collusive litigation between the BDA and the appellants.” While initially proposing to exercise its extraordinary powers under Article 142 of the Constitution to investigate the matter, the Court refrained from doing so upon learning that a related SLP filed by the BDA was pending before another Bench.
To secure the ends of justice, the Court directed that its judgment be placed on the record of the pending SLP and ordered that “no third-party rights will be created or given effect to in the subject property by the appellants” until the other matter is decided by the Court.
