The Supreme Court of India, in a scathing indictment of an Allahabad High Court order authored by Justice Prashant Kumar, has set aside a decision by the Allahabad High Court that allowed criminal proceedings in a commercial dispute over an unpaid balance. The apex court bench of Justices J.B. Pardiwala and R. Mahadevan termed the High Court’s order “one of the worst and most erroneous” and a “mockery of justice,” while remanding the matter for a fresh hearing. In an extraordinary move, the Supreme Court directed the Chief Justice of the Allahabad High Court to withdraw all criminal cases from the concerned judge and assign him to a division bench with a senior judge.
The case originated from a private complaint filed by M/s Lalita Textile Concern (respondent no. 2) against M/s. Shikhar Chemicals (petitioner) in the court of the Additional Chief Judicial Magistrate-I, Kanpur Nagar. The complainant alleged that they had supplied yarn worth ₹52,34,385 to the petitioner between April and July 2019, out of which a balance of ₹4,59,385 remained unpaid since August 2019. The complainant further claimed interest on the outstanding amount.
After attempts to recover the dues through legal notices failed and a police complaint did not result in an FIR, the complainant filed a private complaint. The complaint also mentioned that the GST department had penalized the petitioner under Section 73(9) of the GST Act for fraudulently availing tax benefits. The Magistrate, after conducting an inquiry under Section 202 of the Cr.P.C., issued process against Mrs. Kumkum Pandey, the proprietor of M/s Shikhar Chemicals, for the offence of criminal breach of trust under Section 406 of the Indian Penal Code (IPC).
The petitioner challenged this summoning order before the High Court of Judicature at Allahabad by filing an application under Section 482 of the Cr.P.C. seeking to quash the proceedings.
High Court’s Decision
The High Court, presided over by Justice Prashant Kumar, rejected the petitioner’s application on May 5, 2025. The High Court’s reasoning, as quoted in the Supreme Court’s order, was particularly focused on the perceived hardships of civil litigation for a small business. The judge observed:
“In case, subject to filing civil suit, O.P. no.2 will not be in position to pursue the civil litigation. In case, O.P. no.2 files a civil suit firstly, it will take years for it to see any ray of hope and secondly, he will have to put more money to pursue the litigation. To be more precise it would seem like good money chasing bad money. If this Court allows the matter to be referred to civil court on account of civil dispute between the parties, it would amount to travesty of justice and O.P. no.2 would suffer irreparable loss…”
The High Court essentially justified the continuation of criminal proceedings as a means to avoid the delays and costs associated with civil suits.
Supreme Court’s Analysis and Scathing Observations
The Supreme Court bench of Justices J.B. Pardiwala and R. Mahadevan expressed profound disapproval of the orders passed by both the Magistrate and the High Court.
On the High Court Order: The bench began its order with an unusually strong rebuke, stating, “With all due deference and humility at our command, we are constrained to observe that the impugned order is one of the worst and most erroneous orders that we have come across in our respective tenures as judges of this Court.” The Court added that the judge “has not only cut a sorry figure for himself but has made a mockery of justice.” The bench expressed its bewilderment, questioning whether such orders stem from “extraneous considerations or it is sheer ignorance of law.”
Civil vs. Criminal Law: The Supreme Court emphasized the fundamental legal principle that a purely civil dispute cannot be given a criminal colour. The case, in its essence, was about an “unpaid seller” seeking to recover a balance amount. The Court noted that even the police had declined to register an FIR, recognizing the matter as a civil dispute.
The apex court criticized the High Court for sanctioning criminal proceedings as a recovery mechanism. It termed the High Court’s reasoning in paragraph 12 as “shocking” and an “extremely sad day for one and all.” The Court pointed out the flaw in the High Court’s logic, questioning, “Is it the understanding of the High Court that ultimately if the accused is convicted, the trial court would award him the balance amount?” The Court reiterated the well-settled law that permitting criminal proceedings in a civil dispute is an “abuse of process of law.”
Absence of Criminal Breach of Trust: The Supreme Court found that the Magistrate and the High Court had failed to appreciate the basic ingredients of criminal breach of trust under Section 406 IPC. The Court explained that a simple sale transaction does not involve “entrustment” of property, which is a prerequisite for the offence.
To clarify the law, the Court relied on its own landmark judgment from six decades ago in
State of Gujarat vs. Jaswantlal Nathalal (1968), where it was held that a “mere transaction of sale cannot amount to an entrustment.” The Court quoted from the 1968 judgment: “The expression ‘entrustment’ carries with it the implication that the person handing over any property or on whose behalf that property is handed over to another, continues to be its owner.” In a sale, property passes to the purchaser, and the seller no longer has dominion over it. The Court also noted its recent pronouncement in
Delhi Race Club (1940) Ltd. and Others v. State of U.P. and Another (2024), which had exhaustively explained the same principle.
The Final Decision and Extraordinary Directions
Given the “sheer ignorance of law” displayed, the Supreme Court allowed the petition in part, setting aside the impugned High Court order without issuing notice to the respondents. The Court remanded the quashing application back to the Allahabad High Court for a fresh hearing on its merits.
In an exceptional move driven by what it termed a pattern of “erroneous orders” from the same judge, the Supreme Court issued a series of directions to the Chief Justice of the Allahabad High Court:
- Reassignment of the Case: The matter is to be assigned to a different judge for the fresh hearing.
- Withdrawal of Criminal Roster: The Chief Justice must “immediately withdraw the present criminal determination from the concerned Judge.”
- Judicial Assignment: The concerned judge is to be placed in a Division Bench with “a seasoned senior judge.”
- Future Roster: The judge “shall not be assigned any criminal determination, till he demits office.” If he sits as a single judge in the future, it must not be with a criminal roster.
The Registry was directed to forward a copy of the order to the Chief Justice of the Allahabad High Court for immediate compliance.
