The Supreme Court of India, comprising a Bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan, has held that the offences of cheating under Section 420 and criminal breach of trust under Section 406 of the Indian Penal Code, 1860 cannot co-exist simultaneously on the same set of facts and property. Quashing a criminal prosecution arising out of a failed real estate Joint Development Agreement, the Court ruled that a purely contractual dispute regarding property development and non-grant of planning permission had been given an unwarranted criminal cloak.
Background of the Case
The dispute traces back to May 23, 2012, when landowners G. Saminathan and his wife S. Radhika Malini (the appellants) entered into an unregistered Joint Development Agreement (JDA) with the Joint Managing Director and authorised representative of M/s Barath Building Construction (India) Pvt. Ltd. (the complainant) for developing residential flats on 0.50 acres of land in Sholinganallur village, Kancheepuram District, Chennai. On the same day, the landowners executed a General Power of Attorney (GPA) in favour of the complainant, and the construction company paid a refundable security deposit of Rs. 3,00,00,000 (Rupees three crore) through two cheques.
The construction company subsequently applied for Planning Permission before the Chennai Metropolitan Development Authority (CMDA). However, on August 26, 2013, the CMDA rejected the application on the ground that the land formed part of an unapproved layout made after December 31, 1989, and failed to establish a qualifying public road length of 250 metres.
On January 5, 2018, the landowners cancelled the GPA executed in favour of the complainant and sold the property to a third party, Smt. Banumathi, via a registered sale deed. On January 9, 2018, the complainant lodged a written complaint before the Commissioner of Police, Chennai, alleging that the landowners had suppressed the legal defects of the property, induced the company to part with Rs. 3 crore, and illegally sold the property while retaining the security deposit. On the very same day, the landowners issued a legal notice requesting the return of the original title deeds and offering to repay the refundable security deposit of Rs. 3 crore, an offer the complainant declined.
Following an application under Section 156(3) of the Code of Criminal Procedure, 1973, an FIR (No. 181 of 2021) was registered by the Central Crime Branch-I, Chennai. Subsequently, a chargesheet was filed on March 23, 2023, initiating criminal proceedings in C.C. No. 2776 of 2023 before the Metropolitan Magistrate for Special Court CCB, CBCID, Egmore, Chennai, under Sections 406 and 420 read with Sections 109 and 34 of the IPC.
The High Court of Judicature at Madras dismissed the landowners’ petition under Section 482 CrPC seeking to quash the criminal proceedings on March 28, 2025, leading to the present appeal before the Supreme Court.
Arguments of the Parties
Counsel for the landowners submitted that the grievances were purely contractual in nature, arising out of the Joint Development Agreement, non-grant of planning permission, cancellation of GPA, and sale of property. It was argued that the parties had already engaged in arbitration proceedings, resulting in an arbitral award dated April 12, 2023, which directed the complainant to return all original title documents and the landowners to return the Rs. 3 crore security deposit. The appellants contended that Clause 6 of the JDA placed the onus of due diligence on the construction company, and failure to obtain planning permission could not be attributed to the landowners. Furthermore, they pointed out that the complainant had challenged the arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, proving that civil remedies were already being actively pursued.
Conversely, counsel for the complainant argued that the landowners had owned the property since 1996 and had full knowledge that it was an unapproved layout. It was contended that they made false representations regarding clear title to dishonestly induce the company into paying Rs. 3 crore, subsequently selling the land to a third party without refunding the security deposit. The complainant asserted that when there is evidence of fraudulent inducement from the inception, the matter must be tried as a criminal case even if it touches upon a civil transaction.
Court’s Analysis and Legal Findings
Delivering the judgment, Justice B.V. Nagarathna analysed the essential ingredients required to constitute offences under Sections 406 (criminal breach of trust) and 420 (cheating) of the IPC.
Regarding Section 406 IPC, the Court observed that the payment of a refundable security deposit by the complainant was consideration for the execution of the General Power of Attorney, rather than an entrustment of property. Additionally, the landowners had explicitly offered to refund the amount upon the return of original title deeds. Citing Binod Kumar v. State of Bihar (2014) 10 SCC 663, the Supreme Court emphasized:
“To make out a case of criminal breach of trust, it is not sufficient to show that money has been retained by the appellants. It must also be shown that the appellants dishonestly disposed of the same in some way or dishonestly retained the same. The mere fact that the appellants did not pay the money to the complainant does not amount to criminal breach of trust.”
On the charge of cheating under Section 420 IPC, the Court held that culpable dishonest intention must exist right at the inception of the transaction and cannot be presumed merely from a subsequent failure of contract or project failure. Referring to Hridaya Ranjan Prasad Verma v. State of Bihar (2000) 4 SCC 168, the Bench noted:
“Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed.”
The Court further cited Dalip Kaur v. Jagnar Singh (2009) 14 SCC 696 to reiterate that a failure to refund advance money in a civil dispute resulting from a breach of contract does not constitute cheating. The Bench remarked that developers are expected to conduct comprehensive due diligence prior to entering into development ventures, and any failure to secure planning permission cannot be converted into a tool for criminal prosecution.
Addressing the maintainability of charging an accused under both provisions simultaneously, the Bench referred to the legal principle laid down in Delhi Race Club (1940) Ltd. v. State of U.P. (2024) 10 SCC 690, quoting:
“Although the offence i.e. the offence of breach of trust and cheating involve dishonest intention, yet they are mutually exclusive and different in basic concept.”
“In such a situation, both the offences cannot co-exist simultaneously.”
Applying this principle, the Court clarified that if there was a lawful entrustment of Rs. 3,00,00,000 under the Joint Development Agreement, it could not be a case of cheating; conversely, if plan sanction was rejected, the non-return of money did not amount to criminal breach of trust.
Deprecating the practice of dressing civil disputes in criminal attire, the Court cited Indian Oil Corporation v. NEPC India Ltd. (2006) 6 SCC 736:
“It is to be seen if a matter, which is essentially of a civil nature, has been given a cloak of criminal offence. Criminal proceedings are not a short cut of other remedies available in law.”
Applying the principles laid down in State of Haryana v. Bhajan Lal (1992 Supp (1) SCC 335), the Supreme Court held that allowing the criminal prosecution to continue would be a sheer abuse of the judicial process.
Final Decision
The Supreme Court set aside the impugned order of the Madras High Court dated March 28, 2025, and allowed the appeal under Section 482 CrPC. Consequently, the Court quashed all proceedings in C.C. No. 2776 of 2023 pending before the Metropolitan Magistrate for Special Court CCB, CBCID, Egmore, Chennai, arising out of FIR No. 181 of 2021 and the chargesheet dated March 23, 2023. The Court clarified that its observations would not impede either party from pursuing their respective civil remedies on merits.
Case Details Case Title: G. Saminathan & Another v. The State, Represented by the Sub-Inspector of Police & Another
Case No.: Criminal Appeal No. of 2026 (Arising out of Special Leave Petition (Criminal) No. 10294 of 2025)
Bench: Justice B.V. Nagarathna and Justice Ujjal Bhuyan
Date: July 31, 2026
