Supreme Court Quashes Criminal Case in Property Dispute: Kunti vs. State of Uttar Pradesh (2023)

Date of the Judgment: 3rd May, 2023

Citation: 2023 INSC 417

Judges: Krishna Murari, J., Sanjay Karol, J.

Can a property dispute, primarily a breach of contract, be escalated into a criminal case? The Supreme Court of India recently addressed this question, clarifying the boundaries between civil and criminal liabilities in property transactions. The Court, in this case, examined whether a dispute arising from an agreement to sell land should lead to criminal charges of cheating and breach of trust. The bench, comprising Justices Krishna Murari and Sanjay Karol, delivered the judgment, with Justice Sanjay Karol authoring the opinion.

Case Background

The appellants, Kunti and another, owned agricultural land in Uttar Pradesh. On July 11, 2008, they entered into an agreement to sell this land to Respondent No. 2, Mr. Ajay Kumar Bansal, for ₹10,80,000. Mr. Bansal paid ₹6,30,000 as an advance, with the remaining ₹4,50,000 to be paid upon execution of the sale deed. The agreement was registered with the Deputy Registrar at Bulandshahr.

The deadline for executing the sale deed was extended to December 31, 2008. Although Mr. Bansal was present with the remaining amount, the appellants did not appear. Mr. Bansal sent a notice on January 1, 2009, requesting the execution of the agreement. Despite several extensions, the appellants did not execute the sale deed. Subsequently, upon learning that the appellants were planning to sell the property to someone else, Mr. Bansal filed a First Information Report (FIR) at Police Station Kotwali, Bulandshahr, leading to criminal proceedings against the appellants.

Timeline:

Course of Proceedings

The appellants filed an application under Section 482 of the Code of Criminal Procedure, 1908 (CrPC) before the High Court of Judicature at Allahabad, seeking to quash the order of the Chief Judicial Magistrate, Bulandshahr, which had taken cognizance of the criminal case against them. The High Court dismissed this application, holding that there were no grounds to interfere with the lower court’s order. The High Court relied on the judgment in V. Ravi Kumar v. State 2018 SCC OnLine SC 2811, to refuse the prayer for quashing the FIR.

Legal Framework

The case involves several key legal provisions:

• Sections 406, 420, 467, 468, 417, and 418 of the Indian Penal Code, 1860 (IPC), which deal with criminal breach of trust, cheating, forgery, and related offenses.
• Section 157(A) of the Uttar Pradesh Zamindari Abolition & Land Reforms Act, 1950, which restricts the transfer of land by a person belonging to a Scheduled Caste to a person not of a Scheduled Caste without prior permission of the concerned Collector or District Magistrate.

The appellants argued that the agreement to sell was void ab initio under Section 157(A) of the Uttar Pradesh Zamindari Abolition & Land Reforms Act, 1950, as they belong to a Scheduled Caste, and the required prior permission was not obtained for the sale to a non-Scheduled Caste person. However, the Supreme Court did not engage with this argument, as the court found the dispute to be of a civil nature.

Arguments

Appellants’ Arguments:

• The agreement to sell was void from the beginning (void ab initio) due to Section 157(A) of the Uttar Pradesh Zamindari Abolition & Land Reforms Act, 1950, which requires prior permission for land transfer from a Scheduled Caste person to a non-Scheduled Caste person.
• The FIR was lodged four years after the scheduled date of the sale deed execution.
• The agreement to sell was forged, and a report had been filed with the Senior Superintendent of Police regarding this.

Respondent’s Arguments:

• The respondent argued that the appellants had committed offenses under Sections 406, 420, 467, 468, 417, and 418 of the Indian Penal Code, 1860, due to their failure to execute the sale deed despite receiving an advance payment.
• The respondent relied on the fact that the agreement was registered, indicating a valid transaction.

The appellants contended that the dispute was civil in nature and the respondent should have pursued civil remedies rather than lodging a criminal complaint. The Supreme Court focused on the nature of the dispute, observing that a breach of contract does not automatically constitute a criminal offense unless there is evidence of fraudulent or dishonest intent from the beginning of the transaction.

Issues Framed by the Supreme Court

The primary issue before the Supreme Court was:

1. Whether the dispute arising from the agreement to sell was civil in nature, and if so, whether a criminal case was maintainable.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues

Authorities

The Supreme Court considered the following authorities:

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

• The Supreme Court relied on Sarabjit Kaur v. State of Punjab and Anr. [2023 SCC OnLine 210]* to emphasize that a breach of contract does not automatically lead to criminal prosecution unless there is fraudulent intent from the outset.
• The Court cited ARCI v. Nimra Cerglass Technics (P) Ltd. [(2016) 1 SCC 348]* to distinguish between a mere breach of contract and the offense of cheating, noting that the intention of the accused at the time of the transaction is crucial.
• The Court referred to Vijay Kumar Ghai v. State of W.B [(2022) 7 SCC 124]*, G. Sagar Suri v. State of U.P. [(2000) 2 SCC 636]* and Indian Oil Corpn. v. NEPC India Ltd. [(2006) 6 SCC 736]* to highlight the need for caution in converting civil disputes into criminal cases.

What weighed in the mind of the Court?

The Supreme Court emphasized that a criminal hue had been unjustifiably lent to a civil issue. The Court observed that the dispute was primarily about a property transaction, specifically the buying and selling of land. The absence of any evidence suggesting dishonest intention on the part of the appellants at the time of entering into the agreement weighed heavily in the Court’s decision.

Sentiment Analysis of Reasons Given by the Supreme Court

Fact:Law Ratio

Logical Reasoning:

The Court noted that the dispute was essentially a breach of contract, and there was no indication that the appellants had a dishonest intention from the beginning. The Court emphasized that criminal proceedings should not be used to settle civil disputes. The Court observed that the High Court had erred in dismissing the application to quash the FIR.

The Court quoted from Sarabjit Kaur v. State of Punjab and Anr.: “A breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. Merely on the allegation of failure to keep up promise will not be enough to initiate criminal proceedings.”

The Court further quoted from Indian Oil Corpn. v. NEPC India Ltd.: “Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged.”

The Court set aside the High Court’s judgment and quashed the FIR and the criminal case. It clarified that its observations would not affect any civil remedies available to Respondent No. 2.

Key Takeaways

• A breach of contract does not automatically constitute a criminal offense.
• Criminal prosecution for cheating requires evidence of dishonest intent from the beginning of the transaction.
• Civil disputes should not be converted into criminal cases to pressure settlement.
• Courts must exercise caution in issuing processes in matters that are essentially civil in nature.

This judgment reinforces the principle that not every breach of contract warrants criminal prosecution. It emphasizes the need to distinguish between civil and criminal liabilities, ensuring that civil disputes are not inappropriately escalated into criminal cases.

Directions

The Supreme Court set aside the judgment of the High Court and quashed the FIR and the criminal proceedings against the appellants. The Court clarified that its observations would not affect any civil remedies available to the respondent.

Development of Law

The ratio decidendi of this case is that a breach of contract does not automatically give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. This judgment reinforces the principle that civil disputes should not be converted into criminal cases without sufficient evidence of criminal intent.

Conclusion

In conclusion, the Supreme Court allowed the appeal, quashing the criminal proceedings initiated against the appellants. The Court reiterated that a breach of contract does not automatically warrant criminal charges unless there is clear evidence of dishonest intent at the time of entering into the agreement. This judgment underscores the importance of maintaining a clear distinction between civil and criminal liabilities in contractual disputes.