Supreme Court Quashes Criminal Charges in Property Dispute: Anand Kumar Mohatta vs. State (2018)

Date of the Judgment: November 15, 2018
Citation: 2018 INSC 1020
Judges: S.A. Bobde, J., L. Nageswara Rao, J.
Can a property dispute arising from a failed development agreement lead to criminal charges of breach of trust? The Supreme Court of India recently addressed this question in a case where a real estate developer was accused of criminal breach of trust for not returning an advance payment after a project fell through. The court clarified that such disputes are civil in nature and do not warrant criminal prosecution. This judgment, authored by Justice S.A. Bobde, with Justice L. Nageswara Rao concurring, emphasizes the distinction between civil and criminal liabilities and protects individuals from being subjected to criminal proceedings for what are essentially contractual disagreements.

Case Background

This case involves a dispute between Mr. Anand Kumar Mohatta (Appellant No. 1) and Ansal Properties & Infrastructure Ltd. (Respondent No. 2) concerning a development agreement for a property located at 20, Feroz Shah Road, New Delhi. Initially, the property was owned by Mr. Mohatta and later transferred to his wife, Mrs. Shobha Anand Mohatta (Appellant No. 2). On June 3, 1993, Mr. Mohatta entered into a development agreement with Ansal Properties to construct a high-rise building on the property. As part of the agreement, Ansal Properties paid an advance of Rs. One crore. However, due to new building regulations prohibiting high-rise construction in the Lutyens Bungalow Zone, the project could not proceed.

On March 14, 2011, Mr. Mohatta informed Ansal Properties that he no longer wished to develop the property. Despite this, the advance payment of Rs. One crore was not returned. Subsequently, Ansal Properties filed a criminal complaint on November 19, 2011, alleging offences under Section 406 (criminal breach of trust) and Section 420 (cheating) of the Indian Penal Code, 1860. After the police refused to register an FIR, Ansal Properties approached the court under Section 156(3) of the Criminal Procedure Code, which was later withdrawn on November 11, 2013. A fresh complaint was filed, leading to the FIR on August 20, 2014, against Mr. and Mrs. Mohatta, for the offence under Section 406 of the Indian Penal Code, 1860.

The Appellants then approached the High Court of Delhi under Section 482 of the Criminal Procedure Code to quash the FIR, arguing that the dispute was civil in nature. The High Court dismissed the petition, stating it was premature as the investigation was ongoing. Following the High Court’s decision, the police filed a charge sheet on August 3, 2018. The Appellants then amended their appeal to also challenge the charge sheet.

Timeline

Course of Proceedings

The Appellants initially filed a petition under Section 482 of the Criminal Procedure Code in the High Court of Delhi seeking to quash the FIR. The High Court dismissed the petition, stating that it was premature since the investigation was still ongoing. The High Court directed the investigation to proceed and ordered the Appellants to cooperate with the investigation. Subsequently, the Appellants approached the Supreme Court by way of a Special Leave Petition. During the pendency of the appeal, the police filed a charge sheet. The Appellants then amended their petition to include a prayer for quashing the charge sheet as well.

Legal Framework

The core legal issue revolves around Section 406 of the Indian Penal Code, 1860, which deals with criminal breach of trust. This section is linked to Section 405 of the Indian Penal Code, 1860, which defines criminal breach of trust.

Section 405 of the Indian Penal Code, 1860 states:

“405. Criminal breach of trust.—Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits “criminal breach of trust”.”

Section 406 of the Indian Penal Code, 1860 outlines the punishment for criminal breach of trust:

“406. Punishment for criminal breach of trust.—Whoever commits criminal breach of trust shall be punished with imprisonment of either description for a term which may extend to three years, or with fine, or with both.”

The Supreme Court also considered Section 482 of the Criminal Procedure Code, which empowers the High Court to prevent the abuse of the process of any court or to secure the ends of justice.

Section 482 of the Criminal Procedure Code states:

“482. Saving of inherent power of High Court.—Nothing in this Code shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or otherwise to secure the ends of justice.”

Arguments

Arguments by the Appellants

• The Appellants argued that the dispute was purely civil in nature, arising from a failed development agreement. The retention of the Rs. One crore advance was not a criminal offense but a matter of contractual disagreement.
• The amount was not returned because the contingency for its return, as per Clause 30(b) of the agreement, which was handing over possession of the owner’s share in the group housing complex, had not occurred.
• The Appellants contended that they retained the amount as security because the developer (Respondent No. 2) was in part possession of the property and had not fulfilled the obligation of vacating a tenant from the property.
• The FIR was lodged with mala fide intentions to pressurize the Appellants to agree to new terms of the agreement.

Arguments by the Respondent No. 2 (Ansal Properties)

• The Respondent argued that the petition to quash the FIR was not maintainable since a charge sheet had already been filed.
• The Respondent contended that the Appellant No. 1 had fraudulently transferred the property to his wife (Appellant No. 2) to defeat the development agreement, constituting a criminal breach of trust.
• The Respondent argued that the Appellants had undervalued the property in a collusive suit before the Bombay High Court, thus wrongly transferring the property.

Arguments by the Respondent No. 1 (State)

• The State relied on the charge sheet, arguing that the Appellants had committed an offense under Section 406 of the Indian Penal Code, 1860 by not returning the Rs. One crore advance.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section, however, the core issues the court addressed were:

1. Whether the High Court can entertain a petition under Section 482 of the Criminal Procedure Code to quash an FIR after a charge sheet has been filed.
2. Whether the alleged fraudulent transfer of property by Appellant No. 1 to his wife constitutes an offense of criminal breach of trust under Section 406 of the Indian Penal Code, 1860.
3. Whether the retention of Rs. One crore by the Appellants amounts to a criminal breach of trust under Section 406 of the Indian Penal Code, 1860.

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

The Supreme Court allowed the appeal, quashing the FIR and charge sheet against the Appellants. The Court held that the dispute was civil in nature and did not constitute a criminal offense.

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

How each authority was viewed by the Court?

The Court relied on the following authorities:

• New Delhi Municipal Council v. Tanvi Trading and Credit Private Limited [2008 (8) SCC 765]:* The Court used this case to establish the zoning regulations of the property, which made the development agreement impossible.
• Joseph Salvaraj A. v. State of Gujarat [(2011) 7 SCC 59]:* The Court relied on this case to hold that the High Court can examine whether offenses are prima facie made out even after a charge sheet is filed.
• G. Sagar Suri and Anr. V. State of U.P and Others [(2000) 2 SCC 636]:* The Court cited this case to support the view that the High Court can exercise jurisdiction under Section 482 of the Criminal Procedure Code even when a discharge application is pending.
• Umesh Kumar V. State of Andhra Pradesh and Anr. [(2013) 10 SCC 591]:* The Court cited this case to support the view that the High Court can exercise jurisdiction under Section 482 of the Criminal Procedure Code even when a discharge application is pending.
• Indian Oil Corporation v. NEPC India Ltd. and others [2006 (6) SCC 736]:* The Court cited this case to emphasize that civil disputes should not be converted into criminal cases, and that any effort to settle civil disputes through criminal prosecution should be discouraged.
• State of Haryana and Ors. v. Bhajan Lal and Ors. [(1992) Supp (1) SCC 335]:* The Court relied on this case to categorize the circumstances under which the High Court can exercise its inherent powers under Section 482 of the Criminal Procedure Code, and found that the present case falls under the 1st, 3rd, and 5th categories.
• State of Karnataka v. L. Muniswamy and others [1977 (2) SCC 699]:* The Court used this case to emphasize that the High Court can quash proceedings to prevent abuse of the process of the court.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the nature of the dispute, which it deemed to be civil rather than criminal. The court emphasized that the essential elements of criminal breach of trust were missing in this case. The advance payment was not entrusted property but a deposit related to a contractual agreement. The court also noted that there was no dishonest misappropriation or use of the funds in violation of any law or contract. The court also highlighted the mala fide intention of the complainant in initiating criminal proceedings instead of pursuing civil remedies. The Court was also influenced by the fact that the contingency for the return of the money had not occurred, and the complainant had not demanded the return of the amount.

Logical Reasoning

The court considered the argument that the Appellant No. 1 had fraudulently transferred the property to his wife, but held that this did not constitute criminal breach of trust as the property was not entrusted to the Appellants by the complainant. The court also noted that the amount of Rs. One crore was paid as a deposit and not as an entrusted property. The court observed that the essence of the offence under Section 406 of the Indian Penal Code, 1860 lies in the dishonest use of property that has been entrusted to a person. In this case, the court found that the amount was not used in any way contrary to the agreement, and therefore no criminal offense was made out.

The Supreme Court also emphasized that the dispute was contractual and should have been resolved through civil proceedings. The court noted that the complainant had not made any attempt to recover the money through a civil action, which further indicated that the criminal proceedings were mala fide and intended to harass the Appellants. The court also relied on the judgment in Indian Oil Corporation v. NEPC India Ltd. and others, which discourages the conversion of civil disputes into criminal cases.

The Court quoted from the judgment in State of Karnataka v. L. Muniswamy and others, stating:

“In the exercise of this wholesome power, the High Court is entitled to quash a proceeding if it comes to the conclusion that allowing the proceeding to continue would be an abuse of the process of the Court or that the ends of justice require that the proceeding ought to be quashed.”

The Court also quoted from State of Haryana and Ors. v. Bhajan Lal and Ors., stating:

“Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.”

The Court also quoted from State of Haryana and Ors. v. Bhajan Lal and Ors., stating:

“Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused.”

The Court also quoted from State of Haryana and Ors. v. Bhajan Lal and Ors., stating:

“Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.”

The Court concluded that the prosecution was mala fide and intended to harass the Appellants, and therefore, quashed the FIR and the charge sheet.

Key Takeaways

• Disputes arising from failed contractual agreements, particularly those related to property development, are generally civil in nature and should be resolved through civil proceedings, not criminal prosecution.
• Criminal breach of trust under Section 406 of the Indian Penal Code, 1860 requires an entrustment of property, dishonest misappropriation, or use of the property in violation of law or contract. A mere failure to return a deposit does not automatically constitute a criminal offense.
• The High Court’s power under Section 482 of the Criminal Procedure Code to prevent abuse of process is not limited to the stage of the FIR; it can be exercised even after a charge sheet has been filed.
• Courts should be cautious in allowing criminal proceedings to be used as a tool to settle civil disputes.

Directions

The Supreme Court did not issue any specific directions apart from quashing the FIR and charge sheet.

Development of Law

The ratio decidendi of this case is that disputes arising from failed contractual agreements, particularly those related to property development, are generally civil in nature and should be resolved through civil proceedings, not criminal prosecution. This case reinforces the principle that criminal law should not be used to settle civil disputes. The judgment clarifies that a mere failure to return a deposit does not constitute criminal breach of trust unless there is an entrustment of property and dishonest misappropriation or use of the property in violation of law or contract. This ruling reaffirms the boundaries between civil and criminal law, protecting individuals from being subjected to criminal proceedings for what are essentially contractual disagreements.

Conclusion

The Supreme Court’s decision in Anand Kumar Mohatta vs. State (Govt. of NCT of Delhi) clarifies that disputes arising from failed development agreements, particularly those involving financial deposits, are civil in nature and do not warrant criminal prosecution. The court quashed the FIR and charge sheet, emphasizing that the essential elements of criminal breach of trust were absent. This judgment reinforces the principle that criminal law should not be used to settle civil disputes and protects individuals from being subjected to undue harassment through criminal proceedings.