Supreme Court quashes criminal proceedings in commercial dispute: Sachin Garg vs. State of U.P. (2024) INSC 72 (30 January 2024)

Date of the Judgment: 30 January 2024
Citation: 2024 INSC 72
Judges: Aniruddha Bose, J., Sanjay Kumar, J.
Can a commercial dispute be escalated into a criminal case? The Supreme Court of India recently addressed this question in a case involving allegations of criminal breach of trust and intimidation arising from a payment disagreement between a supplier and a company head. The Court clarified that not all payment disputes warrant criminal prosecution and emphasized that civil remedies should be the primary recourse in such cases. The judgment was delivered by a two-judge bench comprising Justice Aniruddha Bose and Justice Sanjay Kumar, with Justice Aniruddha Bose authoring the opinion for the bench.

Case Background

The case revolves around a dispute between Sachin Garg, the Head of Factory at Exide Industries Limited (EIL), and Ambika Gases, a supplier of Dissolved Acetylene Gas (DA Gas). Ambika Gases, owned by respondent no. 2, supplied DA Gas to EIL’s factory in Bawal, Haryana. The dispute arose from a purchase order issued on 01.04.2019, which was amended twice. The first amendment on 18.07.2019 increased the rate from Rs. 1.55 to Rs. 1.65 per unit, while the second on 20.12.2019 reduced it to Rs. 1.48 per unit. An invoice for Rs. 9,36,693.18 was raised by Ambika Gases based on these rates. However, EIL, after allegedly verifying market prices, sent a letter on 29.06.2020, reconciling the accounts and appropriating what it deemed as overcharged amounts. This led to the supplier filing a criminal complaint against Sachin Garg.

Timeline:

Course of Proceedings

The respondent no. 2 filed a complaint case in the Court of the Chief Judicial Magistrate, Ghaziabad, alleging that Sachin Garg had committed criminal breach of trust and criminal intimidation. The Magistrate issued summons for trial under Sections 406, 504, and 506 of the Indian Penal Code, 1860. Sachin Garg then approached the High Court at Allahabad under Section 482 of the Code of Criminal Procedure, 1973, seeking to quash the summons and the complaint. The High Court dismissed his application, stating that the case involved disputed questions of fact that needed to be adjudicated by the trial court. This led to the appeal before the Supreme Court.

Legal Framework

The legal framework of this case involves the following provisions:

• Section 405 of the Indian Penal Code, 1860: This section defines criminal breach of trust. It states that a person is said to have committed criminal breach of trust if they are entrusted with property, or with any dominion over property, and they dishonestly misappropriate or convert that property to their own use, or dishonestly use or dispose of that property, or wilfully suffer any other person to do so, in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract which the person has made, touching the discharge of such trust.
• Section 406 of the Indian Penal Code, 1860: This section prescribes the punishment for criminal breach of trust.
• Section 504 of the Indian Penal Code, 1860: This section deals with intentional insult with intent to provoke breach of the peace.
• Section 506 of the Indian Penal Code, 1860: This section deals with criminal intimidation.
• Section 482 of the Code of Criminal Procedure, 1973: This section grants inherent powers to the High Court to make orders 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

Appellant’s (Sachin Garg) Arguments:

• The complaint does not disclose any criminal offense and is, at best, a commercial dispute that should be resolved by a civil court.
• There was no entrustment of property or dishonest misappropriation to attract Section 405 of the Indian Penal Code, 1860.
• The allegations of criminal intimidation are vague and lack specific details.
• The High Court failed to consider that the dispute was essentially commercial and did not warrant criminal proceedings.
• The appellant relied on the judgment in Deepak Gaba and Ors. -vs- State of Uttar Pradesh and Another [(2023) 3 SCC 423], which clarified the ingredients of Section 405 of the Indian Penal Code, 1860.
• The appellant also referred to Dalip Kaur and Ors. -vs- Jagnar Singh and Anr. [(2009) 14 SCC 696], which held that a breach of contract does not constitute cheating or criminal breach of trust.

Respondent’s (Ambika Gases) Arguments:

• The complaint and initial depositions do disclose criminal offenses, and the matter should proceed to trial.
• The Magistrate was correct in issuing summons, as there was sufficient ground for proceeding.
• The High Court rightly refused to interfere at the initial stage, as the matter involved disputed questions of fact.
• The complainant need not disclose all details of the offending acts at this stage.
• The respondent relied on the judgment of this Court in the case of Jagdish Ram -vs- State of Rajasthan and Another [(2004) 4 SCC 432], which held that a Magistrate is empowered to take cognizance if the material on record makes out a case for the said purpose.
• The respondent also referred to Fiona Shrikhande -vs- State of Maharashtra and Another [(2013) 14 SCC 44], arguing that the complaint need not repeat the actual words of insult, and the complaint has to be read as a whole.
• The appellant has the right to apply for discharge before the trial court.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame issues in a separate section. However, the core issue that the court addressed was:

1. Whether the complaint filed by the respondent discloses any criminal offense, specifically under Sections 405, 406, 504, and 506 of the Indian Penal Code, 1860, or whether it is essentially a commercial dispute that should be resolved through civil proceedings.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Cases:

• R.P. Kapur -vs- State of Punjab [AIR 1960 SC 866]: This case laid down the principles for quashing criminal proceedings by the High Court. The Court referred to this case to highlight the inherent powers of the High Court under Section 482 of the Code of Criminal Procedure, 1973, and the circumstances under which such powers can be exercised.
• State of Haryana and Ors. -vs- Bhajan Lal and Ors. [1992 SCC (Cr.) 426]: This case outlined the circumstances under which a criminal case can be quashed by the High Court. The Court referred to this case to discuss the seven-point edict laid down for quashing criminal proceedings.
• Neeharika Infrastructure Pvt. Ltd. -vs- State of Maharashtra and Ors. [(2021) 19 SCC 401]: This case discussed the factors to be considered by the High Court when quashing an FIR at the threshold. The Court referred to this case to examine the principles for quashing criminal proceedings at the initial stage.
• Deepak Gaba and Ors. -vs- State of Uttar Pradesh and Another [(2023) 3 SCC 423]: This case clarified the essential ingredients of Section 405 of the Indian Penal Code, 1860, which defines criminal breach of trust. The Court relied on this case to determine whether the facts of the present case satisfied the requirements of Section 405.
• Prof. R.K. Vijayasarathy and Anr. -vs- Sudha Seetharam and Anr. [(2019) 16 SCC 739]: This case also dealt with the ingredients of Section 405 of the Indian Penal Code, 1860. The Court cited this case to support its view that a mere dispute on monetary demand does not attract criminal prosecution under Section 406.
• Vijay Kumar Ghai and Ors. -vs- State of West Bengal and Ors. [(2022) 7 SCC 124]: This case also discussed the requirements of Section 405 of the Indian Penal Code, 1860, and was used by the Court to reinforce its position that a simple monetary dispute does not constitute a criminal offense.
• Dalip Kaur and Ors. -vs- Jagnar Singh and Anr. [(2009) 14 SCC 696]: This case held that a breach of contract does not constitute cheating or criminal breach of trust. The Court relied on this case to emphasize that a civil dispute should not be given a criminal color.
• Jagdish Ram -vs- State of Rajasthan and Another [(2004) 4 SCC 432]: This case held that a Magistrate is empowered to take cognizance if the material on record makes out a case for the said purpose. The Court referred to this case while discussing the Magistrate’s power to issue summons.
• Fiona Shrikhande -vs- State of Maharashtra and Another [(2013) 14 SCC 44]: This case discussed the allegations of criminal intimidation. The Court referred to this case to determine whether the allegations in the complaint constituted criminal intimidation.
• Binod Kumar and Ors. -vs- State of Bihar and Another [(2014) 10 SCC 663]: This case dealt with a criminal complaint arising out of the retention of bill amount in a commercial transaction. The Court relied on this case to support its decision to quash the criminal proceedings.
• Pepsi Foods Ltd. and Anr. -vs- Special Judicial Magistrate and Ors. [(1998) 5 SCC 749]: This case reiterated that a Magistrate must be satisfied that there is sufficient ground for proceeding before issuing summons. The Court referred to this case to emphasize the need for the Magistrate to apply their mind before issuing summons.
• Sharad Kumar Sanghi -vs- Sangita Rane [(2015) 12 SCC 781]: This case held that when the allegations are against a company, the company must be made an accused. The Court distinguished this case from the present case, stating that the allegations were directly against the appellant.

Judgment

How each authority was viewed by the Court?

• The Court relied on Deepak Gaba and Ors. -vs- State of Uttar Pradesh and Another [(2023) 3 SCC 423]* to clarify that for Section 405 of the Indian Penal Code, 1860 to be attracted, there must be evidence of entrustment, dishonest misappropriation, and a violation of law or contract.
• The Court applied the principles laid down in R.P. Kapur -vs- State of Punjab [AIR 1960 SC 866]* and State of Haryana and Ors. -vs- Bhajan Lal and Ors. [1992 SCC (Cr.) 426]* to determine whether the High Court should have quashed the criminal proceedings.
• The Court used Dalip Kaur and Ors. -vs- Jagnar Singh and Anr. [(2009) 14 SCC 696]* to emphasize that a breach of contract does not constitute a criminal offense.
• The Court distinguished the facts of the present case from Sharad Kumar Sanghi -vs- Sangita Rane [(2015) 12 SCC 781]*, stating that the allegations were directly against the appellant.
• The Court cited Jagdish Ram -vs- State of Rajasthan and Another [(2004) 4 SCC 432]* and Pepsi Foods Ltd. and Anr. -vs- Special Judicial Magistrate and Ors. [(1998) 5 SCC 749]* to highlight that a Magistrate must apply their mind before issuing summons.
• The Court used Binod Kumar and Ors. -vs- State of Bihar and Another [(2014) 10 SCC 663]* to support its decision to quash the criminal proceedings, as the essential ingredients of criminal breach of trust were missing.

What weighed in the mind of the Court?

The Supreme Court was primarily influenced by the fact that the dispute between the parties was essentially a commercial one, stemming from a disagreement over payment rates. The Court emphasized that not every commercial dispute warrants criminal prosecution. The absence of any evidence of dishonest misappropriation or criminal intent weighed heavily in the Court’s decision. The Court also noted that the allegations of criminal intimidation were vague and lacked specific details, further weakening the case for criminal prosecution.

Fact:Law Ratio

The Court’s reasoning was primarily based on legal principles and precedents, with a focus on the absence of criminal intent and the commercial nature of the dispute. The factual aspects of the case were considered to determine if they aligned with the legal requirements for criminal offenses. The Court emphasized that the case was predominantly a matter of contract and payment, which should be resolved through civil remedies.

Logical Reasoning

The Supreme Court considered the alternative interpretation that the dispute could be a genuine criminal offense, but rejected it due to the lack of evidence supporting criminal intent or dishonest misappropriation. The Court emphasized that the dispute arose from a commercial transaction and a disagreement over payment, which did not meet the threshold for criminal prosecution. The Court’s decision was based on a careful analysis of the facts and the relevant legal provisions and precedents.

The Court held that the allegations in the complaint did not constitute the offenses for which the appellant was summoned. The Court also noted that the High Court failed to exercise its jurisdiction under Section 482 of the Code of Criminal Procedure, 1973, to prevent the abuse of the power of the criminal court.

The Court reasoned that a commercial dispute should not be given a criminal color by merely using phrases from the penal code in a criminal complaint.

The Court stated:

“The dispute, per se, is commercial in nature having no element of criminality.”

“A commercial dispute, which ought to have been resolved through the forum of Civil Court has been given criminal colour by lifting from the penal code certain words or phrases and implanting them in a criminal complaint.”

“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.”

There were no dissenting opinions in this case. The decision was unanimous.

The judgment clarifies that mere non-payment or a dispute over rates in a commercial transaction does not automatically constitute a criminal offense. It emphasizes the need for a clear distinction between civil and criminal matters.

The judgment has potential implications for future cases involving commercial disputes, as it reinforces the principle that criminal proceedings should not be used as a shortcut for resolving contractual or payment disagreements.

No new doctrines or legal principles were introduced in this judgment. The Court primarily applied existing legal principles and precedents to the facts of the case.

Key Takeaways

• Commercial disputes arising from disagreements over payment rates do not automatically constitute criminal offenses.
• Criminal proceedings should not be used to resolve what are essentially civil or contractual disputes.
• For a criminal breach of trust to be established, there must be clear evidence of dishonest misappropriation or conversion of property.
• Allegations of criminal intimidation must be specific and detailed, not vague or general.
• Magistrates must apply their minds and ensure there is sufficient ground for proceeding before issuing summons in criminal cases.

This judgment has the potential to reduce the misuse of criminal proceedings in commercial disputes and to encourage parties to seek civil remedies for contractual and payment disagreements.

Directions

The Supreme Court set aside the impugned judgment and quashed the Criminal Complaint Case No.7990 of 2020 as well as the summoning order issued on 18.08.2021. All consequential steps in connection with the said proceeding were also quashed.

Development of Law

The ratio decidendi of this case is that a commercial dispute, specifically one arising from a disagreement over payment rates, does not automatically constitute a criminal offense under Sections 405, 406, 504, and 506 of the Indian Penal Code, 1860. The judgment reinforces the principle that criminal proceedings should not be used as a substitute for civil remedies in commercial disputes. This decision does not introduce a new position of law but rather reaffirms and applies existing legal principles to the facts of the case. The court reiterated that for a criminal breach of trust to be made out, there must be dishonest misappropriation or conversion of property, which was absent in this case. This judgment serves as a reminder that criminal law is not intended to be used as a tool for resolving commercial disagreements.

Conclusion

The Supreme Court’s decision in Sachin Garg vs. State of U.P. clarifies that commercial disputes, particularly those involving payment disagreements, should not be escalated into criminal cases without clear evidence of criminal intent or dishonest misappropriation. The Court quashed the criminal proceedings, emphasizing that such matters should be resolved through civil remedies. This judgment reinforces the need for a clear distinction between civil and criminal matters and serves as a crucial reminder that criminal law is not intended to be a substitute for civil remedies in commercial disputes.