Date of the Judgment: 01 March 2023
Citation: 2023 INSC 188
Judges: Justice Abhay S. Oka and Justice Rajesh Bindal
Can a criminal case be initiated for a breach of contract? The Supreme Court of India recently addressed this question in a case concerning a property sale agreement. The court quashed a First Information Report (FIR) filed for offenses of cheating, criminal conspiracy, and criminal intimidation, holding that a civil dispute was being improperly converted into a criminal matter. The judgment was delivered by a two-judge bench comprising Justice Abhay S. Oka and Justice Rajesh Bindal, with the opinion authored by Justice Rajesh Bindal.
Case Background
On May 27, 2013, the appellant, Sarabjit Kaur, entered into an agreement to purchase a plot of land from Malkit Kaur. Subsequently, on November 18, 2013, Sarabjit Kaur entered into an Agreement to Sell the same plot to Sarabjit Kaur (wife of Darshan Singh, the second respondent). The agreed date for the execution of the sale deed was June 25, 2014. It was explicitly stated in the Agreement to Sell that the vendor (Sarabjit Kaur, the appellant) was not the owner of the property at the time of the agreement. The appellant received ₹5,00,000 as earnest money. The date for registration of the sale deed was later extended to December 24, 2014, upon receipt of an additional sum of ₹75,000.
Darshan Singh, the second respondent, filed a complaint on September 30, 2015, against property dealers Manmohan Singh and Ranjit Singh, concerning the same Agreement to Sell and two other transactions. He sought recovery of ₹29,39,500 from the property dealers. This complaint was investigated, and on May 18, 2016, it was concluded that the matter was civil in nature, requiring no police action.
Darshan Singh filed another complaint on October 5, 2016, with the same allegations, without disclosing the fate of his earlier complaint. This complaint was also closed on January 23, 2017, after a similar inquiry. Subsequently, Darshan Singh filed a third complaint against the appellant, Ranjit Singh, and Manmohan Singh, which led to the registration of the FIR under Sections 420 (cheating), 120-B (criminal conspiracy), and 506 (criminal intimidation) of the Indian Penal Code, 1860.
Timeline
| Date | Event |
|---|---|
| May 27, 2013 | Sarabjit Kaur (Appellant) enters into an agreement to purchase land from Malkit Kaur. |
| November 18, 2013 | Sarabjit Kaur enters into an Agreement to Sell with Sarabjit Kaur (wife of Respondent No. 2), with the vendor not being the owner of the property. |
| June 25, 2014 | Initial date fixed for execution of sale deed. |
| December 24, 2014 | Extended date for execution of sale deed. |
| September 30, 2015 | Darshan Singh (Respondent No. 2) files a complaint against property dealers, seeking recovery of ₹29,39,500. |
| May 18, 2016 | Investigation concludes the dispute is civil in nature, requiring no police action. |
| October 5, 2016 | Darshan Singh files another complaint with the same allegations without disclosing the previous complaint. |
| January 23, 2017 | Second complaint is closed. |
| June 15, 2017 | Darshan Singh files a third complaint, leading to the registration of the FIR against the appellant. |
Course of Proceedings
The appellant initially approached the High Court seeking to quash the FIR. The High Court dismissed the petition, leading to the present appeal before the Supreme Court.
Legal Framework
The FIR was registered under Sections 420, 120-B, and 506 of the Indian Penal Code, 1860.
- ✓ Section 420 of the Indian Penal Code, 1860, deals with cheating and dishonestly inducing delivery of property.
- ✓ Section 120-B of the Indian Penal Code, 1860, pertains to criminal conspiracy.
- ✓ Section 506 of the Indian Penal Code, 1860, addresses the offense of criminal intimidation.
Arguments
The appellant’s counsel argued that the dispute was purely civil in nature. The respondent No. 2, who claimed to be the husband of the vendee, had filed two previous complaints with the same allegations, which were closed after being deemed civil matters. The appellant contended that if she failed to execute the sale deed by the extended date of December 24, 2014, the respondent No. 2 should have pursued a remedy for specific performance of the Agreement to Sell. Instead, the respondent No. 2 filed a third complaint without disclosing the fate of the previous two. The counsel emphasized that the FIR was registered nearly three years after the last date fixed for the sale deed’s execution and that the respondent No. 2 had never issued a notice seeking any remedy before filing the complaint.
The State’s counsel argued that since the chargesheet had been filed, the appellant could raise all pleas before the lower court, and it was not a case for quashing the FIR.
The respondent No. 2/complainant did not appear despite service of notice.
| Main Submissions | Sub-Submissions |
|---|---|
| Appellant’s Submissions |
|
| State’s Submissions |
|
Issues Framed by the Supreme Court
The Supreme Court did not explicitly frame issues in a separate section. However, the core issue was whether the FIR registered under Sections 420, 120-B, and 506 of the Indian Penal Code, 1860, was justified, given the nature of the dispute and the previous complaints filed by the respondent No. 2.
Treatment of the Issue by the Court
| Issue | Court’s Decision |
|---|---|
| Whether the FIR under Sections 420, 120-B, and 506 of the Indian Penal Code, 1860, was justified? | The Court held that the FIR was not justified. The dispute was primarily civil in nature, and the respondent No. 2 was attempting to convert it into a criminal matter to pressure the appellant. The Court quashed the FIR and all subsequent proceedings. |
Authorities
The judgment does not explicitly cite any cases or books. However, the court’s reasoning is based on the principle that a breach of contract does not automatically constitute a criminal offense unless fraudulent or dishonest intention is demonstrated from the beginning of the transaction.
| Authority | How the Court Considered It |
|---|---|
| Principle that breach of contract does not automatically constitute a criminal offense unless fraudulent or dishonest intention is demonstrated from the beginning of the transaction | The Court applied this principle to conclude that the dispute was civil in nature and did not warrant criminal proceedings. |
Judgment
| Submission by Parties | Treatment by the Court |
|---|---|
| Appellant’s submission that the dispute is civil in nature and the respondent should have sought specific performance. | The Court agreed with this submission, stating that the dispute was indeed civil and that the respondent was attempting to convert it into a criminal matter. |
| State’s submission that the chargesheet has been filed and the appellant can raise pleas before the lower court. | The Court rejected this submission, stating that allowing the proceedings to continue would be an abuse of process of the Court. |
The court did not cite any authorities.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the fact that the dispute was fundamentally a civil matter arising from a breach of contract. The Court observed that the respondent No. 2 had initially sought the return of the money paid, and only later introduced allegations of cheating. This, coupled with the fact that no civil proceedings were initiated, led the Court to conclude that the criminal complaint was filed to pressure the appellant. The Court emphasized that criminal courts should not be used to settle civil disputes.
| Sentiment | Percentage |
|---|---|
| Civil nature of the dispute | 40% |
| Lack of fraudulent intent | 30% |
| Attempt to misuse criminal proceedings for civil dispute | 20% |
| No effort to seek specific performance of the contract | 10% |
| Ratio | Percentage |
|---|---|
| Fact | 60% |
| Law | 40% |
The Court noted that the respondent No. 2’s actions suggested an attempt to convert a civil dispute into a criminal one to pressure the appellant. The Court stated that the criminal courts should not be used to settle scores or pressurize parties to settle civil disputes.
The Court observed that there was no evidence of any fraudulent or dishonest intention on the part of the appellant from the beginning of the transaction. The Court emphasized that a mere breach of contract does not give rise to criminal prosecution for cheating unless such intention is shown from the outset.
The Court also noted that the respondent No. 2 did not initiate any civil proceedings to get the sale deed executed. The Court observed that the complaint was filed nearly three years after the last date fixed for the registration of the sale deed.
The Supreme Court quoted, “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.”
The Supreme Court also observed, “Merely on the allegation of failure to keep up promise will not be enough to initiate criminal proceedings.”
The Supreme Court stated, “The criminal Courts are not meant to be used for settling scores or pressurise parties to settle civil disputes.”
Key Takeaways
- ✓ A breach of contract does not automatically constitute a criminal offense.
- ✓ Criminal proceedings should not be used to settle civil disputes.
- ✓ For a criminal offense of cheating to be made out, fraudulent or dishonest intention must be present from the beginning of the transaction.
- ✓ Parties should pursue civil remedies for breach of contract before resorting to criminal complaints.
Directions
The Supreme Court quashed the FIR No. 430 dated 16.10.2017 and all subsequent proceedings.
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 from the beginning of the transaction. This reiterates the established legal principle that criminal courts should not be used to settle civil disputes.
Conclusion
The Supreme Court allowed the appeal, setting aside the High Court’s order and quashing the FIR. The court emphasized that the dispute was civil in nature and that the respondent No. 2 was attempting to misuse criminal proceedings to pressure the appellant. The judgment reinforces the principle that a breach of contract does not automatically constitute a criminal offense unless fraudulent intent is proven from the outset.
Category
Parent Category: Indian Penal Code, 1860
Child Category: Section 420, Indian Penal Code, 1860
Child Category: Section 120-B, Indian Penal Code, 1860
Child Category: Section 506, Indian Penal Code, 1860
Parent Category: Contract Law
Child Category: Breach of Contract
Parent Category: Criminal Law
Child Category: Quashing of FIR
Parent Category: Property Law
Child Category: Agreement to Sell
FAQ
Q: What is the main issue in the Sarabjit Kaur vs. State of Punjab case?
A: The main issue was whether a criminal case could be initiated for a breach of contract in a property sale agreement, specifically if the seller failed to execute the sale deed.
Q: What did the Supreme Court decide in this case?
A: The Supreme Court quashed the FIR, stating that the dispute was civil in nature and that the criminal proceedings were an attempt to pressure the seller.
Q: Can I file a criminal complaint if someone breaches a contract with me?
A: Not automatically. A breach of contract is primarily a civil matter. You can file a criminal complaint for cheating only if you can prove that the other party had a dishonest intention from the beginning of the transaction.
Q: What should I do if someone breaches a contract with me?
A: You should first seek civil remedies, such as specific performance of the contract or compensation for damages. Criminal proceedings should be a last resort, and only if there is clear evidence of fraudulent intent.
Q: What does the Supreme Court mean by “abuse of process of the court”?
A: It means using the legal system for an improper purpose, such as using criminal proceedings to settle a civil dispute. The court will not allow this misuse of the legal system.