Supreme Court quashes High Court order in cheating case: Dr. Lakshman vs. State of Karnataka (2019)

Date of the Judgment: 17 October 2019

Citation: 2019 INSC 1100

Judges: R. Banumathi, J., R. Subhash Reddy, J.

Can a High Court quash a criminal complaint of cheating simply because the complainant has also filed a civil suit for recovery of money and a case under Section 138 of the Negotiable Instruments Act? The Supreme Court of India recently addressed this question in a case where a complainant alleged that the accused cheated him of ₹9 crores. The Court examined whether the High Court was correct in quashing the criminal proceedings.

This judgment was delivered by a two-judge bench of Justices R. Banumathi and R. Subhash Reddy, with Justice R. Subhash Reddy authoring the opinion.

Case Background

The appellant, Dr. Lakshman, filed two criminal complaints against the respondents, alleging cheating and fraud. The first complaint, filed on April 29, 2013, accused the respondents of misrepresenting their ownership of land in Ballur village and taking ₹9 crores as advance payment, while failing to deliver the land as promised. The respondents included M/s. Pramila Santhosh Land Developers and Builders Pvt. Ltd., D.T. Santhosh, D.C. Thamanna, Smt. K.G. Pramila, and M/s. Sri Sai Developers.

The complainant alleged that the respondents entered into an agreement on September 26, 2012, promising to procure 70 acres of land. They received ₹9 crores as advance. The land to be procured included survey numbers 115 and 117. Subsequently, another agreement was entered into on November 8, 2012, with M/s. Sri Sai Developers as a party. The complainant alleged that the respondents had already sold the land covered by Survey Nos. 115 and 117 on June 7, 2012, prior to the agreement with the complainant. The complainant alleged that the respondents cheated him by including those lands in the agreement.

A second complaint was filed on November 27, 2015, after the respondents allegedly threatened and pressured the appellant. This complaint alleged that the accused failed to register the sale deeds as promised and forced the appellant to sign an addendum on May 30, 2013. The appellant was also made a confirming party to a sale deed of the disputed land to a trust, which was part of a larger conspiracy to avoid fulfilling their contract and illegally retain the ₹9 crores. The security cheques provided by the respondents were also found to be from a closed account.

Timeline

Course of Proceedings

The High Court of Karnataka allowed the petitions filed by the respondents under Section 482 of the Code of Criminal Procedure (Cr.P.C.), quashing both criminal complaints. The High Court reasoned that the agreement dated November 8, 2012, constituted a novation of the contract, and it disbelieved the Schedule to the MOU due to lack of pagination. The High Court also considered that the appellant had filed a civil suit for recovery of money and a complaint under Section 138 of the Negotiable Instruments Act, and that the appellant had joined in the sale deed for lands covered by Survey Nos. 115 and 117. Based on these grounds, the High Court quashed the criminal proceedings.

Legal Framework

The case involves the following legal provisions:

• Section 403 of the Indian Penal Code (IPC): This section deals with dishonest misappropriation of property.
• Section 406 of the IPC: This section deals with criminal breach of trust.
• Section 417 of the IPC: This section deals with punishment for cheating.
• Section 418 of the IPC: This section deals with cheating with knowledge that wrongful loss may ensue to person whose interest offender is bound to protect.
• Section 420 of the IPC: This section deals with cheating and dishonestly inducing delivery of property.
• Section 422 of the IPC: This section deals with dishonest or fraudulent removal or concealment of property to prevent its seizure as forfeited or in execution.
• Section 506(B) of the IPC: This section deals with criminal intimidation.
• Section 120(B) of the IPC: This section deals with criminal conspiracy.
• Section 34 of the IPC: This section deals with acts done by several persons in furtherance of common intention.
• Section 482 of the Code of Criminal Procedure (Cr.P.C.): This section deals with the inherent powers of the High Court to prevent abuse of the process of any court or to secure the ends of justice.

Arguments

Appellant’s Arguments:

• The appellant argued that the respondents misrepresented their ownership of land, took ₹9 crores as advance, and failed to deliver the land as promised.
• The appellant contended that the respondents had already sold the land covered by Survey Nos. 115 and 117 before entering into the agreement with the appellant.
• The appellant submitted that the respondents issued security cheques from a closed account, which is a clear indication of their dishonest intention.
• The appellant argued that he was forced to sign an addendum and a sale deed as a confirming party, which was part of a conspiracy to avoid fulfilling their contract.
• The appellant argued that the High Court erred in disbelieving the Schedule to the agreement merely because it was not paginated.
• The appellant argued that the filing of a civil suit for recovery and a complaint under Section 138 of the Negotiable Instruments Act does not justify quashing the criminal proceedings.

Respondents’ Arguments:

• The respondents argued that the agreement dated November 8, 2012, constituted a novation of the contract, thereby nullifying the earlier agreement.
• The respondents argued that the appellant had already filed a civil suit for recovery of money and a complaint under Section 138 of the Negotiable Instruments Act.
• The respondents argued that the appellant joined in the sale deed for lands covered by Survey Nos. 115 and 117, which showed that there was no cheating.
• The respondents relied on the judgment of the Supreme Court in S.W. Palanitkar and Ors. vs. State of Bihar and Anr., arguing that every breach of contract does not result in a penal offence.
• The respondents relied on the judgment of the Supreme Court in Anil Mahajan vs. Bhor Industries Ltd. and Anr., arguing that the dispute was civil in nature.
• The respondents relied on the judgment of the Supreme Court in Inder Mohan Goswami and Anr. vs. State of Uttaranchal and Ors., arguing that the High Court has power under Section 482 Cr.P.C. to quash the criminal proceedings.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

1. Whether the High Court was justified in quashing the criminal complaints under Section 482 of the Cr.P.C.
2. Whether the High Court was correct in holding that there was a novation of contract.
3. Whether the filing of a civil suit for recovery of money and a complaint under Section 138 of the Negotiable Instruments Act is a valid ground to quash criminal proceedings for cheating.

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 Court considered the authorities and held that:

• The Court acknowledged the principle in S.W. Palanitkar and Ors. vs. State of Bihar and Anr. [ (2002) 1 SCC 241 ]* that every breach of contract may not result in a penal offence, but emphasized that breach of trust with mens rea gives rise to a criminal prosecution.
• The Court noted that in Anil Mahajan vs. Bhor Industries Ltd. and Anr. [ (2005) 10 SCC 228 ]* it was held that where there exists a fraudulent and dishonest intention at the time of the commission of the offence, law permits the victim to proceed against the wrongdoer for having committed an offence of criminal breach of trust or cheating.
• The Court reiterated the scope of power of the High Court under Section 482 Cr.P.C. as held in Inder Mohan Goswami and Anr. vs. State of Uttaranchal and Ors. [ 2007 (12) Scale 15 ]* but held that the said judgment would not support the case of the respondents.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• The allegations of fraud and cheating were serious and required a full trial. The Court emphasized that the respondents allegedly misrepresented their ownership of land and took ₹9 crores as advance without intending to deliver the land.
• The Court noted that the respondents had allegedly sold the land before entering into the agreement with the appellant, which was a clear indication of dishonest intention.
• The Court considered the fact that the respondents issued security cheques from a closed account, which further strengthened the allegations of fraud.
• The Court also took into account the fact that the appellant was allegedly forced to sign an addendum and a sale deed as a confirming party, which indicated a conspiracy to avoid fulfilling the contract.
• The Court emphasized that the High Court should not have entered into factual disputes at the stage of considering a petition under Section 482 Cr.P.C.
• The Court held that the filing of a civil suit for recovery and a complaint under Section 138 of the Negotiable Instruments Act does not preclude criminal prosecution for cheating, especially when there is an element of fraud.

The following table shows the ranking of sentiment analysis of reasons given by the Supreme Court:

Fact:Law

The ratio of fact to law that influenced the court’s decision is as follows:

Logical Reasoning:

The Court considered alternative interpretations but rejected them because the allegations of fraud and cheating were serious and required a full trial. The Court emphasized that the High Court should not have entered into factual disputes at the stage of considering a petition under Section 482 Cr.P.C.

The Court’s decision was to set aside the High Court’s order and allow the trial court to proceed with the complaints. The Court reasoned that the allegations of cheating and criminal conspiracy against the accused were serious enough to warrant a full trial. The Court also emphasized that the High Court should not have entered into factual disputes at the stage of considering a petition under Section 482 Cr.P.C.

The Court stated, “When cheating and criminal conspiracy are alleged against the accused, for advancing a huge sum of Rs.9 crores, it is a matter which is to be tried, but at the same time the High Court has entered into the disputed area, at the stage of considering the petitions filed under Section 482, Cr.P.C.”

The Court further stated, “Though the contract is of civil nature, if there is an element of cheating and fraud it is always open for a party in a contract, to prosecute the other side for the offences alleged.”

The Court also stated, “Whether there is novation of contract or not and the effect of such entering into the contract is a matter which is required to be considered only after trial but not at the stage of considering the application under Section 482, Cr.P.C.”

The Supreme Court did not have a minority opinion in this case.

Key Takeaways

• A High Court should not quash criminal proceedings under Section 482 of the Cr.P.C. if there are serious allegations of cheating and fraud, especially when factual disputes exist.
• The filing of a civil suit for recovery of money and a complaint under Section 138 of the Negotiable Instruments Act does not preclude criminal prosecution for cheating.
• If there is an element of cheating and fraud in a contract, it is open for a party to prosecute the other side for the offences alleged, despite the civil nature of the contract.
• The issue of novation of contract is a matter that should be decided after trial, not at the stage of considering a petition under Section 482 Cr.P.C.
• The High Court should not disbelieve a document merely because it is not paginated, especially at the stage of considering a petition under Section 482 Cr.P.C.

Directions

The Supreme Court set aside the High Court’s order and directed the trial court to proceed with the complaints in accordance with law and decide the complaints on their own merits. The Court clarified that the findings recorded in the judgment were only for the purpose of the appeals and should not be construed as an expression of opinion on the merits of the matter.

Development of Law

The ratio decidendi of this case is that a High Court should not quash criminal proceedings under Section 482 of the Cr.P.C. if there are serious allegations of cheating and fraud, and the filing of a civil suit for recovery and a complaint under Section 138 of the Negotiable Instruments Act does not preclude criminal prosecution for cheating. This judgment clarifies that the existence of a civil remedy does not bar criminal prosecution when allegations of fraud and cheating are present.

Conclusion

In conclusion, the Supreme Court allowed the criminal appeals filed by the complainant, Dr. Lakshman, and set aside the High Court’s order that had quashed the criminal complaints. The Supreme Court held that the High Court had erred in entering into factual disputes and in holding that the filing of a civil suit and a complaint under Section 138 of the Negotiable Instruments Act was sufficient grounds to quash the criminal proceedings. The Supreme Court emphasized that the allegations of cheating and fraud were serious and required a full trial. The Court directed the trial court to proceed with the complaints in accordance with law and decide the complaints on their own merits.