Date of the Judgment: January 2, 2023
Citation: 2023 INSC 1
Judges: Sanjiv Khanna, J. and J.K. Maheshwari, J.
Can a mere commercial dispute lead to criminal charges of breach of trust? The Supreme Court of India recently addressed this critical question in a case involving a paint dealership and allegations of a forged demand. The Court examined whether a monetary dispute between a company and its dealer could justify criminal proceedings for breach of trust, ultimately quashing the summoning order issued by the lower court.
The judgment was delivered by a two-judge bench comprising Justice Sanjiv Khanna and Justice J.K. Maheshwari. Justice Sanjiv Khanna authored the judgment.

Case Background

The case revolves around a commercial relationship between Jotun India Private Limited (JIPL), a paint manufacturer, and Shubhankar P. Tomar, the proprietor of Adhunik Colour Solutions, a paint dealer. JIPL and Tomar had dealership agreements for the supply and purchase of decorative paints in Uttar Pradesh and Delhi. Disputes arose between the parties, leading to both civil and criminal complaints.

JIPL filed two criminal complaints against Tomar under Section 138 of the Negotiable Instruments Act, 1881, due to the dishonor of two cheques issued by Tomar for outstanding payments. Subsequently, Tomar filed a private criminal complaint against JIPL, alleging that JIPL had raised a forged demand of Rs. 6,37,252.16 against him. Tomar claimed that JIPL had not provided proper invoices, had sent goods without orders, and had raised false bills. He also alleged that JIPL had not taken back the goods returned by him.

Timeline:

Date Event
April 11, 2012 (Disputed) JIPL and Tomar entered into a dealership agreement (as per JIPL).
March 20, 2012 (Disputed) JIPL and Tomar entered into a dealership agreement (as per Tomar).
October 27, 2013 (Disputed) JIPL and Tomar entered into a dealership agreement (as per JIPL).
January 30, 2013 (Disputed) JIPL and Tomar entered into a dealership agreement (as per Tomar).
May 16, 2014 (Disputed) JIPL and Tomar entered into a dealership agreement (as per Tomar).
December 2, 2014 Tomar protested against a bill of Rs. 4,33,633.47p via e-mail.
July 13, 2015 Tomar informed JIPL that 242 buckets of paint were available for return.
August 19, 2015 Tomar again informed JIPL that 242 buckets of paint were available for return.
January 4, 2016 Tomar sent an email to JIPL regarding the outstanding amount.
January 11, 2016 Tomar sent another email to JIPL regarding the outstanding amount.
August 8, 2016 Tomar issued two cheques to JIPL.
August 12, 2016 The two cheques issued by Tomar were dishonored due to insufficient funds.
August 20, 2016 JIPL issued a legal notice to Tomar for the dishonored cheques.
August 23, 2016 The legal notice sent to Tomar’s Delhi address was returned.
August 24, 2016 The legal notice sent to Tomar’s Ghaziabad address was served.
September 27, 2016 JIPL filed two criminal complaints against Tomar under Section 138 of the NI Act.
December 23, 2017 Tomar filed a private criminal complaint against JIPL.
July 19, 2018 Additional Chief Judicial Magistrate, Ghaziabad, issued a summoning order against JIPL under Section 406 of the IPC.
June 3, 2019 Additional Chief Judicial Magistrate issued a non-bailable warrant against the Chief Manager of JIPL.
March 30, 2022 High Court of Judicature at Allahabad dismissed JIPL’s petition under Section 482 of the Code of Criminal Procedure, 1973.
January 2, 2023 Supreme Court of India allowed the appeal and quashed the summoning order.

Course of Proceedings

The Additional Chief Judicial Magistrate, Ghaziabad, issued a summoning order on July 19, 2018, against the Manager and Chief Manager of JIPL under Section 406 of the Indian Penal Code, 1860 (IPC), for criminal breach of trust. The Magistrate found a prima facie case based on the complainant’s statements and the evidence presented, alleging a forged demand of Rs. 6,37,252.16 against the complainant.

JIPL challenged this summoning order before the High Court of Judicature at Allahabad, filing a petition under Section 482 of the Code of Criminal Procedure, 1973 (CrPC). However, the High Court dismissed JIPL’s petition on March 30, 2022, upholding the summoning order. Aggrieved by the High Court’s decision, JIPL appealed to the Supreme Court of India.

Legal Framework

The Supreme Court examined the following key provisions of the Indian Penal Code, 1860:

  • Section 405: Defines “criminal breach of trust.” It states that a person is said to commit “criminal breach of trust” if they are entrusted with property or have dominion over it, and they dishonestly misappropriate, convert, use, or dispose of that property in violation of any law or contract.
  • Section 406: Prescribes the punishment for criminal breach of trust, which may extend to three years, a fine, or both.
  • Section 415: Defines “cheating.” It states that a person is said to “cheat” if they fraudulently or dishonestly induce another person to deliver any property, or to do or omit to do anything which they would not do or omit if they were not deceived.
  • Section 420: Prescribes the punishment for cheating and dishonestly inducing delivery of property, which may extend to seven years, a fine, or both.
  • Section 464: Defines “making a false document.” It states that a person is said to make a “false document” if they dishonestly or fraudulently make, sign, seal, or execute a document with the intention of causing it to be believed that such document was made by someone else or by their authority.
  • Section 470: Defines “forged document.” It states that a false document made by forgery is designated as a “forged document.”
  • Section 471: Prescribes the punishment for using a forged document as genuine.

Arguments

Arguments by the Appellants (JIPL, Deepak Gaba, and Sanjay Ramachandran Nair):

  • The appellants argued that the complaint filed by Tomar was a misuse of the criminal justice system, as it was essentially a civil dispute regarding the settlement of accounts.
  • They contended that the ingredients of Sections 405, 420, and 471 of the IPC were not satisfied, as there was no evidence of entrustment, dishonest misappropriation, cheating, or forgery.
  • They submitted that the summoning order was issued without proper application of mind and without considering the essential ingredients of the alleged offenses.
  • The appellants also pointed out that the non-bailable warrant issued against the Chief Manager of JIPL was improper, as no specific individual was named in the summoning order.
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Arguments by the Respondent (Shubhankar P. Tomar):

  • Tomar argued that JIPL had violated the terms of service and had cheated him by raising a wrong outstanding amount of Rs. 6,37,252.16.
  • He alleged that JIPL had not provided copies of the written agreements and had sent goods without proper invoices.
  • He contended that JIPL had sold goods to third parties in his name and had raised false bills.
  • Tomar submitted that JIPL had raised a forged demand against him, which constituted a criminal breach of trust.

Submissions Table

Main Submission Sub-Submissions by Appellants (JIPL, Deepak Gaba, and Sanjay Ramachandran Nair) Sub-Submissions by Respondent (Shubhankar P. Tomar)
Nature of Dispute
  • Dispute is essentially civil, relating to settlement of accounts.
  • Criminal proceedings are a misuse of the legal system.
  • JIPL violated terms of service and cheated him.
  • JIPL raised a forged demand of Rs. 6,37,252.16.
Ingredients of Offenses
  • No evidence of entrustment, dishonest misappropriation (Section 405 IPC).
  • No evidence of cheating or inducement to deliver property (Section 420 IPC).
  • No evidence of forgery (Section 471 IPC).
  • JIPL did not provide copies of agreements.
  • Goods were sent without proper invoices.
  • JIPL sold goods to third parties in his name.
  • False bills were raised by JIPL.
Summoning Order
  • Summoning order issued without proper application of mind.
  • Essential ingredients of offenses not considered.
  • JIPL raised a forged demand, constituting a criminal breach of trust.
  • JIPL’s actions warrant criminal proceedings.
Non-Bailable Warrant
  • Non-bailable warrant against Chief Manager was improper.
  • No specific individual was named in the summoning order.
  • Not specifically addressed in the submissions.

Issues Framed by the Supreme Court

The Supreme Court considered the following issues:

  1. Whether the summoning order issued by the Additional Chief Judicial Magistrate, Ghaziabad, under Section 406 of the IPC was valid.
  2. Whether the allegations made in the complaint and the pre-summoning evidence satisfied the ingredients of Sections 405, 420, and 471 of the IPC.
  3. Whether the High Court was justified in dismissing the petition filed under Section 482 of the CrPC.

Treatment of the Issue by the Court

Issue Court’s Decision Brief Reasons
Validity of the summoning order under Section 406 of the IPC Invalid The court found that the allegations and evidence did not satisfy the ingredients of Section 405 of the IPC, which is necessary for an offense under Section 406. There was no proof of entrustment, dishonest misappropriation, or violation of any law or contract.
Satisfaction of ingredients of Sections 405, 420, and 471 of the IPC Not Satisfied The court determined that the complaint lacked the essential elements of each offense. There was no evidence of dishonest inducement to deliver property (Section 420), nor was there evidence of a forged document (Section 471). The dispute was primarily civil in nature.
Justification of High Court’s dismissal of the petition under Section 482 of the CrPC Not Justified The High Court failed to recognize that the criminal proceedings were initiated with an ulterior motive to wreak vengeance and that the allegations did not constitute a criminal offense. The Supreme Court held that the High Court should have exercised its inherent powers to quash the proceedings.

Authorities

Cases Relied Upon by the Court:

  • Dipakbhai Jagdishchndra Patel v. State of Gujarat, (2019) 16 SCC 547: Cited for the principle that a Magistrate can issue summons when the evidence shows sufficient ground for proceeding against the accused. (Supreme Court of India)
  • Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609: Cited for the principle that the material on record should indicate that the ingredients for taking cognizance of an offense and issuing summons are made out. (Supreme Court of India)
  • Pepsi Foods Ltd. v. Judicial Magistrate, (1998) 5 SCC 749: Cited for the principle that the Magistrate should carefully scrutinize the evidence before issuing summons. (Supreme Court of India)
  • Sudhir Shantilal Mehta v. Central Bureau of Investigation, (2009) 8 SCC 1: Cited for the principle that criminal breach of trust involves dishonest use or disposal of property in violation of law or contract. (Supreme Court of India)
  • Iridium India Telecom Limited v. Motorola Incorporated and Others, AIR 2011 SC 20: Cited for the principle that the sine qua non of Section 415 of the IPC is “fraudulence,” “dishonesty,” or “intentional inducement.” (Supreme Court of India)
  • Mohd. Ibrahim and Another v. State of Bihar and Others, (2009) 8 SCC 751: Cited for the principle that for the offense of cheating, there should not only be cheating, but also dishonest inducement to deliver property. Also, for the principle that the condition precedent of an offence under Section 471 of the IPC is forgery by making a false document or false electronic record or part thereof. (Supreme Court of India)
  • Thermax Limited and Others v. K. M. Johny, (2011) 13 SCC 412: Cited for the principle that the court should be watchful of the difference between civil and criminal wrongs. (Supreme Court of India)
  • Birla Corporation Limited v. Adventz Investments and Holdings Limited and Others, (2019) 16 SCC 610: Cited for the principle that the Magistrate should carefully scrutinize the evidence before issuing summons. (Supreme Court of India)
  • Mehmood Ul Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420: Cited for the principle that the Magistrate should carefully scrutinize the evidence before issuing summons. (Supreme Court of India)
  • Vijay Dhanuka v. Najima Mamtaj, (2014) 14 SCC 638: Cited for the principle that when summoning an accused outside the court’s jurisdiction, the Magistrate must inquire into the case or direct investigation. (Supreme Court of India)
  • Abhijit Pawar v. Hemant Madhukar Nimal kar, (2017) 3 SCC 528: Cited for the principle that when summoning an accused outside the court’s jurisdiction, the Magistrate must inquire into the case or direct investigation. (Supreme Court of India)
  • R.P. Kapur v. State of Punjab, AIR 1960 SC 866: Cited for the principle that criminal proceedings should not be initiated when it is manifest that these proceedings have been initiated with ulterior motive of wreaking vengeance. (Supreme Court of India)
  • State of Haryana and Others v. Bhajan Lal and Others, 1992 Supp (1) SCC 335: Cited for the principle that criminal proceedings should not be initiated when it is manifest that these proceedings have been initiated with ulterior motive of wreaking vengeance. (Supreme Court of India)
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Legal Provisions Considered by the Court:

  • Section 138 of the Negotiable Instruments Act, 1881: Regarding dishonor of cheques.
  • Section 405 of the Indian Penal Code, 1860: Defining criminal breach of trust.
  • Section 406 of the Indian Penal Code, 1860: Prescribing punishment for criminal breach of trust.
  • Section 415 of the Indian Penal Code, 1860: Defining cheating.
  • Section 420 of the Indian Penal Code, 1860: Prescribing punishment for cheating.
  • Section 464 of the Indian Penal Code, 1860: Defining making a false document.
  • Section 470 of the Indian Penal Code, 1860: Defining forged document.
  • Section 471 of the Indian Penal Code, 1860: Prescribing punishment for using a forged document as genuine.
  • Section 120A of the Indian Penal Code, 1860: Defining criminal conspiracy.
  • Section 120B of the Indian Penal Code, 1860: Prescribing punishment for criminal conspiracy.
  • Section 200 of the Code of Criminal Procedure, 1973: Regarding examination of the complainant.
  • Section 202 of the Code of Criminal Procedure, 1973: Regarding inquiry or investigation by Magistrate.
  • Section 204 of the Code of Criminal Procedure, 1973: Regarding issue of summons.
  • Section 482 of the Code of Criminal Procedure, 1973: Regarding inherent powers of the High Court.

Authority Table

Authority Court How it was Considered
Dipakbhai Jagdishchndra Patel v. State of Gujarat, (2019) 16 SCC 547 Supreme Court of India Cited to explain when a Magistrate can issue summons.
Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609 Supreme Court of India Cited to explain the requirements for taking cognizance of an offense.
Pepsi Foods Ltd. v. Judicial Magistrate, (1998) 5 SCC 749 Supreme Court of India Cited to explain the need for careful scrutiny of evidence before issuing summons.
Sudhir Shantilal Mehta v. Central Bureau of Investigation, (2009) 8 SCC 1 Supreme Court of India Cited to explain the elements of criminal breach of trust.
Iridium India Telecom Limited v. Motorola Incorporated and Others, AIR 2011 SC 20 Supreme Court of India Cited to define the essential elements of cheating.
Mohd. Ibrahim and Another v. State of Bihar and Others, (2009) 8 SCC 751 Supreme Court of India Cited to explain the elements of cheating and forgery.
Thermax Limited and Others v. K. M. Johny, (2011) 13 SCC 412 Supreme Court of India Cited to emphasize the difference between civil and criminal wrongs.
Birla Corporation Limited v. Adventz Investments and Holdings Limited and Others, (2019) 16 SCC 610 Supreme Court of India Cited to emphasize the need for careful scrutiny of evidence before issuing summons.
Mehmood Ul Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420 Supreme Court of India Cited to emphasize the need for careful scrutiny of evidence before issuing summons.
Vijay Dhanuka v. Najima Mamtaj, (2014) 14 SCC 638 Supreme Court of India Cited to explain the procedure for summoning an accused outside the court’s jurisdiction.
Abhijit Pawar v. Hemant Madhukar Nimalkar, (2017) 3 SCC 528 Supreme Court of India Cited to explain the procedure for summoning an accused outside the court’s jurisdiction.
R.P. Kapur v. State of Punjab, AIR 1960 SC 866 Supreme Court of India Cited to emphasize that criminal proceedings should not be initiated with ulterior motives.
State of Haryana and Others v. Bhajan Lal and Others, 1992 Supp (1) SCC 335 Supreme Court of India Cited to emphasize that criminal proceedings should not be initiated with ulterior motives.

Judgment

The Supreme Court allowed the appeal and quashed the summoning order issued by the Additional Chief Judicial Magistrate, Ghaziabad, as well as the order of the High Court upholding the summoning order. The Court held that the allegations in the complaint and the pre-summoning evidence did not satisfy the ingredients of Sections 405, 420, and 471 of the IPC. The Court emphasized that the dispute was primarily civil in nature and that the criminal proceedings were initiated with an ulterior motive.

Treatment of Submissions

Submission How it was Treated by the Court
Appellants’ Submission: The dispute is essentially civil, relating to settlement of accounts. Court’s Treatment: Accepted. The Court agreed that the dispute was primarily about the settlement of accounts and did not warrant criminal proceedings.
Appellants’ Submission: No evidence of entrustment, dishonest misappropriation, cheating, or forgery. Court’s Treatment: Accepted. The Court found that the ingredients of Sections 405, 420, and 471 of the IPC were not satisfied.
Appellants’ Submission: Summoning order was issued without proper application of mind. Court’s Treatment: Accepted. The Court held that the Magistrate did not properly scrutinize the evidence and apply the relevant legal provisions.
Appellants’ Submission: Non-bailable warrant against Chief Manager was improper. Court’s Treatment: Accepted. The Court noted that the non-bailable warrant was issued improperly without naming a specific individual.
Respondent’s Submission: JIPL violated terms of service and cheated him by raising a wrong outstanding amount. Court’s Treatment: Rejected. The Court held that a mere wrong demand does not constitute a criminal offense under Section 405 of the IPC.
Respondent’s Submission: JIPL did not provide copies of agreements and sent goods without proper invoices. Court’s Treatment: Rejected. The Court found that these allegations did not satisfy the ingredients of Sections 405, 420, or 471 of the IPC.
Respondent’s Submission: JIPL sold goods to third parties in his name and raised false bills. Court’s Treatment: Rejected. The Court found no evidence of forgery or dishonest inducement to deliver property.
Respondent’s Submission: JIPL raised a forged demand, constituting a criminal breach of trust. Court’s Treatment: Rejected. The Court held that a mere incorrect demand does not constitute a criminal breach of trust without proof of entrustment and dishonest misappropriation.
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Treatment of Authorities

Authority How it was Viewed by the Court
Dipakbhai Jagdishchndra Patel v. State of Gujarat, (2019) 16 SCC 547 Cited to emphasize that a Magistrate can issue summons when the evidence shows sufficient ground for proceeding against the accused. The Court found that this condition was not met in the present case.
Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609 Cited to emphasize that the material on record should indicate that the ingredients for taking cognizance of an offense and issuing summons are made out. The Court found that this condition was not met in the present case.
Pepsi Foods Ltd. v. Judicial Magistrate, (1998) 5 SCC 749 Cited to emphasize that the Magistrate should carefully scrutinize the evidence before issuing summons. The Court found that this was not done in the present case.
Sudhir Shantilal Mehta v. Central Bureau of Investigation, (2009) 8 SCC 1 Cited to explain the essential elements of criminal breach of trust, which the Court found were not satisfied in the present case.
Iridium India Telecom Limited v. Motorola Incorporated and Others, AIR 2011 SC 20 Cited to emphasize the need for “fraudulence,” “dishonesty,” or “intentional inducement” for an offense under Section 415 of the IPC, which the Court found lacking in the present case.
Mohd. Ibrahim and Another v. State of Bihar and Others, (2009) 8 SCC 751 Cited to explain that for the offense of cheating, there should not only be cheating, but also dishonest inducement to deliver property, and to explain the elements of forgery. The Court found both lacking in the present case.
Thermax Limited and Others v. K. M. Johny, (2011) 13 SCC 412 Cited to emphasize the need to distinguish between civil and criminal wrongs. The Court found that the present case was primarily a civil dispute.
Birla Corporation Limited v. Adventz Investments and Holdings Limited and Others, (2019) 16 SCC 610 Cited to emphasize the need for careful scrutiny of evidence before issuing summons. The Court found that this was was not done in the present case.
Mehmood Ul Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420 Cited to emphasize the need for careful scrutiny of evidence before issuing summons. The Court found that this was not done in the present case.
Vijay Dhanuka v. Najima Mamtaj, (2014) 14 SCC 638 Cited to explain the procedure for summoning an accused outside the court’s jurisdiction, which the Court found was not followed properly in the present case.
Abhijit Pawar v. Hemant Madhukar Nimalkar, (2017) 3 SCC 528 Cited to explain the procedure for summoning an accused outside the court’s jurisdiction, which the Court found was not followed properly in the present case.
R.P. Kapur v. State of Punjab, AIR 1960 SC 866 Cited to emphasize that criminal proceedings should not be initiated when it is manifest that these proceedings have been initiated with ulterior motive of wreaking vengeance. The Court found this principle applicable to the present case.
State of Haryana and Others v. Bhajan Lal and Others, 1992 Supp (1) SCC 335 Cited to emphasize that criminal proceedings should not be initiated when it is manifest that these proceedings have been initiated with ulterior motive of wreaking vengeance. The Court found this principle applicable to the present case.

Ratio Decidendi

The ratio decidendi of the judgment is that a mere commercial dispute or a disagreement over the settlement of accounts does not constitute a criminal offense of breach of trust, cheating, or forgery. Criminal proceedings should not be initiated when the allegations do not satisfy the essential ingredients of the alleged offenses and when the proceedings are initiated with an ulterior motive. The Court emphasized the need for a clear distinction between civil and criminal wrongs and highlighted the importance of proper scrutiny of evidence before issuing summons.

Ratio Decidendi Table

Legal Principle Explanation
Distinction Between Civil and Criminal Wrongs A commercial dispute or disagreement over accounts is primarily civil in nature and should not be converted into criminal proceedings.
Essential Ingredients of Offenses Criminal proceedings for breach of trust, cheating, or forgery require the satisfaction of specific legal elements, including entrustment, dishonest misappropriation, inducement to deliver property, and forgery.
Proper Scrutiny of Evidence Magistrates must carefully scrutinize the evidence and apply relevant legal provisions before issuing summons, especially when the complaint is based on a commercial dispute.
Ulterior Motive Criminal proceedings should not be initiated when it is manifest that these proceedings have been initiated with ulterior motive of wreaking vengeance.

Flowchart of the Case

Dealership Agreement between JIPL and Tomar
↓
Disputes Arise: Outstanding Payments and Disagreements
↓
JIPL Files Criminal Complaints Under Section 138 of NI Act
↓
Tomar Files Private Criminal Complaint Against JIPL
↓
Magistrate Issues Summoning Order Under Section 406 of IPC
↓
High Court Dismisses JIPL’s Petition
↓
Supreme Court Quashes Summoning Order

Conclusion

The Supreme Court’s judgment in Deepak Gaba & Ors. vs. State of Uttar Pradesh serves as a crucial reminder that not every commercial dispute should be escalated to criminal proceedings. The Court emphasized that for a case to qualify as a criminal breach of trust, cheating, or forgery, the essential ingredients of these offenses must be satisfied. The judgment underscores the importance of a careful assessment of evidence and the need to distinguish between civil and criminal wrongs. It also highlights the inherent powers of the High Court under Section 482 of the CrPC to quash proceedings when they are found to be an abuse of the legal process.

Source: Deepak Gaba & Ors. vs. State of Uttar Pradesh