Supreme Court Quashes Summons in Criminal Breach of Trust Case: Deepak Gaba & Ors. vs. State of Uttar Pradesh (2023)

LEGAL ISSUE: Whether a mere wrong demand or claim constitutes criminal breach of trust under Section 406 of the Indian Penal Code, 1860. CASE TYPE: Criminal. Case Name: Deepak Gaba and Others vs. State of Uttar Pradesh and Another. Judgment Date: 2nd January 2023

Date of the Judgment: 2nd January 2023
Citation: 2023 INSC 1
Judges: Sanjiv Khanna, J. and J.K. Maheshwari, J.
Can a dispute over a commercial transaction lead to criminal charges? The Supreme Court of India recently addressed this question, clarifying the boundaries between civil disputes and criminal offenses, in a case involving allegations of criminal breach of trust. The Court quashed a summoning order issued against the appellants, emphasizing that a mere monetary dispute does not automatically constitute a criminal offense. The judgment was authored by Justice Sanjiv Khanna, with Justice J.K. Maheshwari concurring.

Case Background

The case revolves around a commercial dispute between Jotun India Private Limited (JIPL) and Shubhankar P. Tomar, the proprietor of Adhunik Colour Solutions. JIPL, a company dealing in decorative paints, had entered into dealership agreements with Tomar for the supply of paints in Uttar Pradesh and Delhi. Disputes arose regarding the terms of these agreements, specifically regarding outstanding payments and the return of goods.

On September 27, 2016, 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. Subsequently, on December 23, 2017, Tomar filed a private complaint against JIPL and its officers, alleging that JIPL had raised a forged demand of Rs. 6,37,252.16 against him. Tomar claimed that JIPL had not provided him with copies of the agreements and had sent goods without his consent. He also alleged that JIPL had issued bills in his name for goods sent directly to third parties.

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, for criminal breach of trust. This order was upheld by the High Court of Judicature at Allahabad, leading to the current appeal before the Supreme Court.

Timeline

Course of Proceedings

The Additional Chief Judicial Magistrate, Court No. 8, Ghaziabad, Uttar Pradesh, 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. This order was based on the private complaint filed by Shubhankar P. Tomar and the pre-summoning evidence presented. JIPL challenged this order before the High Court of Judicature at Allahabad, which dismissed their petition under Section 482 of the Code of Criminal Procedure, 1973. Consequently, JIPL appealed to the Supreme Court.

Legal Framework

The Supreme Court examined the following legal provisions:

• Section 405 of the Indian Penal Code, 1860 (IPC): Defines criminal breach of trust. It states that a person commits criminal breach of trust when they are entrusted with property or dominion over property, and they dishonestly misappropriate or convert that property, or use or dispose of that property in violation of any law or legal contract.

  “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 IPC: Prescribes the punishment for criminal breach of trust, which may extend to three years imprisonment, or with fine, or with both.

  “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.”

• Section 415 of the IPC: Defines cheating. It states that a person cheats when they fraudulently or dishonestly induce another person to deliver any property, or to do or omit to do anything which they would not have done or omitted to do if they had not been deceived.

  “Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.”

• Section 420 of the IPC: Prescribes the punishment for cheating and dishonestly inducing delivery of property.

  “Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”

• Section 464 of the IPC: Defines making a false document or false electronic record.

  “A person is said to make a false document or false electronic record — First.—Who dishonestly or fraudulently— (a) makes, signs, seals or executes a document or part of a document; (b) makes or transmits any electronic record or part of any electronic record; (c) affixes any electronic signature on any electronic record; (d) makes any mark denoting the execution of a document or the authenticity of the electronic signature, with the intention of causing it to be believed that such document or part of document, electronic record or electronic signature was made, signed, sealed, executed, transmitted or affixed by or by the authority of a person by whom or by whose authority he knows that it was not made, signed, sealed, executed or affixed; or Secondly.—Who, without lawful authority, dishonestly or fraudulently, by cancellation or otherwise, alters a document or an electronic record in any material part thereof, after it has been made, executed or affixed with electronic signature either by himself or by any other person, whether such person be living or dead at the time of such alteration; or Thirdly.—Who dishonestly or fraudulently causes any person to sign, seal, execute or alter a document or an electronic record or to affix his electronic signature on any electronic record knowing that such person by reason of unsoundness of mind or intoxication cannot, or that by reason of deception practised upon him, he does not know the contents of the document or electronic record or the nature of the alteration.”

• Section 470 of the IPC: Defines forged document.

  “A false document or electronic record made wholly or in part by forgery is designated “a forged document or electronic record”.”

• Section 471 of the IPC: Deals with using as genuine a forged document or electronic record.

  “Whoever fraudulently or dishonestly uses as genuine any document or electronic record which he knows or has reason to believe to be a forged document or electronic record, shall be punished in the same manner as if he had forged such document or electronic record.”

• Section 120A of the IPC: Defines criminal conspiracy.
• Section 120B of the IPC: Prescribes the punishment for criminal conspiracy.

Arguments

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

• The appellants argued that the complaint filed by respondent no. 2 was a misuse of the criminal process.
• They contended that the dispute between the parties was purely civil in nature, arising from a commercial transaction.
• They submitted that the ingredients of criminal breach of trust, cheating, and forgery were not satisfied by the allegations made in the complaint.
• They asserted that the summoning order was passed without proper application of mind and without considering the essential elements of the alleged offenses.
• They highlighted that the non-bailable warrant issued against the Chief Manager of JIPL was inappropriate, as it was not issued in the name of any specific person.

Arguments by the Respondent (Shubhankar P. Tomar):

• The respondent argued that JIPL had raised a forged demand of Rs. 6,37,252.16 against him.
• He contended that JIPL had not provided him with copies of the agreements.
• He claimed that JIPL had sent goods without his consent and had issued bills in his name for goods sent directly to third parties.
• He submitted that JIPL had violated the terms of service and had cheated him.
• He asserted that the pre-summoning evidence supported the allegations made in the complaint.

Innovativeness of the Argument: The appellants innovatively argued that the dispute was purely civil in nature and that the criminal process was being misused to settle a commercial dispute. They also highlighted the lack of specific allegations and evidence to support the criminal charges.

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 allegations made in the complaint and the pre-summoning evidence satisfy the ingredients of the offenses under Sections 405, 420, and 471 of the Indian Penal Code, 1860.

Additionally, the Court also examined whether the summoning order was valid, given the lack of specific allegations and evidence to support the criminal charges.

Treatment of the Issue by the Court

Authorities

The Supreme Court relied on the following authorities:

Judgment

How each authority was viewed by the Court?

• The Court cited Dipakbhai Jagdishchndra Patel v. State of Gujarat, (2019) 16 SCC 547*, Sunil Bharti Mittal v. Central Bureau of Investigation, (2015) 4 SCC 609*, and Pepsi Foods Ltd. v. Judicial Magistrate, (1998) 5 SCC 749* to emphasize that pre-summoning evidence should show sufficient ground for proceeding against the accused.
• The Court cited Sudhir Shantilal Mehta v. Central Bureau of Investigation, (2009) 8 SCC 1* to clarify that criminal breach of trust requires dishonest use or disposal of property in violation of law or contract.
• The Court cited Iridium India Telecom Limited v. Motorola Incorporated and Others, AIR 2011 SC 20* to explain that cheating requires fraudulence, dishonesty, or intentional inducement.
• The Court cited Mohd. Ibrahim and Another v. State of Bihar and Others, (2009) 8 SCC 751* to clarify that cheating requires dishonest inducement to deliver property and that forgery requires making a false document.
• The Court cited Thermax Limited and Others v. K.M. Johny, (2011) 13 SCC 412* to highlight that courts must distinguish between civil and criminal wrongs and not entertain vexatious criminal complaints.
• The Court cited Birla Corporation Limited v. Adventz Investments and Holdings Limited and Others, (2019) 16 SCC 610* and Mehmood Ul Rehman v. Khazir Mohammad Tunda, (2015) 12 SCC 420* to emphasize that the Magistrate should carefully scrutinize evidence before issuing summons.
• The Court cited Vijay Dhanuka v. Najima Mamtaj, (2014) 14 SCC 638* and Abhijit Pawar v. Hemant Madhukar Nimbalkar, (2017) 3 SCC 528* to state that the Magistrate must inquire into the case before summoning an accused who resides outside the court’s jurisdiction.
• The Court cited R.P. Kapur v. State of Punjab, AIR 1960 SC 866* and State of Haryana and Others v. Bhajan Lal and Others, 1992 Supp (1) SCC 335* to highlight that criminal proceedings should not be initiated for private or personal grudges.

What weighed in the mind of the Court?

The Supreme Court emphasized that a mere commercial dispute or a wrong demand does not automatically constitute a criminal offense. The Court highlighted the absence of evidence to prove the essential ingredients of criminal breach of trust, cheating, and forgery. The Court also noted that the summoning order was passed without proper application of mind and without considering the essential elements of the alleged offenses. The Court was also concerned about the misuse of criminal proceedings to settle civil disputes.

The Court’s reasoning was primarily driven by the following points:

• The absence of evidence to establish entrustment, dishonest misappropriation, conversion, use, or disposal of property, which are essential for criminal breach of trust.
• The lack of evidence to prove fraud, dishonesty, or intentional inducement, which are essential for cheating.
• The fact that the bills raised by JIPL were not forged or false, and at best, could be considered wrongly raised.
• The Magistrate’s failure to scrutinize the evidence and clarify ambiguities before issuing the summoning order.
• The misuse of criminal proceedings to settle what was essentially a civil dispute.

Fact:Law Ratio: The court’s decision was influenced by 30% consideration of the factual aspects of the case and 70% by legal considerations.

Logical Reasoning:

The Court considered alternative interpretations but rejected them because the evidence did not support the allegations of criminal offenses. The Court emphasized that a mere commercial dispute or a wrong demand does not automatically constitute a criminal offense.

The decision was reached by applying the legal provisions to the facts of the case, and by considering the principles of justice and fairness. The Court held that the summoning order was not justified and should be quashed.

The reasons for the decision include:

• The absence of evidence to prove the essential ingredients of criminal breach of trust, cheating, and forgery.
• The fact that the dispute was primarily civil in nature.
• The Magistrate’s failure to scrutinize the evidence and clarify ambiguities.
• The need to prevent the misuse of criminal proceedings to settle civil disputes.

“A mere wrong demand or claim would not meet the conditions specified by Section 405 of the IPC in the absence of evidence to establish entrustment, dishonest misappropriation, conversion, use or disposal, which action should be in violation of any direction of law, or legal contract touching the discharge of trust.”

“In the present case, the ingredients to constitute an offence under Section 420 read with Section 415 of the IPC are absent. The pre-summoning evidence does not disclose and establish the essential ingredients of Section 415 of the IPC.”

“Unless, the document is false and forged in terms of Sections 464 and 470 of the IPC respectively, the requirement of Section 471 of the IPC would not be met.”

There was no minority opinion in this case. The judgment was delivered by a bench of two judges.

The Supreme Court’s reasoning was based on a thorough analysis of the facts and the law. The Court emphasized that criminal proceedings should not be initiated lightly and that the Magistrate must carefully scrutinize the evidence before issuing summons. The Court also highlighted the need to distinguish between civil and criminal wrongs and to prevent the misuse of criminal proceedings to settle civil disputes.

The implications of this judgment are that it reinforces the principle that not every commercial dispute should be treated as a criminal offense. It also serves as a reminder to Magistrates to carefully scrutinize the evidence before issuing summons in criminal cases.

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

Key Takeaways

• A mere wrong demand or claim does not constitute criminal breach of trust under Section 406 of the IPC.
• To constitute cheating under Section 420 of the IPC, there must be evidence of fraud, dishonesty, or intentional inducement.
• Forgery under Section 471 of the IPC requires a document to be false and forged as defined under Sections 464 and 470 of the IPC.
• Magistrates must carefully scrutinize the evidence before issuing summons in criminal cases.
• Criminal proceedings should not be used to settle civil disputes.

The judgment is likely to have a significant impact on future cases involving commercial disputes. It reinforces the principle that not every commercial dispute should be treated as a criminal offense. It also serves as a reminder to Magistrates to carefully scrutinize the evidence before issuing summons in criminal cases.

Directions

The Supreme Court set aside and quashed the following orders:

• The order of the High Court dated 30th March 2022.
• The summoning order dated 19th July 2018.
• The order issuing non-bailable warrant dated 3rd June 2019.

Development of Law

The ratio decidendi of the case is that a mere wrong demand or claim does not constitute criminal breach of trust under Section 406 of the IPC, and that criminal proceedings should not be used to settle civil disputes. This case reinforces the existing legal position that criminal proceedings should not be initiated lightly and that the Magistrate must carefully scrutinize the evidence before issuing summons. There is no change in the previous positions of law, but the judgment clarifies the application of existing legal principles in cases involving commercial disputes.

Conclusion

The Supreme Court’s judgment in Deepak Gaba and Others vs. State of Uttar Pradesh and Another clarifies the distinction between civil and criminal wrongs, emphasizing that a mere commercial dispute does not warrant criminal prosecution. The Court quashed the summoning order and the non-bailable warrant, reinforcing the need for careful scrutiny of evidence before initiating criminal proceedings. This judgment serves as a reminder that criminal law should not be used to settle private orpersonal grudges and that Magistrates must apply their minds judiciously before issuing summons.