Supreme Court Sets Aside Quashing of Criminal Proceedings in Property Dispute: Priti Saraf vs. State of NCT of Delhi (2021)

Date of the Judgment: March 10, 2021
Citation: 2021 INSC 151
Judges: Indu Malhotra, J., Ajay Rastogi, J.

Can a dispute arising from a failed property sale agreement lead to criminal charges, or is it purely a civil matter? The Supreme Court of India addressed this question in a recent case, examining whether the High Court was correct in quashing criminal proceedings related to allegations of cheating and breach of trust in a property deal. This case highlights the delicate balance between civil and criminal law in commercial transactions.

The Supreme Court bench, comprising Justices Indu Malhotra and Ajay Rastogi, delivered the judgment. Justice Rastogi authored the opinion for the bench.

Case Background

The case involves a property dispute where the appellants (Priti Saraf and another) filed a complaint against the second respondent alleging cheating and breach of trust. The second respondent owned a property in New Delhi, which was mortgaged with State Bank of Patiala for ₹18 crores. To clear this debt, the second respondent entered into an agreement to sell a portion of the property to the first appellant for ₹63,28,50,750.

On December 24, 2011, an agreement to sell was executed, and the first appellant paid ₹12.50 crores as an advance. The agreement included three compulsory requirements to be completed by the second respondent by March 24, 2012. The first appellant further paid ₹5.40 crores on May 23, 2012, even though the requirements were not met. The second respondent provided post-dated cheques worth ₹25.50 crores as security.

The second respondent cleared the bank dues and obtained a No Objection Certificate (NOC) but did not inform the appellants. Later, the second respondent terminated the agreement on January 30, 2013. The appellants alleged that the second respondent intended to cheat them from the beginning, misappropriating the funds and failing to fulfill the agreement terms.

Timeline:

Course of Proceedings

The appellants filed a private complaint before the Magistrate, who ordered the registration of an FIR under Section 156(3) of the Code of Criminal Procedure (CrPC). The Additional Sessions Judge dismissed a revision petition filed by the second respondent. Subsequently, the police registered an FIR under Sections 420 (cheating), 406 (criminal breach of trust), and 34 (common intention) of the Indian Penal Code (IPC).

The Investigating Officer filed a charge-sheet. The second respondent then challenged the orders before the High Court under Section 482 CrPC, which allows the High Court to quash proceedings to prevent abuse of process. The High Court quashed the criminal proceedings, stating that the matter was a civil dispute and that the initiation of criminal proceedings was an abuse of the court’s process, especially since arbitration proceedings had been initiated.

Legal Framework

The case primarily revolves around Sections 420 and 406 of the Indian Penal Code, 1860 (IPC).

• Section 420, IPC: This section deals with cheating and dishonestly inducing delivery of property. It states, “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 406, IPC: This section pertains to criminal breach of trust. It states, “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 34, IPC: This section defines common intention. It states, “When a criminal act is done by several persons in furtherance of the common intention of all, each of such persons is liable for that act in the same manner as if it were done by him alone.”
• Section 482, CrPC: This section pertains to the inherent powers of the High Court. It states, “Nothing in this Code shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be 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

Appellants’ Arguments:

• The appellants argued that the charge-sheet filed by the Investigating Officer disclosed offenses under Sections 406, 420, and 34 of the IPC. They emphasized that the High Court ignored the charge-sheet while quashing the criminal proceedings.
• They contended that the High Court’s power under Section 482 of the CrPC should be used sparingly, only in the rarest of rare cases. The High Court should have considered the complaint, charge-sheet, and witness statements before deciding to quash the proceedings.
• The appellants argued that the High Court erred by treating the case as a simple breach of contract, ignoring the evidence of criminal intent. They pointed out that the Additional Sessions Judge had correctly found no flaw in the order taking cognizance of the offenses.
• The appellants contended that the High Court did not consider the material facts on record, including the charge sheet, and proceeded on the premise that the dispute was civil in nature, especially since arbitration proceedings were ongoing.
• They relied on various judgments of the Supreme Court to support their argument that the High Court should not have quashed the criminal proceedings.

Second Respondent’s Arguments:

• The second respondent argued that the agreement to sell disclosed all facts about the property, including the mortgage. They claimed that the agreement was terminated because the appellant failed to fulfill their obligations.
• They argued that the dispute was purely civil, arising from a breach of contract, and that the forfeiture of the earnest money was justified. They also pointed out that arbitration proceedings had been initiated.
• The second respondent contended that neither the complaint nor the charge-sheet revealed a prima facie criminal offense under Sections 420, 406, and 34 of the IPC. They argued that initiating criminal proceedings was an abuse of process to settle scores.
• The second respondent argued that no offense under Section 406 of the IPC was made out as the earnest money was paid in terms of the contract and there was no restriction in the agreement as to how this money was to be utilised.
• They claimed that the appellant had suppressed the fact that they received a letter from the respondent, indicating the appellant’s lack of readiness to perform their obligations. They also argued that the three conditions of clause 3 of the agreement were fulfilled.
• The second respondent also relied on various judgments of the Supreme Court to support their argument that the High Court was correct in quashing the criminal proceedings.
• The second respondent submitted that if the Supreme Court found that the High Court had not considered the charge-sheet, the matter could be remitted back to the High Court for fresh consideration.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court considered the following issue:

1. In what circumstances and categories of cases, a criminal proceeding may be quashed either in exercise of the extraordinary powers of the High Court under Article 226 of the Constitution, or in the exercise of the inherent powers of the High Court under Section 482 CrPC.

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 relied on State of Haryana and Others Vs. Bhajan Lal and Others [1992 Suppl (1) SCC 335]* to reiterate the guidelines for exercising inherent powers under Section 482 CrPC.
• The Court cited Trisuns Chemical Industry Vs. Rajesh Agarwal and Ors. [1999 (8) SCC 686]* to emphasize that arbitration is not a substitute for criminal prosecution.
• The Court referred to Nagpur Steel & Alloys Pvt. Ltd. Vs. P. Radhakrishna and Others [1997 SCC(Cri) 1073]* to highlight that the truth or falsity of the allegations would be decided during trial.

What weighed in the mind of the Court?

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

• Non-consideration of Charge-sheet by High Court: The High Court had quashed the criminal proceedings without examining the charge-sheet filed by the Investigating Officer, which contained material evidence.
• Prima Facie Offence: The Supreme Court held that the complaint, FIR, and charge-sheet disclosed a prima facie offense under Sections 406 and 420 of the IPC. The allegations were not merely a breach of contract but indicated a criminal intent.
• Arbitration vs. Criminal Proceedings: The Court clarified that arbitration proceedings are not a bar to criminal proceedings, especially when the allegations involve criminal offenses like cheating and breach of trust.
• Abuse of Process: The Court emphasized that the High Court’s power under Section 482 CrPC should be used sparingly, and the case did not qualify as one where the criminal proceedings should be quashed at the initial stage.
• Commercial Transactions and Cheating: The Court noted that offenses of cheating often occur during commercial transactions, and the mere fact that a transaction is commercial does not preclude criminal liability.

The following table shows the ranking of sentiment analysis of reasons given by the Supreme Court as to what weighed in the mind of the court to come to the conclusion with the various points emphasised in the reasoning portion.

Fact:Law Ratio:

The Court’s reasoning was a mix of factual analysis (such as the non-consideration of the charge sheet) and legal analysis (such as the interpretation of Section 482 CrPC and the distinction between civil and criminal remedies). The legal considerations were slightly more dominant in the Court’s decision-making process.

Logical Reasoning

Judgment

The Supreme Court set aside the High Court’s decision, holding that the High Court should not have quashed the criminal proceedings. The Court emphasized that the allegations in the complaint, FIR, and charge-sheet disclosed a prima facie case of cheating and breach of trust. The Court stated that the High Court had not considered the charge-sheet, which was a critical error.

The Court clarified that the existence of a civil dispute or the initiation of arbitration proceedings does not automatically preclude criminal proceedings, especially when there are allegations of criminal offenses. The Court observed that the High Court had erred in concluding that the matter was a purely civil dispute and that the criminal proceedings were an abuse of the process of the court.

The Supreme Court observed that, “the facts narrated in the present complaint/FIR/charge -sheet indeed reveal the commercial transaction but that is hardly a reason for holding that the offence of cheating would elude from such transaction.”

The Court further stated that, “Simply because there is a remedy provided for breach of contract or arbitral proceedings initiated at the instance of the appellants, that does not by itself clothe the court to come to a conclusion that civil remedy is the only remedy, and the initiation of criminal proceedings, in any manner, will be an abuse of the process of the court for exercising inherent powers of the High Court under Section 482 CrPC for quashing such proceedings.”

The Court held that, “the only requirement is to see whether continuance of the proceedings would be a total abuse of the process of the Court.”

The Supreme Court clarified that its observations were only for the purpose of disposing of the appeal and that the trial court should proceed with the trial expeditiously without being influenced by the observations made in the judgment.

Key Takeaways

• Criminal proceedings can be initiated even in cases involving commercial transactions if there is evidence of cheating or criminal breach of trust.
• The existence of arbitration proceedings does not bar criminal proceedings if a criminal offense is prima facie made out.
• High Courts should exercise their inherent powers under Section 482 CrPC sparingly and should consider the charge-sheet before quashing criminal proceedings.
• The mere fact that a dispute arises from a breach of contract does not automatically preclude criminal liability if there is evidence of criminal intent.
• Courts should not quash criminal proceedings if the allegations in the complaint, FIR, and charge-sheet disclose a prima facie offense.