REPORTABLE

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO.   2048       OF 2008 (Arising out of SLP (Crl.) No.1491 of 2007)

V.Y. Jose & Anr. … Appellants

Versus

State of Gujarat & Anr. … Respondents

J U D G M E N T

S.B. Sinha, J.

1. Leave granted.

2. This appeal is directed against a judgment and order dated 4.12.2006

passed  by  the  High  Court  of  Gujarat  at  Ahmedabad  dismissing  an

application filed by the appellants herein under Section 482 of the Code of

Criminal Procedure.

3. Appellant  No.1  is  a  partner  of  a  partnership  firm known  as  M/s.

Premionics  (hereinafter  referred to  as  ‘the firm’ for  the sake  of  brevity).

Appellant No.2 is an employee of the said firm.   

Respondent No.2, the complainant is also a partnership firm.  On or

about 18.10.1997, it placed an order on the firm to manufacture and install a

machine to purify and desalt  the dyes of a particular quality and quantity

with the firm.  The total manufacturing cost of the said machine worked out

to be at Rs.17,96,488/- including excise duty and other incidental charges.

Second respondent paid a sum of Rs.3,00,000/- to the firm as advance and

part payment of the  said consideration.   There has been a change in the

specifications  of  the  said  machine  purported  to  be  on  the  request  of  the

second  respondent  in  terms  whereof  two  extra  modules  thereto  were

provided.  A revised offer was made.  The said machine, although was to be

manufactured and supplied within a period of three months, the same was

not complied with.

4. A partner of the second respondent along with its technical engineer

visited the site of the firm.  Allegedly, it was found that the said machine

did not conform to the specifications contained in the order placed with the

firm.  It refused to take the delivery thereof.  To the said effect, the second

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respondent,  by a letter  dated  7.4.1998 called upon the firm to return the

amount of advance, stating :

“Please take a trial  your Laboratory as discussed and concentrate between 25 to 30% & collect it in a new plastic drum after good cleaning.  I am quite sure that this dye has got a molecular wt. around 400 and p/h in between 4.5 to and I am hopeful that your R.O. Machine should work for this dye only and you have manufactured for another.  This is  not  fair  and  if  you  cannot  manufacture accordingly, please return our money.

As per specific order an advance 3 lacs of Rupees  in  October  1997,  please  send  stamped receipt which we have not received so far.”

5. Second respondent by another letter dated 9.7.1999 called upon the

firm to refund the said amount together with interest thereon, stating :

“Please  send demand draft  payable  at  Nadiad  of Rs.3,97,674/- as per accounts below :

Rs.3,00,000

Rs.   22,500 Interest of 5 months.

Rs.3,22,500

Rs.   58,050 Interest of 1998-99

Rs.3,80,550

Rs.   17,124 Interest of 1999-200 (April, May & June)

Rs.3,97,674

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We  hope  you  will  do  the  needful immediately.”

The firm, by its letter dated 14.7.1999, responded to the said letter of

the Second respondent as under :

“We are in receipt  of your letter No.KPH/31/99- 2000 dated 9.7.1999 and are surprised to note your content  therein.   As  per  your  order  we  have manufactured  the  system and  you  had  inspected the system also.  We have been reminding you to take delivery of the system but no action had been taken  from your  end  so  far.   We have  blocked material  worth  more  than  fourteen  lakhs  for  the last so many months.”

6. Thereafter, a criminal complaint was filed.

The learned Chief Judicial Magistrate took cognizance of the offences

against the appellants under Section 417, 420 read with Section 114 of the

Indian Penal Code.  Summons were issued.

Appellants filed an application for quashing of the said proceedings

before the Gujarat High Court which by reason of the impugned judgment

has been dismissed.

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7. Mr.  Dayan  Krishnan,  learned  counsel  appearing  on  behalf  of  the

appellant, would submit :

1. The  allegations  made in  the  complaint  petition  even  if  given  face

value and taken to be correct in its entirety do not disclose an offence

under Section 420 of the Indian Penal Code.

2. A breach of contract simpliciter does not constitute an offence under

Section 420 of the Indian Penal Code.

3. There is no averment in the complaint petition to the effect that the

appellant  has an intention to cheat  at  the time of  entering into  the

contract.

8. Mr. Sushil  Kumar Jain, learned counsel  appearing on behalf  of the

respondent No.2, on the other hand, would urge :

(1) The firm manufactured a machine different from the one for which

order was placed which was found out on inspection of the site of the

firm.

(2) Although a sum of Rs.3,00,000/- was paid by way of advance, the

said  amount  has  not  been  returned  which  manifests  dishonest

intention on the part of the firm.    

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(3) In  any  event,  the  High  Court  has  rightly  refused  to  exercise  its

jurisdiction  under  Section  482 of  the  Code  of  Criminal  Procedure

which can be resorted to only in rarest of rare cases.

9. We have been taken through the complaint  petition  in  its  entirety.

Indisputably, the parties entered into a contract in terms whereof the firm

was to manufacture a machine to purify and desalt the dyes of a particular

quality  and  quantity.   The  specifications  for  the  machine  were  changed.

First appellant issued a letter dated 20.2.1998 to the complainant, stating :

“Further to our letter No.P:G:971:97 dated 2.2.98 and subsequent visit of our Mr. Sunil Rao.  Please find enclosed herewith our revised offer for your reference.  You may note that we are giving two module extra free of charge in the system so that the  total  number  of  modules  becomes  105  no’s instead of the committed 103 no’s.  We are also enclosing herewith the detailed assembly drawing for your reference.  Since the system is totally skid mounted the system can be installed on a leveled platform.

I  am  sure  this  will  fulfill  your  pre-dispatch requirement.   In  case  you  need  any  additional details kindly let us know so that we can provide the same.”

10. Inspection of the machine was admittedly made on 6.4.1998.  During

the  period  18.10.1997  (when  the  order  was  placed)  and  6.4.1998,  no

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allegation was made in regard to any false design or bad intention on the

part of the appellants.   

The  complainant-respondent  No.2  in  letters  dated  7.4.1998  and

9.7.1999  did  not  also  make  any  allegation  in  regard  to  existence  of  a

dishonest intention on the part of the appellants herein when the contract

was entered into.   

Ordinarily, we would not have referred to the correspondences passed

between the parties but, indisputably, the said correspondences have been

referred to in the complaint petition itself.  Even before us, a contention had

been raised by Mr. Jain that the appellants’ letter dated 7.4.1998 was not

replied to.   

11. Section 415 of the Indian Penal Code defines cheating as under :

“Section  415.—Cheating—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’.”

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An offence of cheating cannot be said to have been made out unless

the following ingredients are satisfied :

“i) deception  of  a  person  either  by  making  a false  or  misleading  representation  or  by other action or omission;  

(ii) fraudulently  or  dishonestly  inducing  any  person  to deliver any property; or

(iii) To consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit.”

12. For  the  purpose  of  constituting  an  offence  of  cheating,  the

complainant  is  required  to  show  that  the  accused  had  fraudulent  or

dishonest intention at the time of making promise or representation.  Even

in a case where allegations are made in regard to failure on the part of the

accused to keep his promise, in absence of a culpable intention at the time

of making initial promise being absent, no offence under Section 420 of the

Indian Penal Code can be said to have been made out.   

13. No exception can be taken to the submission of Mr. Jain that it is not

necessary to reproduce the wordings of a penal provision in the complaint

petition, but, there cannot be any doubt whatsoever that the facts disclosing

the ingredients of the offence must be averred.   

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There cannot, furthermore, be any doubt that only because civil law

can  be  taken  recourse  to  would  not  necessarily  mean  that  criminal

proceedings should be barred as has been opined by this Court in  Pratibha

Rani v. Suraj Kumar & Anr. [(1985) 2 SCC 370].

We are, however, not concerned in a case of this nature where the

allegations  were  clear,  specific  and  unambiguous  and,  therefore,  the

complainant should have been given a chance to prove her case as has been

noticed by the High Court in the said judgment.  This Court therein also,

while laying down the law that the High Court would have no jurisdiction to

examine the correctness of the allegations, opined :

“In case no offence is committed on the allegation and the ingredients of Section 405 and 406, IPC are  not  made  out,  the  High  Court  would  be justified in quashing the proceedings.”

Reliance has also been placed by Mr. Jain on  Rajesh Bajaj v.  State

NCT of Delhi & Ors. [(1999) 3 SCC 259], wherein Thomas, J. opined :

“10. It may be that the facts narrated in the present complaint  would  as  well  reveal  a  commercial transaction  or  money  transaction.   But  that  is hardly  a  reason  for  holding  that  the  offence  of cheating would elude from such a transaction.  In fact,  many  a  cheatings  were  committed  in  the course of commercial and also money transactions.

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One of the illustrations set out under Section 415 of the Indian Penal Code (Illustration f) is worthy of notice now :

‘(f) A intentionally  deceives  Z into  a belief that A means to repay any money that Z may lend to him and thereby dishonestly induces  Z to  lend  him  money,  A not intending to repay it. A cheats’.”

Similar observations have also been made by the same learned Judge

in Trisuns Chemical Industry v. Rajesh Agarwal & Ors. [(1999) 8 SCC 686]

in the following terms :

“9. We are unable to appreciate the reasoning that the  provision  incorporated  in  the  agreement  for referring the disputes to arbitration is an effective substitute  for  a  criminal  prosecution  when  the disputed act is an offence.  Arbitration is a remedy for affording reliefs to the party affected by breach of the agreement but the arbitrator cannot conduct a trial  of  any act  which amounted to  an offence albeit  the  same  act  may  be  connected  with  the discharge  of  any  function  under  the  agreement. Hence,  those  are  not  good  reasons  for  the  High Court to axe down the complaint at the threshold itself.  The investigating agency should have had the  freedom to  go  into  the  whole  gamut  of  the allegations and to reach a conclusion of its own. Pre-emption  of  such  investigation  would  be justified only in very extreme cases as indicated in State of Haryana v. Bhajan Lal.”

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14. We may hereat refer to the decision of this Court in State of Haryana

&  Ors. v.  Bhajan  Lal  &  Ors. [(1992)  Supp.(1)  SCC  335],  whereupon

reliance  has  been  placed  by this  Court.   In  the  aforementioned  decision

relied upon by Mr. Jain, it was stated :

“102. In the backdrop of the interpretation of the various  relevant  provisions  of  the  Code  under Chapter  XIV  and  of  the  principles  of  law enunciated by this Court  in a series of decisions relating to the exercise of the extraordinary power under  Article  226  or  the  inherent  powers  under Section 482 of the Code which we have extracted and  reproduced  above,  we  give  the  following categories of cases by way of illustration wherein such power  could  be  exercised  either  to  prevent abuse of the process of any court or otherwise to secure  the  ends of  justice,  though it  may not  be possible to lay down any precise, clearly defined and  sufficiently  channelised  and  inflexible guidelines  or  rigid  formulae  and  to  give  an exhaustive list  of  myriad kinds of cases wherein such power should be exercised.

(1) Where  the  allegations  made  in  the  first information report or the complaint, even if they  are  taken  at  their  face  value  and accepted in their entirety do not prima facie constitute  any offence  or  make out  a  case against the accused.

(2) Where  the  allegations  in  the  first information  report  and  other  materials,  if any, accompanying the FIR do not disclose a  cognizable  offence,  justifying  an investigation  by  police  officers  under Section 156(1) of the Code except under an

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order of a Magistrate within the purview of Section 155(2) of the Code.

(3) Where the uncontroverted allegations made in  the  FIR or  complaint  and  the  evidence collected  in  support  of  the  same  do  not disclose the commission of any offence and make out a case against the accused.

(4) Where,  the  allegations  in  the  FIR  do  not constitute  a  cognizable  offence  but constitute only a non-cognizable offence, no investigation is permitted by a police officer without  an  order  of  a  Magistrate  as contemplated  under  Section  155(2)  of  the Code.

(5) Where the  allegations  made in  the  FIR or complaint  are  so  absurd  and  inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there  is  sufficient  ground  for  proceeding against the accused.

(6) Where  there  is  an  express  legal  bar engrafted  in  any  of  the  provisions  of  the Code or the concerned Act (under which a criminal  proceeding  is  instituted)  to  the institution  and  continuance  of  the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing  efficacious  redress  for  the grievance of the aggrieved party.

(7) Where a criminal  proceeding is  manifestly attended  with  mala  fide  and/or  where  the proceeding is maliciously instituted with an ulterior  motive for wreaking vengeance on the  accused  and with  a  view to  spite  him due to private and personal grudge.

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103. We also give a note of caution to the effect that the power of quashing a criminal proceeding should  be  exercised  very  sparingly  and  with circumspection  and that  too  in  the rarest  of  rare cases;  that  the  court  will  not  be  justified  in embarking upon an enquiry as to the reliability or genuineness or otherwise of the allegations made in  the  FIR  or  the  complaint  and  that  the extraordinary or inherent powers do not confer an arbitrary jurisdiction on the court to act according to its whim or caprice.”

The High Court, although noticed some of the principles laid down in

Bhajan Lal (supra), failed to assign any reason as to why in a case of this

nature  the provisions  of  Section  482 of  the  Code of  Criminal  Procedure

should  not  be  applied  and  how  the  allegations  made  in  the  complaint

petition, even if given face value and taken to be correct in its entirety, make

out an offence.

15. There exists  a distinction between pure contractual  dispute  of civil

nature  and  an  offence  of  cheating.   Although  breach  of  contract  per  se

would  not  come in  the way of  initiation  of  a  criminal  proceeding,  there

cannot be any doubt whatsoever that in absence of the averments made in

the complaint petition wherefrom the ingredients of an offence can be found

out, the court should not hesitate to exercise its jurisdiction under Section

482 of the Code of Criminal Procedure.   

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We may reiterate that one of the ingredients of cheating as defined in

Section 415 of the Indian Penal Code is existence of an intention of making

initial promise or existence thereof from the very beginning of formation of

contract.

Section 482 of the Code of Criminal Procedure, saves the inherent

power of the court.  It serves a salutary purpose viz. a person should not

undergo harassment of litigation for a number of years although no case has

been made out against him.   

It is one thing to say that a case has been made out for trial and as

such the criminal proceedings should not be quashed but it is another thing

to say that a person should undergo a criminal trial despite the fact that no

case has been made out at all.

16. In Hira Lal Hari Lal Bhagwati v. CBI [(2003) 5 SCC 257], this Court

held :

“40. It is settled law, by a catena of decisions, that for  establishing  the  offence  of  cheating,  the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making  promise  or  representation.  From  his making failure to keep promise subsequently, such a culpable intention right at the beginning that is at the time when the  promise was  made cannot  be presumed.  It  is  seen  from  the  records  that  the

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exemption  certificate  contained  necessary conditions  which  were  required  to  be  complied with  after  importation  of  the machine.  Since the GCS could not comply with it, therefore, it rightly paid the necessary duties without taking advantage of  the  exemption  certificate.  The  conduct  of  the GCS clearly indicates that there was no fraudulent or  dishonest  intention  of  either  the  GCS  or  the appellants  in  their  capacities  as  office-bearers right  at  the  time  of  making  application  for exemption. As there was absence of dishonest and fraudulent  intention,  the  question  of  committing offence  under  Section  420  of  the  Indian  Penal Code  does  not  arise.  We have  read  the  charge- sheet as a whole. There is no allegation in the first information  report  or  the charge-sheet  indicating expressly or impliedly any intentional deception or fraudulent/dishonest  intention  on  the  part  of  the appellants  right  from  the  time  of  making  the promise  or  misrepresentation.  Nothing  has  been said  on  what  those  misrepresentations  were  and how the Ministry of Health was duped and what were  the  roles  played  by  the  appellants  in  the alleged offence. The appellants, in our view, could not  be  attributed  any  mens  rea  of  evasion  of customs duty or cheating the Government of India as the Cancer Society is a non-profit organisation and,  therefore,  the  allegations  against  the appellants  levelled  by  the  prosecution  are unsustainable. The Kar Vivad Samadhan Scheme certificate  along  with  Duncan and  Sushila  Rani judgments  clearly  absolve  the  appellants  herein from all  charges and allegations  under any other law once the duty so demanded has been paid and the  alleged  offence  has  been  compounded.  It  is also  settled  law that  once  a  civil  case  has  been compromised  and  the  alleged  offence  has  been compounded, to continue the criminal proceedings thereafter  would  be  an  abuse  of  the  judicial process.

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[See also Indian Oil Corporation v. NEPC India Ltd. & Ors. [(2006)

6 SCC 736]

17. Recently, in  Vir Prakash Sharma v.  Anil Kumar Agarwal [(2007) 7

SCC  373],  noticing,  inter  alia,  the  aforementioned  decisions,  this  Court

held:

“13. The ingredients of Section 420 of the Penal Code are as follows:

(i) Deception of any persons;

(ii) Fraudulently  or  dishonestly  inducing  any person to deliver any property; or

(iii) To consent that any person shall retain any property  and  finally  intentionally  inducing that  person  to  do  or  omit  to  do  anything which he would not do or omit.

No act of inducement on the part of the appellant has been alleged by the respondent. No allegation has been made that he had an intention to cheat the respondent from the very inception.

14. What  has  been  alleged  in  the  complaint petition as also the statement of the complainant and his witnesses relate to his subsequent conduct. The  date  when  such  statements  were  allegedly made by the appellant had not been disclosed by the  witnesses  of  the  complainant.  It  is  really absurd to opine that any such statement would be made  by the  appellant  before  all  of  them at  the same time and that too in his own district. They, thus, appear to be wholly unnatural.

15. In  law,  only  because  he  had issued  cheques which were dishonoured, the same by itself would

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not  mean  that  he  had  cheated  the  complainant. Assuming that  such a statement  had been made, the  same,  in  our  opinion,  does  not  exhibit  that there  had  been  any  intention  on  the  part  of  the appellant  herein  to  commit  an  offence  under Section 417 of the Penal Code.

16. Furthermore,  admittedly,  their  residences  are in  different  districts.  Whereas  the  appellant  is  a resident  of  the  district  of  Ajamgarh,  the respondent is a resident of the district of Rampur. Cheques were admittedly issued by the appellant at his place.  There is nothing on record to show that  any part  of the cause of action arose within the  jurisdiction  of  the  court  concerned.  Even  if such  statements  had  been  made,  the  same admittedly have been made only at the place where the  appellant  resides.  The  learned  Magistrate, therefore,  had  no  jurisdiction  to  issue  the summons.  (See  Mosaraf  Hossain  Khan v. Bhagheeratha Engg. Ltd.)”

The said principle has been reiterated in  All Carogo Movers (I) Pvt.

Ltd. v. Dhanesh Badarmal Jain & Anr. [2007 (12) SCALE 391], stating :

“For the said purpose, allegations in the complaint petition  must  disclose  the  necessary  ingredients therefor.   Where  a  civil  suit  is  pending  and  the complaint  petition  has  been  filed  one  year  after filing of the civil suit, we may for the purpose of finding out as to whether the said allegations are prima  facie  cannot  notice  the  correspondences exchanged  by  the  parties  and  other  admitted documents.  It is one thing to say that the Court at this juncture would not consider the defence of the accused  but  it  is  another  thing  to  say  that  for exercising the inherent jurisdiction of this Court, it

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is  impermissible  also  to  look  to  the  admitted documents.   Criminal  proceedings  should  not  be encouraged,  when it  is  found to  be mala fide  or otherwise  an  abuse  of  the  process  of  the  Court. Superior  Courts  while  exercising  this  power should also strive to serve the ends of justice.”

18. A matter which essentially involves dispute of a civil nature should

not be allowed to be the subject matter of a criminal offence, the latter being

not a shortcut of executing a decree which is non-existent.   The Superior

Courts,  with  a  view  to  maintain  purity  in  the  administration  of  justice,

should not allow abuse of the process of court.  It has a duty in terms of

Section  483  of  the  Code  of  Criminal  Procedure  to  supervise  the

functionings of the trial courts.

19. An offence of cheating may consist of two classes of cases :

(1)  where  the  complainant  has  been induced  fraudulently  or  dishonestly.

Such is not the case here;

(2) When by reason of such deception, the complainant has not done or

omitted to do anything which he would not do or omit to do  if he was not

deceived or induced by the accused.

20. It is in that sense, a distinction between a mere breach of contract and

the offence of cheating should be borne in mind.  We, having regard to the

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facts and circumstances of the case, are of the opinion that no case has been

made out  and against the appellant  so as to hold that he should face the

criminal trial.

21. Before parting, however, we may notice a decision of this Court in

from State of Madhya Pradesh v. Awadh Kishore Gupta [(2004) 1 SCC 691]

whereupon strong reliance has been placed by Mr. Jain.  This Court, therein

upon referring to Bhajan Lal (supra) opined as under :

“11. As noted above, the powers possessed by the High  Court  under  Section  482  of  the  Code  are very  wide  and  the  very  plenitude  of  the  power requires great caution in its exercise. Court  must be careful to see that its decision in exercise of this power is based on sound principles. The inherent power should not be exercised to stifle a legitimate prosecution.  The  High  Court  being  the  highest court  of  a  State  should  normally  refrain  from giving a prima facie decision in a case where the entire  facts  are  incomplete  and  hazy,  more  so, when  the  evidence  has  not  been  collected  and produced before the Court and the issues involved, whether  factual  or  legal,  are  of  magnitude  and cannot  be  seen  in  their  true  perspective  without sufficient  material.  Of  course,  no  hard-and-fast rule can be laid down in regard to cases in which the  High  Court  will  exercise  its  extraordinary jurisdiction  of  quashing  the  proceedings  at  any stage.  (See  Janata  Dal v.  H.S.  Chowdhary  and Raghubir  Saran (Dr) v.  State of Bihar) It would not  be proper  for  the  High  Court  to  analyse the case  of  the  complainant  in  the  light  of  all probabilities  in  order  to  determine  whether  a conviction  would  be  sustainable  and  on  such

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premises,  arrive  at  a  conclusion  that  the proceedings  are  to  be  quashed.  It  would  be erroneous  to  assess  the  material  before  it  and conclude that the complaint cannot be proceeded with.  In  proceedings  instituted  on  complaint, exercise  of  the  inherent  powers  to  quash  the proceedings is called for only in a case where the complaint  does  not  disclose  any  offence  or  is frivolous,  vexatious  or  oppressive.  If  the allegations  set  out  in  the  complaint  do  not constitute  the  offence  of  which  cognizance  has been  taken  by  the  Magistrate,  it  is  open  to  the High Court to quash the same in exercise of the inherent powers under Section 482 of the Code. It is  not,  however,  necessary  that  there  should  be meticulous analysis of the case before the trial to find out whether the case would end in conviction or  acquittal.  The  complaint  has  to  be  read  as  a whole.  If  it  appears  that  on consideration  of  the allegations in the light of the statement made on oath of the complainant that the ingredients of the offence or offences are disclosed and there is no material  to show that the complaint is mala fide, frivolous or vexatious,  in that  event  there would be  no  justification  for  interference  by  the  High Court. When an information is lodged at the police station and an offence is registered, then the mala fides  of  the  informant  would  be  of  secondary importance. It is the material collected during the investigation and evidence led in the court which decide  the  fate  of  the  accused  person.  The allegations of mala fides against the informant are of  no  consequence  and  cannot  by  itself  be  the basis for quashing the proceedings.”

(Emphasis supplied)

22. No exception can be taken to the aforementioned principles of law, as

therein also it has categorically been held that exercise of inherent power

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under Section 482 is permissible where allegations set out in the complaint

do not constitute the offence for which cognizance has been taken by the

Magistrate.  It is evidently a case of that nature.

23. For  the  reasons  aforementioned,  the  judgment  of  the  High  Court

cannot  be  sustained.   It  is  set  aside  accordingly.   Criminal  proceedings

against the appellants are quashed.  The appeal is allowed.

..…………………………..…J.   [S.B. Sinha]

..…………………………..…J. [Cyriac Joseph]

New Delhi; December 16, 2008

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