A subsequent payment default in a commercial sale, absent dishonest intent at inception, cannot constitute cheating.

M/s Eastern Copper Manufacturing Co. Pvt. Ltd. alleged that, between July and August 2014, the petitioners induced it to supply copper contact pads with fabrication work on the assurance of prompt payment. Goods valued at ₹23,00,064 were supplied between 20 August and 13 September 2014, against which the petitioners paid ₹15,46,500 in September 2014, leaving an alleged balance of ₹8,36,627, including tax liabilities and expenses.

The complainant issued a demand notice only on 3 November 2020, after more than six years of silence, and filed a complaint under Section 200 Cr.P.C. in 2022. Following inquiry under Sections 200 and 202 Cr.P.C., the Metropolitan Magistrate took cognizance and issued process for offences under Sections 406, 420 and 120B IPC by order dated 5 November 2022.

The petitioners invoked Section 482 Cr.P.C. seeking quashing of the complaint, the order of cognizance and all consequential proceedings, contending that the dispute was purely commercial, that there was no dishonest intention at inception, and that the goods had been sold rather than entrusted.

Whether the allegations and materials disclosed the dishonest or fraudulent intention at the inception necessary to constitute cheating under Sections 415 and 420 IPC, or merely a subsequent failure to pay a commercial debt?

Whether non-payment of the balance sale consideration in an outright sale of goods constituted criminal breach of trust under Sections 405 and 406 IPC in the absence of entrustment?

Whether the delayed criminal complaint, initiated after more than six years and after the apparent expiry of the civil limitation period, amounted to an abuse of the criminal process for recovery of a stale commercial claim?

Whether the continuation of proceedings under Sections 406, 420 and 120B IPC warranted interference under the inherent jurisdiction under Section 482 Cr.P.C.?

The Court applied Section 482 Cr.P.C. to prevent abuse of the process of court and to secure the ends of justice.

Sections 415 and 420 IPC require deception and dishonest or fraudulent intention at the inception of the transaction; a subsequent breach of promise or failure to pay, without dishonest intention at the beginning, does not constitute cheating.

The Court relied on Vijay Kumar Ghai v. State of West Bengal, Indian Oil Corporation v. N.E.P.C. India Ltd., Binod Kumar v. State of West Bengal, and Naresh Kumar v. State of Karnataka for this principle.

Sections 405 and 406 IPC require entrustment or dominion over property followed by dishonest misappropriation or conversion; an outright sale of goods, where ownership passes to the buyer, does not ordinarily involve entrustment.

The Court further relied on State of Haryana v. Bhajan Lal, Sandeep Shukla v. State of U.P., and Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh to hold that criminal proceedings should not be used as a coercive mechanism for recovery of time-barred or essentially civil claims.

It also considered Medchl Chemicals, Rashmi Kumar, Ravindra Kumar Madhanlal Goenka, Vijender Kumar, Ram Avtar Gupta, and Mini Arora on the limits of quashing jurisdiction and the relevance of part-performance, but found those principles inapplicable to the facts as pleaded.

The Court held that the petitioners’ prompt payment of ₹15,46,500—more than 65% of the invoice value—substantially undermined the allegation that they possessed a dishonest intention from the outset.

The alleged non-payment therefore appeared to be a subsequent commercial default rather than cheating under Section 420 IPC.

The transaction was an outright supply and sale of goods; ownership and dominion passed to the purchasers upon delivery, and there was no allegation of entrustment capable of sustaining Section 406 IPC.

The complainant’s unexplained silence for over six years, followed by a demand notice and criminal complaint after the apparent expiry of the civil limitation period, reinforced the conclusion that the criminal process was being used to exert pressure for recovery of a stale commercial balance.

On the uncontroverted allegations and materials, the essential ingredients of cheating, criminal breach of trust and conspiracy were not disclosed, and continuation of the prosecution would constitute an abuse of process.

Exercising jurisdiction under Section 482 Cr.P.C., the Court allowed the criminal revision and quashed the order of cognizance and issuance of process dated 5 November 2022, together with all further proceedings in Case No. CN/1650 of 2022, insofar as they concerned the petitioners.

Any interim order was vacated; CRAN 4 of 2025 was disposed of, with no order as to costs.