Breach of Contractual Agreement to Sell Land Without Initial Deception Does Not Constitute Cheating or Criminal Breach of Trust

The petitioners filed a petition under Section 482 of the Cr.P.C. to quash criminal proceedings in Complaint Case No. 2924 of 2016.

The complainant (Opposite Party No. 2) alleged that the petitioners entered into an agreement to sell land and accepted an advance payment, but subsequently prevented the complainant from constructing a boundary wall and refused to refund the advance.

The learned Judicial Magistrate, 1st Class, Dhanbad, took cognizance of the offences under Sections 420 (cheating) and 406 (criminal breach of trust) of the Indian Penal Code (IPC) on November 28, 2019.

The petitioners contended that the dispute was purely civil in nature.

1. Whether the refusal to execute a sale deed or refund an advance payment, arising from a breach of contract, constitutes the offence of Cheating under Section 420 IPC in the absence of deceptive intent at the inception.

2. Whether the retention of part-consideration money paid for the purchase of land amounts to "entrustment" as required for the offence of Criminal Breach of Trust under Section 406 IPC.

The court primarily applied Section 406 (Criminal Breach of Trust) and Section 420 (Cheating) of the IPC.

The court relied on Umashankar Gopalika v. State of Bihar, holding that a breach of contract only amounts to cheating if deception was played at the very inception of the transaction.

It further applied the principle from Radheyshyam v. State of Rajasthan, which establishes that money paid as part consideration for a sale does not constitute "entrustment" of property.

Additionally, it cited Vir Prakash Sharma v. Anil Kumar Agarwal, noting that non-payment or underpayment in a civil dispute does not ipso facto constitute a criminal offence.

For an offence under Section 420 IPC to be made out, there must be evidence of fraudulent or dishonest intention at the time the promise was made. In this case, there were no allegations that the petitioners played any deception at the beginning of the agreement.

Regarding Section 406 IPC, the Court reasoned that "entrustment" is a condition precedent. Following the Supreme Court's precedent in Radheyshyam, the Court held that part-payment for land is a consideration and not an entrustment of property; therefore, refusing to register the sale or refund the money does not amount to criminal misappropriation.

The Court determined the dispute was essentially a civil liability arising from a breach of contract, and allowing criminal proceedings to continue would constitute an abuse of the process of law.

The High Court allowed the petition and quashed the entire criminal proceeding, including the order taking cognizance dated November 28, 2019, passed by the Judicial Magistrate 1st Class, Dhanbad.