Contemporaneous complaints about defective goods negate cheating absent dishonest intent at the transaction’s inception.

The petitioners, a seafood-processing company and its directors, purchased equipment from Opposite Party No. 2, a supplier.

The petitioners alleged that the goods were defective and, by emails dated 7 May 2022 and 21 April 2023, sought a refund and repair costs.

Opposite Party No. 2 later issued a demand notice for an alleged outstanding balance and filed a complaint.

On 19 June 2023, the Magistrate issued process against the petitioners for offences under Sections 406, 411, 417, 418, 420 and 422 read with Sections 120B and 34 IPC.

The petitioners sought quashing under Section 482 CrPC (corresponding to Section 528 BNSS), including on the ground that Swati Poddar had been wrongly described as a company director.

1. Whether the dispute was essentially civil and commercial, and whether the complaint disclosed dishonest or fraudulent inducement from the inception necessary to make out cheating under Section 420 IPC

2. Whether Sections 406 and 420 IPC could be invoked together on the allegations, and whether process was issued mechanically, including against individuals without adequate basis

Section 420 IPC requires dishonest or fraudulent inducement at the inception of the transaction; subsequent non-payment, without material indicating such initial intent, does not by itself establish cheating.

Section 406 IPC requires entrustment of property and dishonest misappropriation; the Court held that delivery of goods under an ordinary sale transaction did not establish the requisite entrustment.

Relying on Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh, the Court treated Sections 406 and 420 as mutually exclusive on the same contractual allegations.

Under Pepsi Foods Ltd. v. Special Judicial Magistrate, summoning is a serious judicial act requiring application of mind to the complaint and supporting material.

Under Maksud Saiyed v. State of Gujarat, directors cannot be implicated vicariously merely by virtue of their position, absent specific allegations supporting their criminal participation.

The Court distinguished Rajesh Bajaj, Medchl Chemicals and Lee Kun Hee on the facts.

The Court considered the petitioners’ documented complaints about defects, made before the criminal complaint, inconsistent with an inference that they had dishonestly induced the supplier from the outset.

It therefore viewed the dispute over product quality, refunds and ledger balances as commercial and civil, rather than as cheating under Section 420 IPC.

It further held that the goods had been delivered under a purchase transaction, without the entrustment required for Section 406, and that the two offences could not be sustained together on the same allegations.

The issuance of process for those offences was found to demonstrate non-application of mind; the Court also noted the alleged lack of specific grounds for implicating individuals and the ROC material concerning Swati Poddar’s directorship.

Connected applications were disposed of, any interim order was vacated, and there was no order as to costs.