Contractual nonpayment absent dishonest intent does not constitute cheating or criminal breach of trust.

The complainant, who had retired from employment with the company, rejoined on a contractual basis and claimed that the company had agreed to pay him remuneration and incentives.

The company paid part of the claimed incentive but did not pay the balance of Rs. 9,00,000, leading the complainant to file a complaint alleging offences under Sections 420, 406 and 120B IPC against the company and its directors, including the petitioner, an independent non-executive director residing in Chennai.

The Magistrate issued process after examining the complainant and witnesses, without holding an inquiry under Section 202 CrPC, although the petitioner resided outside the Magistrate’s territorial jurisdiction.

The petitioner sought quashing under Section 482 CrPC, contending that the dispute was contractual, the complaint disclosed no specific role or criminal intent on his part, and the Section 202 inquiry had been omitted.

1. Whether the complaint and supporting material disclosed the essential ingredients of cheating or criminal breach of trust against the petitioner, or instead concerned a contractual payment dispute

2. Whether the Magistrate’s failure to conduct an inquiry under Section 202 CrPC before issuing process against a petitioner residing outside the territorial jurisdiction warranted intervention

3. Whether continuation of the criminal proceeding against the petitioner would constitute an abuse of process justifying quashing under Section 482 CrPC

Section 482 CrPC preserves the High Court’s inherent power to prevent abuse of process and secure the ends of justice; that power may be exercised where the complaint, taken at face value, does not disclose an offence.

Under Section 202 CrPC, where an accused resides beyond the Magistrate’s territorial jurisdiction, the Magistrate must postpone process and conduct an inquiry or direct an investigation; an inquiry may include examination of witnesses for deciding whether sufficient grounds exist to proceed (National Bank of Oman v. Barakara Abdul Aziz and Vijay Dhanuka v. Najima Mamtaj).

Cheating under Sections 415/420 IPC requires deception and dishonest or fraudulent intent when the promise or representation is made; subsequent failure to perform a contractual promise, without such initial intent, is insufficient (V.Y. Jose v. State of Gujarat and Lalit Chaturvedi v. State of Uttar Pradesh).

The judgment also relied on Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh and Arshad Neyaz Khan v. State of Jharkhand for the proposition that Sections 406 and 420 IPC cannot coexist on the same factual allegations.

The Court noted that the complaint concerned non-payment of the remaining incentive under a contractual arrangement, after the company had made a part-payment.

It found no material showing that the petitioner had dishonestly induced the complainant at the outset to deliver property, or that property had been entrusted to the petitioner and misappropriated; nor did the complaint attribute a specific criminal act to him.

The Court therefore treated the allegations as a contractual dispute rather than conduct meeting the ingredients of Sections 420 or 406 IPC.

It also observed that the petitioner resided in Chennai and that no Section 202 inquiry had been held, notwithstanding the mandatory requirement identified in the cited authorities.

On the whole, it concluded that continuing the case against the petitioner would amount to an abuse of process.

Connected applications were disposed of.