Criminal proceedings for commercial debt disputes require proof of dishonest intent from inception.

The petitioner, M/s. Sai Baba Enterprise, was engaged in manufacturing men’s garments, while Opposite Party No. 2, represented by its proprietor Sushanta Kumar Kundu, supplied packing cartons to the petitioner under an existing commercial relationship.

The dispute arose during the COVID-19 period when Opposite Party No. 2 allegedly raised bills for cartons which, according to the petitioner, had never been delivered.

The petitioner invoked Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of G.R. Case No. 738 of 2023 pending before the Chief Judicial Magistrate, Barasat.

Thereafter, Opposite Party No. 2 lodged a complaint alleging non-payment of a “legitimate commercial claim” of ₹9,13,900, resulting in Madhyamgram Police Station F.I.R. No. 175/2023 dated 16 March 2023 under Sections 406 and 420 of the Indian Penal Code, 1860.

Whether the criminal proceedings under Sections 406 and 420 of the IPC could be sustained when the complainant’s own case described the dispute as recovery of an unpaid commercial claim arising from disputed supplies and bills.

Whether the allegations disclosed the dishonest or fraudulent intention necessary to constitute cheating or criminal breach of trust, particularly when such intention was not alleged to exist from the inception of the transaction.

Whether continuation of the criminal proceeding amounted to an abuse of the process of the Court warranting exercise of the High Court’s inherent jurisdiction under Section 482 Cr.P.C.

The Court applied Section 482 Cr.P.C., which empowers the High Court to quash criminal proceedings to prevent abuse of process and secure the ends of justice.

It considered Sections 406 and 420 IPC, holding that mere non-payment of dues or breach of a commercial promise does not, without more, establish criminal breach of trust or cheating; dishonest intention must be shown to have existed from the inception of the transaction.

The Court also referred to Section 57 of the Sale of Goods Act, 1930, as providing a civil remedy for damages arising from non-delivery of goods.

Relying on V. Ganesan v. State represented by the Sub Inspector of Police & Anr., 2026 SCC OnLine SC 444, the Court reiterated that subsequent failure to perform a promise cannot by itself establish initial fraudulent intention, and that proceedings may be quashed where the attending circumstances do not disclose dishonest intention at the time of the promise.

The Court found that the parties’ relationship was fundamentally commercial and that the controversy concerned whether cartons had actually been supplied and whether the corresponding bills were payable.

The complainant’s own written complaint characterized the grievance as non-payment of a “legitimate commercial claim” of ₹9,13,900, thereby indicating a dispute over accounts and contractual liability rather than an inherently criminal transaction.

The F.I.R. contained no foundational allegation or material showing that the petitioner possessed fraudulent or dishonest intention when placing the orders or entering into the commercial arrangement.

Applying V. Ganesan, the Court held that the alleged non-payment or disputed delivery could not retrospectively establish mens rea for cheating.

The available remedies were civil and commercial, including remedies relating to non-delivery and damages under the Sale of Goods Act, and criminal prosecution could not be used as a mechanism for debt recovery or commercial pressure.

It allowed C.R.R. 2087 of 2023 and quashed G.R. Case No. 738 of 2023 arising from Madhyamgram Police Station F.I.R. No. 175/2023 dated 16 March 2023, together with all consequential proceedings.

Any interim order was vacated, there was no order as to costs, and the judgment was directed to be transmitted to the Trial Court for information and necessary compliance.