Criminal Prosecution Cannot Be Invoked as a Coercive Mechanism for Recovery of Disputed Commercial Dues

The petitioners, employees and a court-appointed Liquidator of Punj Lloyd Ltd. (PLL), sought to quash FIR No. 644/2024 registered under Sections 418/420/34 of the IPC

PLL had entered into a contract with GAIL for pipeline construction and subsequently sub-contracted work to the Complainant’s company, DSP Infracon Pvt. Ltd., in 2021

Meanwhile, PLL entered Corporate Insolvency Resolution Process (CIRP) and later liquidation under the Insolvency and Bankruptcy Code (IBC)

The Complainant alleged that PLL withheld outstanding dues of approximately ₹3.28 crores while deceitfully availing GST input tax credits

The petitioners contended the dispute was purely commercial and arose during a court-monitored liquidation process where they lacked personal criminal intent

1. Whether the allegations in the FIR, taken at face value, disclose the essential ingredients of cheating under Sections 418 and 420 of the IPC or represent a purely commercial dispute

2. Whether criminal proceedings can be maintained for a breach of contract arising within the statutory framework of the Insolvency and Bankruptcy Code

The Court applied Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS) [formerly Section 482 Cr.P.C.] regarding the inherent power of the High Court to quash proceedings to prevent abuse of process

It relied on the landmark precedent State of Haryana v. Bhajan Lal, which permits quashing when allegations do not prima facie constitute an offence or are maliciously instituted

The court applied the distinction between "contractual breach" and "cheating" established in Indian Oil Corporation v. NEPC India Ltd. and Naresh Kumar v. State of Karnataka, holding that the offence of cheating requires fraudulent intent at the very inception of the transaction

The Court reasoned that the gravamen of cheating is dishonest intention at the time of the initial promise, which was absent here as PLL had made partial payments and maintained a long-term business relationship with the Complainant

The dispute was fundamentally a "commercial disagreement" over the quantum of dues and GST adjustments, which are matters of civil accounting

The Court noted that Petitioner Ashwini Mehra was acting as a Liquidator under NCLT supervision; therefore, financial decisions were part of a statutory process rather than a criminal design

It observed that the Complainant was attempting to "weaponise" criminal law to exert pressure for debt recovery, which is an impermissible use of the criminal justice system

The Court answered that mere non-payment of dues in a commercial contract does not constitute cheating

The Court allowed the CRLMCs and quashed FIR No. 644/2024 and all consequential proceedings to prevent the abuse of the process of law