Gujarat HC Quashes ₹1.33-Crore Maize-Dues FIR Against Former Director, Finding No Specific Role or Deception At Inception

The complainant, a maize trader, alleged that Anil Limited and its associated company owed ₹1,33,93,560 for maize supplied on credit.

Thirty post-dated cheques were allegedly issued, but the complainant was asked not to deposit them; after they expired, the dates were altered without proper validation.

The complainant alleged that the applicant, described as a director, participated in a scheme to cheat him and lodged an FIR under Sections 406, 420 and 114 IPC.

The applicant sought quashing under Section 482 CrPC, arguing that the FIR attributed no specific act to him, that he had resigned from the companies, and that the dispute was commercial and civil in nature.

The complainant opposed the application, relying on the applicant’s alleged directorship during the relevant period and other pending proceedings.

Section 482 CrPC empowers the High Court to quash proceedings to prevent abuse of process and secure the ends of justice.

Under Sections 406 and 420 IPC, criminal breach of trust requires entrustment and dishonest misappropriation, while cheating requires dishonest or fraudulent intention at the time of inducement; mere subsequent failure to pay does not establish cheating.

The Court relied on Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh, which it applied to hold that an ordinary sale of goods creates a debtor-creditor relationship, not entrustment, and therefore non-payment for goods does not, by itself, constitute criminal breach of trust.

It also relied on Hridaya Ranjan Prasad Verma v. State of Bihar for the requirement of dishonest intention at the inception of the transaction.

Although distinct stages of a complex transaction may potentially support both offences, the Court considered that principle inapplicable to the single-stage sale alleged here.

The Court further held that criminal liability under the IPC is not vicariously imposed on a director or employee merely by reason of their position, absent specific allegations of individual involvement.

It applied the State of Haryana v. Bhajan Lal categories concerning allegations that disclose no offence, are inherently improbable, or are manifestly mala fide, and referred to Indian Oil Corpn. v. NEPC India Ltd. on the misuse of criminal proceedings to pressure recovery of commercial debts.

The Court also stated that a person’s bad character or unrelated pending proceedings cannot substitute for proof of the ingredients of the specific offence alleged.

The Court treated the alleged supply of maize as an ordinary sale of goods, under which ownership passed to the buyer; the unpaid invoices therefore did not establish entrustment for Section 406 IPC.

It found that the FIR described an established business relationship and did not allege specific facts showing that the applicant had a dishonest intention when the goods were supplied.

The later request to delay cheque presentation and the subsequent non-payment did not, without more, establish cheating at inception.

The FIR also failed to attribute a specific act of inducement or other culpable conduct to the applicant; his alleged association with the companies was insufficient to impose IPC liability.

The applicant’s other pending cases and alleged antecedents did not cure those deficiencies in the present FIR.

The Court accordingly considered the prosecution an impermissible use of criminal process in a commercial debt dispute and found the case within the Bhajan Lal parameters for quashing.

It quashed and set aside C.R. No. I-54 of 2018 registered at Mansa Police Station, Gandhinagar, together with consequential proceedings, qua the applicant; the Rule was made absolute accordingly.