Non-payment of sale consideration without initial fraudulent intent or entrustment constitutes no cheating or criminal breach of trust.

The petitioner, a Surat-based cloth-trading agent, was acquainted with the original complainant, a cloth trader, and had introduced Accused No. 1, a Kolkata businessman, to him. The complainant thereafter supplied goods to Accused No. 1 between 30 February 2013 and 17 February 2014, allegedly worth ₹90,13,098, on the assurance that payment would be made within the agreed period.

Initially, payments were made regularly, but subsequently the outstanding amount remained unpaid. Accused No. 1 allegedly became unreachable and his business premises were found locked, following which the complainant lodged FIR CR No. I-47 of 2016 at Salabatpura Police Station, Surat, alleging offences under Sections 406, 409, 420 and 114 of the IPC against Accused No. 1 and the petitioner. The petitioner approached the High Court under Section 482 of the Code of Criminal Procedure seeking quashing of the FIR. During the proceedings, the petition filed by Accused No. 1 had abated upon his death.

Whether the allegations in the FIR disclosed the ingredients of criminal breach of trust under Sections 406 and 409 of the IPC against the petitioner, in the absence of entrustment or dominion over the complainant’s property?

Whether the petitioner’s introduction of Accused No. 1 and alleged role as his agent disclosed cheating under Section 420 of the IPC, including dishonest intention from the inception of the transaction?

Whether continuation of the criminal proceedings arising from the FIR constituted an abuse of the process of law where the dispute essentially concerned non-payment for goods supplied in a commercial transaction?

The Court exercised its inherent jurisdiction under Section 482 CrPC to prevent abuse of process and secure the ends of justice. Sections 405–406 IPC require entrustment of property or dominion over property, followed by dishonest misappropriation, conversion, use or disposal in violation of law or contract; Section 409 applies the aggravated form of criminal breach of trust to specified persons such as agents. Section 420 IPC requires deception and fraudulent or dishonest inducement, with dishonest intention existing from the inception of the transaction.

Relying principally on Race Club (1940) Ltd. v. State of Uttar Pradesh, 2024 (10) SCC 690, and the principles stated in S.W. Palanitkar v. State of Bihar, (2002) 1 SCC 241, Hari Prasad Chamaria v. Bishun Kumar Surekha, (1973) 2 SCC 823, State of Gujarat v. Jaswantlal Nathalal, (1968) 2 SCR 408, and CBI v. Duncans Agro Industries Ltd., (1996) 5 SCC 591, the Court held that mere non-payment of the price in a sale of goods does not constitute criminal breach of trust, because the goods are sold and ownership passes to the purchaser. Under Sections 20 and 24 of the Sale of Goods Act, 1930, property in the goods passes to the buyer in the circumstances specified therein; therefore, a claim for unpaid consideration ordinarily gives rise to a civil remedy rather than criminal liability.

The FIR attributed to the petitioner only the role of introducing Accused No. 1 and acting as an agent through whom orders and, initially, payments were communicated or transmitted. It did not allege that the petitioner was entrusted with the complainant’s goods, had dominion over them, misappropriated them, or obtained any dishonest benefit. Since the goods were supplied pursuant to sales transactions, ownership passed to Accused No. 1 upon delivery; non-payment of the agreed price could not, without more, constitute criminal breach of trust under Sections 406 or 409 IPC.

The FIR also contained no specific allegation that the petitioner or Accused No. 1 had a dishonest or fraudulent intention at the inception of the transactions. The fact that Accused No. 1 initially made payments and later defaulted indicated a subsequent failure to pay rather than an original fraudulent inducement. Accordingly, the allegations did not satisfy the essential ingredients of cheating under Section 420 IPC. The dispute was therefore commercial and civil in substance, and continuation of the prosecution against the petitioner would amount to abuse of the process of law.

The FIR being CR No. I-47 of 2016 registered at Salabatpura Police Station, Surat, under Sections 406, 409, 420 and 114 IPC, together with all consequential proceedings qua the petitioner, was quashed and set aside under Section 482 CrPC. The petition was allowed and the Rule was made absolute to that extent.