Presence of Cheating and Fraudulent Inducement Precludes Quashing of Criminal Proceedings in Commercial Disputes.

The applicants, Directors of Milano Papers Pvt. Ltd., entered into a commercial relationship with Respondent No. 2 (Proprietor of Jai Mata Di Traders) for the supply of waste paper.

Between 2019 and 2021, the respondent supplied material worth Rs. 4,81,10,503/-, out of which a balance of Rs. 1,13,43,744/- remained unpaid. Cheques issued for the balance were dishonored.

The applicants allegedly provided a sale agreement dated June 9, 2022, and minutes of a meeting dated June 20, 2022, falsely assuring the respondent that dues would be cleared upon the sale of their factory.

However, the factory had already been declared a Non-Performing Asset (NPA) by Yes Bank on April 28, 2022.

Consequently, an FIR was registered under Sections 406, 420, and 120-B of the IPC. The applicants sought quashment of the FIR under Section 528 BNSS / 482 Cr.P.C.

1. Whether the dispute is purely of a civil nature, arising from a commercial transaction, thereby warranting the quashing of criminal proceedings.

2. Whether the allegations in the FIR and the material collected during investigation prima facie disclose the commission of cognizable offences under Sections 406 and 420 of the IPC.

The Court applied the principles governing the inherent powers of the High Court under Section 482 Cr.P.C. as established in State of Haryana v. Bhajan Lal, which provides guidelines for quashing FIRs in the "rarest of rare cases".

It further relied on Neeharika Infrastructure (P) Ltd. v. State of Maharashtra, emphasizing that courts should not thwart investigations into cognizable offences unless no offence is disclosed.

Regarding the overlap of civil and criminal liability, the Court cited Amit Kapoor v. Ramesh Chander, holding that a civil claim's maintainability does not preclude criminal prosecution if the facts amount to an offence.

Fraudulent inducement and dishonest intention are central to offences under Sections 420 and 406 IPC.

The Court observed that while the relationship began as a commercial transaction, the applicants’ subsequent conduct suggested dishonest intention.

Specifically, the applicants issued assurances and sale agreements in June 2022 to settle debts through a factory sale, despite knowing the factory had been declared an NPA months earlier in April 2022.

The Court reasoned that a commercial dispute does not automatically grant immunity from criminal proceedings if the allegations disclose a criminal offence.

It noted that the investigation had already resulted in a charge sheet (RCT No. 3159/2024), and the potential truth of the allegations is a matter for trial, not for appreciation at the quashing stage.

The court also took cognizance of the fact that similar criminal cases were registered against the applicants in Gujarat, indicating a possible pattern of deceptive conduct.

The Court dismissed the petition, finding it lacked merit. The interim order dated March 3, 2025, was vacated, and the trial court was directed to proceed.