Less than two weeks after a two-judge Supreme Court bench presided by Chief Justice of India Sanjiv Khanna warned the Uttar Pradesh police against invoking criminal charges in civil cases, even terming it a breakdown of the rule of law, another two-judge bench of the top court on April 29 ruled that “mere institution of civil proceedings cannot act as a bar to investigation of cognisable offences”.
The bench of Justices Dipankar Datta and Manmohan said in its order, “It is trite law that mere institution of civil proceedings is not a ground for quashing the FIR or to hold that the dispute is merely a civil dispute. This court in various judgments has held that simply because there is a remedy provided for breach of contract, that does not by itself clothe the court to conclude that civil remedy is the only remedy, and the initiation of criminal proceedings, in any manner, will be an abuse of the process of the court. This court is of the view that because the offence was committed during a commercial transaction, it would not be sufficient to hold that the complaint did not warrant a further investigation and if necessary, a trial.”
Hearing a case of a person accused of not returning Rs 25 lakh loan and being booked under some criminal charges, a bench of CJI Sanjiv Khanna and Justice Sanjay Kumar had on April 7 pulled up the UP police saying there was a “trend” of converting civil cases into criminal cases in the state and termed it “breakdown of the rule of law”.
The CJI-led bench again reprimanded the UP police on April 16 while hearing a case of alleged breach of contract. “We are constrained to pass this detailed speaking order, as it is noticed that, notwithstanding the law clearly laid down by this court on the difference between a breach of contract and the criminal offence of cheating, we are continuously flooded with cases where the police register an FIR, conduct investigation and even file chargesheet(s) in undeserving cases. During the last couple of months, a number of judgments/orders have been pronounced by this court, especially in cases arising from the state of Uttar Pradesh, deprecating the stance of the police as well as the courts in failing to distinguish between a civil wrong in the form of a breach of contract, non-payment of money or disregard to and violation of contractual terms, and a criminal offence under Sections 420 and 406 of the IPC, the ingredients of which are quite different and require mens rea at the time when the contract is entered into itself to not abide by the terms thereof.”
The bench of CJI Khanna and Justice Kumar said the SC had in the 2024 judgment in Delhi Race Club (1940) Limited and Others versus State of Uttar Pradesh and another “highlighted the fine distinction between the offences of criminal breach of trust and cheating”, observing that the two were antithetical in nature and could not exist simultaneously. “Police officers and courts must carefully apply their minds to determine whether the allegations genuinely constitute the specific offence alleged.”
It also referred to other cases where the apex court “observed that a breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. Merely the allegation of failure to keep a promise will not be enough to initiate criminal proceedings”.
The bench said, “It is the duty and obligation of the court to exercise a great deal of caution in issuing process, particularly when the matter is essentially of civil nature. The prevalent impression that civil remedies, being time-consuming, do not adequately protect the interests of creditors or lenders should be discouraged and rejected as criminal procedure cannot be used to apply pressure. Failure to do so results in the breakdown of the rule of law and amounts to misuse and abuse of the legal process.”
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The CJI-led bench also recalled that “in yet another case, again arising from criminal proceedings initiated in the state of Uttar Pradesh, this court was constrained to note recurring cases being encountered wherein parties repeatedly attempted to invoke the jurisdiction of criminal courts by filing vexatious complaints, camouflaging allegations that are ex facie outrageous or are pure civil claims. These attempts must not be entertained and should be dismissed at the threshold.”
Though the two cases, which formed the basis of the April 16 and April 29 orders, stem from allegations of breach of contract, their facts slightly differ.
In the first, Rikhab Birani and Sadhna Birani had entered an oral agreement to sell Roti Godown in Kanpur to Shilpi Gupta for Rs 1.35 crore in June 2020. Gupta and her husband claimed they had paid Rs 19 lakh towards part-sale consideration between June and September 2020.
According to the Biranis, Gupta had to pay 25% of the total sale consideration amount as advance on or before September 15, 2020, but she was unable to. They asked Gupta to pay the unpaid amount and complete the sale transaction but it wasn’t done. After about one year, the Biranis sold the property for a lesser price of Rs 90 lakh “statedly” due to changed circumstances. They contended that they suffered a loss of Rs 45 lakh due to Gupta’s failure to pay the sale consideration amount and abiding by the oral agreement, they are not liable to refund any amount to her. This led to Gupta instituting a criminal case against them which the SC quashed.
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The April 29 order arose from an agreement to sell dated April 12, 2004 executed by Bhai Manjit Singh, Vikramjit Singh and Maheep Singh in favour of one Punit Beriwala for sale of a property on Prithvi Raj Road, New Delhi, for Rs 28 crore. Manjit Singh, being Karta, promised that the property would be free from all encumbrances and that he would get it converted to freehold before it is transferred to Beriwala.
According to Beriwala, he paid Rs 1.64 crore and was given part physical possession of the servant quarter of the property.
In June 2016, one Ashok Gupta lodged an FIR against the Singhs alleging that an agreement to sell dated December 29, 2010 for the same property had been executed in his favour and that he was also put in possession of the servant quarter. This FIR was quashed by the Delhi High Court.
As he was not provided documents for clear title of the property, Beriwal published a notice dated July 18, 2020 in the Hindustan Times declaring that he had executed an agreement to sell with the Singhs for the subject property.
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Following this, both Punjab and Sind Bank, Rajendra Place, New Delhi and SREI Infrastructure Finance Limited and SREI Equipment Finance Limited came forward saying Manjit Singh had mortgaged the property with them to secure loans. This led to civil proceedings before the Delhi High Court and an FIR by the Economic Offences Wing. By order dated October 17, 2022, the HC quashed the FIR against Vikramjit Singh and Maheep Singh following which Beriwal approached the SC. The SC set aside the HC order and revived the FIR against the duo.