The High Court of Jammu & Kashmir and Ladakh, in a significant ruling, clarified that the mere existence of a civil remedy does not by itself justify the quashing of criminal proceedings in cases involving breach of contract or financial disputes unless it is clearly shown that the allegations do not disclose any offence or the case is malicious in nature.
"…the mere fact that complaint relates to a commercial transaction or breach of contract, for which a civil remedy is available, is not by itself a ground to quash the criminal proceedings."
— Justice Sanjay Dhar, J&K High Court
This observation was made in the matter of Susheel Kumar Rana & Others vs. UT of J&K & Others, where the petitioners challenged FIR No. 431/2023 registered under Sections 420, 406, and 109 IPC at Police Station Kathua.
Case Background
The complainant, who served in the police department along with the lead petitioner, alleged that in 2019, the petitioner and others approached him with an investment scheme offering an 18% annual return. Believing this, the complainant transferred a total of ₹96,49,980 to the petitioners’ specified bank account.
While ₹37,50,700 was later returned, the remaining ₹58,99,280 was not repaid. This led to allegations of cheating and breach of trust. The complainant moved an application under Section 156(3) CrPC, prompting the Magistrate to order FIR registration. Following delays by the police, a contempt petition was also filed.
Subsequently, a compromise agreement dated 29.01.2023 was executed, where the complainant agreed to withdraw all proceedings. However, the FIR was eventually registered, and the petitioners approached the High Court under Section 482 CrPC for quashing the case.
The Court referred extensively to established precedents, especially:
- Madhavrao Jiwaji Rao Scindia v. Sambhajirao Chandrojirao Angre
- Hridaya Rangan Prasad Verma v. State of Bihar
- Alpic Finance Ltd. v. P. Sadasivan
- Anil Mahajan v. Bhor Industries Ltd.
- Indian Oil Corporation v. NEPC India Ltd.
- Mitesh Kumar J. Sha v. State of Karnataka
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The Court reiterated:
“To constitute an offence under Section 420 IPC, there must be a fraudulent or dishonest intention at the time of making the promise.”
It was noted that petitioners had repaid a substantial portion of the invested amount, indicating that no dishonest intent existed at the start of the transaction.
The judgment explained that merely failing to fulfill a contract does not constitute cheating unless it is proven that the accused had no intention to honor the contract from the beginning.
“Mere breach of contract cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown at the beginning of the transaction.”
Similarly, under Section 406 IPC (criminal breach of trust), dishonest misappropriation of property must be established.
The Court noted that a compromise was reached and that the complainant even acknowledged the settlement in a notarized document and a statement before the police. Though the complainant later disputed the compromise, claiming fraud, the Court observed:
“The purpose of lodging the impugned FIR was to ensure recovery… which appears did not fructify, perhaps due to the inability of the petitioners to repay.”
This, the Court emphasized, indicated a civil dispute that had been given a criminal color to pressure the accused.
The judgment reaffirmed that:
- Not every breach of contract gives rise to a criminal offence.
- A civil dispute cannot be converted into a criminal case to gain undue advantage or quicker resolution.
- Criminal intent at the inception of the transaction must be clearly proven.
The Court relied heavily on Indian Oil Corporation v. NEPC India Ltd. and Mitesh Kumar J. Sha v. State of Karnataka, where the Supreme Court discouraged misuse of criminal law to settle civil scores.
Holding that the FIR lacked essential ingredients of offences under Sections 420 and 406 IPC, and that the case appeared to be an abuse of legal process:
“…the present case is a fit one in which this Court should exercise its power under Section 482 Cr.P.C. to prevent the abuse of process of law and to secure the ends of justice.”
The Court quashed FIR No. 431/2023.
Case Title: Susheel Kumar Rana and others Vs UT Of J&K
