Failure To Pay Consideration Amount In Case Of Sale Of Goods Will Not Attract Offence Of Criminal Breach Of Trust: SC

The Supreme Court observed that the failure to pay the consideration amount in case of sale of goods will not attract the offence of Criminal Breach of Trust under Section 406 of the Indian Penal Code (IPC). 

The Court observed thus in a criminal appeal filed by Delhi Race Club (1940) Ltd. against the order of the Allahabad High Court by which it rejected an application and declined to quash the summoning order by the Additional Chief Judicial Magistrate.

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice Manoj Misra held, “… there is no manner of any doubt whatsoever that in case of sale of goods, the property passes to the purchaser from the seller when the goods are delivered. Once the property in the goods passes to the purchaser, it cannot be said that the purchaser was entrusted with the property of the seller. Without entrustment of property, there cannot be any criminal breach of trust. Thus, prosecution of cases on charge of criminal breach of trust, for failure to pay the consideration amount in case of sale of goods is flawed to the core. There can be civil remedy for the non-payment of the consideration amount, but no criminal case will be maintainable for it.”

The Bench referred to the cases of Lalit Chaturvedi and Others v. State of Uttar Pradesh and Another (2024); and Mideast Integrated Steels Ltd. (MESCO Steel Ltd.) and Others v. State of Jharkhand and Another (2023).

Senior Advocate Suhail Dutt represented the appellants while AOR Rajat Singh represented the respondents.

Brief Facts -

The respondent (complainant) lodged a private complaint against the appellants for the offence punishable under Sections 406, 420, and 120B of the Indian Penal Code (IPC). It was said in the complaint that the appellants (Secretary and Honorary President of appellant company) used to purchase grains and oats from the complainant meant to be fed to the horses maintained by the appellant company. According to the complainant, an amount of Rs. 9,11,434/- was due and payable to him by the appellants towards the sale of horse grains and oats over a period of time.

It was alleged that as the appellants failed to make the payment, the complainant thought fit to file the complaint as according to him he was cheated by them. The Court took cognizance but postponed the issuance of process as it thought fit to initiate magisterial inquiry under Section 202 of the Criminal Procedure Code (CrPC). At the end of the magisterial inquiry, the Court issued process for the offence punishable under Section 406 of the IPC. The appellants preferred an application under Section 482 of the CrPC before the High Court, praying for quashing of the summoning order passed by the Magistrate. However, the High Court rejected their application and therefore, they approached the Apex Court.

The Supreme Court in view of the above facts said, “If it is the case of the complainant that a particular amount is due and payable to him then he should have filed a civil suit for recovery of the amount against the appellants herein. But he could not have gone to the court of Additional Chief Judicial Magistrate by filing a complaint of cheating and criminal breach of trust.”

The Court took note of the fact that the complainant has not filed any civil suit for recovery of the amount which according to him is due and payable to him by the appellants and he seems to have prima facie lost the period of limitation for filing such a civil suit.

“In such circumstances referred to above, the continuation of the criminal proceeding would be nothing but abuse of the process of law”, it added.

The Court also discussed the scope of inquiry under Section 202 of CrPC. It reiterated that at the stage of issuing process it is not the duty of the Court to find out as to whether the accused will be ultimately convicted or acquitted.

“The object of consideration of the merits of the case at this stage could only be to determine whether there are sufficient grounds for proceeding further or not. Mere existence of some grounds which would be material in deciding whether the accused should be convicted or acquitted does not generally indicate that the case must necessarily fail. On the other hand, such grounds may indicate the need for proceeding further in order to discover the truth after a full and proper investigation. If, however, a bare perusal of a complaint or the evidence led in support of it shows essential ingredients of the offences alleged are absent or that he dispute is only of a civil nature or that there are such patent absurdities in evidence produced that it would be a waste of time to proceed further, then of course, the complaint is liable to be dismissed at that stage only”, it observed.

The Court further enunciated that once it is held that sine qua non for exercise of the power to issue summons is the subjective satisfaction “on the ground for proceeding further” while exercising the power to consider the legality of a summons issued by a Magistrate, it is the duty of the Court to look into the question as to whether the Magistrate had applied his mind to form an opinion as to the existence of sufficient ground for proceeding further and in that regard to issue summons to face the trial for the offence concerned.

“In this context, we think it appropriate to state that one should understand that ‘taking cognizance’, empowered under Section 190, CrPC, and ‘issuing process’, empowered under Section 204, CrPC, are different and distinct”, it added.

Accordingly, the Apex Court allowed the appeal and set aside the impugned order.

Cause Title- Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr. (Neutral Citation: 2024 INSC 626)

Appearance:

Appellants: Senior Advocate Suhail Dutt, AOR B. Vijayalakshmi Menon, Advocates Azhar Alam, and Sankalp Goswami.

Respondents: AOR Rajat Singh, Advocates Neeraj Kumar Sharma, and Sarthak Chandra.

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