Criminal Proceedings Should Not Be Encouraged When It Is Essentially A Civil Dispute Which Is Given A Cloak Of Criminal Offence: SC

The Supreme Court observed that a criminal proceedings should not be encouraged when it is essentially a civil dispute which is given a cloak of criminal offence.

The Bench of Justice Vikram Nath and Justice Prashant Kumar Mishra said, "The complaints lodged by the private respondents are predominantly of civil nature without disclosing any element of cheating, deception, or forgery of any valuable security. It is essentially a civil dispute which is given a cloak of criminal offence."

"A criminal proceeding of such nature should not be encouraged when it is accentuated with mala fide or otherwise an abuse of the process of the court. Hence, in the facts and circumstances of the case, allowing the police investigation to continue would amount to an abuse of the process of the Court and the High Court committed an error in refusing to exercise the power under Section 482 Cr.P.C. to quash the proceedings," the Bench observed. 

The case involves allegations against Sanjay Agarwal, where two FIRs were filed under Section 156(3) of the Criminal Procedure Code. The complainant accused Agarwal of cheating and forgery, claiming breach of contract and failure to settle accounts.

During the hearing, the Appellant argued that the dispute was primarily a civil matter related to breach of contract. The Counsel contended that the criminal cases filed against Agarwal were an attempt to evade contractual obligations.

On the other hand, the State argued that the matter was still under investigation, and the criminal proceedings should be allowed to continue.

The Odissa High Court, in its decision, upheld the continuation of the criminal proceedings, stating that the allegations disclosed a criminal offence. However, the Court took a different stance on the matter, emphasizing that the complaint did not establish a criminal offence of cheating.

Having perused the material on record, the Court said, "We are satisfied that the impugned proceedings arising out of FIR No. 113 dated 13.02.2020 and the proceedings arising out of order dated 09.03.2021 passed by Sub-Divisional Judicial Magistrate, Bhubaneswar under Section 156(3) Cr.P.C. directing registration of FIR on the same cause of action are an abuse of the process of court inasmuch as the matter is purely of civil nature arising out of an agreement between the parties for execution of a civil work."

The Court noted that the agreement contains an arbitration clause and the arbitration proceedings have already commenced between the parties. "...the complainant having himself admitted its inability to perform the work and requesting to settle the account as early as on 23.11.2017, it is certainly a civil dispute arising out of contract," the Court noted. 

The Court highlighted the importance of preventing criminal proceedings from becoming a tool for harassment and abuse of the legal system. "FIR No. 113 dated 13.02.2020 and the order dated 09.03.2021 under Section 156(3) Cr.P.C. appear to have been made to coerce the appellant not to proceed against the complainant for breach of the contract. True it is, that the issue concerning the breach of the contract shall be decided by the Arbitrator, however, to allow the present criminal proceedings to continue would be an abuse of the process of the Court," the Court said. 

The Court allowed the Appeal under Section 482 CrPC and set aside the High Court's Order. "Consequently, FIR No. 113 dated 13.02.2020 registered at Police Station Khandagiri, Bhubaneswar and the order dated 09.03.2021 passed in ICC No. 1032 of 2021 by Sub-Divisional Judicial Magistrate, Bhubaneswar under Section 156(3) Cr.P.C. are quashed and set aside," the Court said. 

Cause Title: Sanjay Agarwal v. State of Odisha & Anr. [CRIMINAL APPEAL NO(s): 2593-2594 OF 2024]

Appearance:-

Petitioner: Senior Advocate V. Mohana, Advocates Suvendu Suvasis Dash, Swati Vaibhav, Shruti Vaibhav, Sneha Botwe, Bhavya Pande, M/S. Vaibhav & Dash Law Associates (AOR)

Respondent: Senior Advocate Yasobant Das, Advocates Dhananjay Bhaskar Ray (AOR), Lopamudra Tandon, Shovan Mishra (AOR), Bipasa Tripathy

Click here to read/download the Order