FIR Under Section 420 Quashed Where Court Found No Prima Facie Dishonest Intention at Transaction Inception

A bench of Justices Pamidighantam Sri Narasimha and Joymalya Bagchi heard an appeal against the Bombay High Court’s refusal to quash FIR No. 80/2022, registered at Lakadganj Police Station, Nagpur under Section 420 Indian Penal Code. The appellant challenged the High Court order in Criminal Application (APL) No. 506 of 2022 arising out of SLP (Criminal) No. 10931 of 2022.

The Supreme Court allowed the appeal and set aside the High Court order, quashing the criminal proceedings. The Court found that materials collected during investigation did not prima facie establish that the appellant made dishonest representations at the inception of the commercial transactions such as to attract penal liability for cheating. The Court noted that the High Court had erred in inferring initial dishonest intention merely because the appellant had later failed to honour the terms of a subsequent notarized agreement. The Court observed that “the representation of the appellant that he was a creditworthy businessman cannot be labelled as ‘deception’ merely on the ground that the appellant had failed to honour the terms of the subsequent agreement” and emphasised that “mere breach of promise to repay per se does not infer dishonest intention.” The Court, in its reasoning, observed: “In order to attract the penal provision, the uncontroverted allegations including material collected during investigation must disclose that pursuant to the assurance in the subsequent agreement, the 2nd non applicant had parted with property, that is to say made further supplies and suffered wrongful loss. It is nobody’s case after the subsequent agreement further supplies had been made or the 2nd non-applicant had been subjected to wrongful loss.”

Background

The dispute arose from a continuing commercial relationship in which the 2nd non-applicant supplied coal to the appellant between November 2015 and June 2017 on invoices carrying a 15-day credit period. Initially the appellant paid some invoices but subsequently defaulted, leaving a claimed outstanding of Rs.76,82,883/-. On 6 March 2019 a notice demanded payment and after negotiations a notarized agreement dated 23 July 2020 recorded that the appellant would repay Rs.80,00,000/- in five instalments between 1 August 2020 and 31 January 2021; the appellant paid Rs.5,00,000/- but failed to make further payments. The complainant sought registration of a criminal case; after the Magistrate directed registration, police investigated, seized the notarized agreement, invoices and bank statements and recorded witness statements. A charge-sheet was filed alleging offence under Section 420 IPC.

The High Court refused to quash the FIR, holding that the averments prima facie disclosed ingredients of offence under Section 415 IPC and that the case did not disclose a “purely commercial dispute.” On appeal, the Supreme Court applied the principles governing quashing of criminal proceedings, as summarised in State of Haryana v. Bhajan Lal, and reviewed investigative materials including bankers’ statements and mortgage records which, the Court said, supported the appellant’s representation that he was a businessman of substance. The Court found no material to show that the appellant was insolvent or that he had intended, at the time of the supplies, to deceive the complainant. The Court distinguished authorities relied upon by the complainant and reiterated established tests for separating civil breaches of contract from criminal cheating: whether a dishonest representation induced parting with property or further supplies resulting in wrongful loss. Finding that no such further supplies or wrongful loss followed the subsequent agreement, the Court concluded that the High Court’s inference of initial dishonest intention was unsustainable. The Supreme Court allowed the appeal, quashed FIR No. 80/2022 registered on 11 February 2022 under Section 420 IPC at Lakadganj Police Station, Nagpur and disposed of pending applications.

Case Details: Case No.: Criminal Appeal No. ___ of 2025 (Arising out of SLP (Criminal) No. 10931 of 2022); Citation: 2025 INSC 430 Case Title: Manish v. State of Maharashtra and Anr. Appearances: For the Petitioner(s): Mr. Subramoniam (advocate) For the Respondent(s): Not indicated in the judgment text provided