Gujarat HC: Breach of Contract Alone Does Not Attract Criminal Liability

The Gujarat High Court clarified that a mere breach of contractual obligations does not automatically translate into criminal liability, and quashed a cheating case where the accused had no direct dealings with the complainant.

Presiding over the matter, Justice P. M. Raval observed that the criminal justice system should not be used as a tool to settle disputes that are primarily civil in nature. The Court heard an application filed under Section 482 of the Code of Criminal Procedure, 1973 (corresponding to Section 528 of Bhartiya Nagrik Sauraksha Sanhita, 2023) seeking the quashing of an FIR registered under Sections 420 and 114 of the Indian Penal Code, 1860.

Civil Dispute Given a Criminal Cloak

The Court noted that the transaction primarily involved the sale of goods to the original accused No. 1. While the goods were delivered to the applicant's address, the applicant had never directly contacted or promised payment to the complainant. The Court highlighted that the complainant, failing to secure payments, appeared to have resorted to criminal prosecution against the applicant.

The Court, in its reasoning, observed: "The complainant having failed to secure payments of goods from original accused no.1 appeared to have resorted to criminal prosecution dragging present applicant who has neither contacted the complainant nor promised nor induced to deliver any property. Prima facie, what emerges from the material on record and FIR is that the transaction in question pertains to sell of goods to original accused no.1 though delivered at the address of the present applicant at the behest of original accused no.1 and in such transaction property in goods passes from seller to purchaser upon sale the purchaser takes over possession or acquires dominant over the goods, under such circumstances it cannot be presumed that present applicant induced the complainant to part with the goods by deception with fraudulent means."

Necessity of Mens Rea in Cheating and Breach of Trust

Analyzing the statutory requirements, the Court referred to the definitions of 'Dishonesty' under Section 24 and 'Wrongful Gain' under Section 23 of the Indian Penal Code, 1860. It reiterated that to attract Section 405 of the Indian Penal Code, 1860, there must be evidence of dishonest intention. Relying on the precedent set in Kailash Kumar Sanwatia vs. State of Bihar ( "(2003) 7 SCC 399": 2003 CaseBase(SC) 1207), the bench emphasized that in the absence of evidence indicating a fraudulent mental element, a mere breach of trust does not constitute a criminal offence.

Similarly, regarding Section 415, the Court cited G. V. Rao vs. L.H.V Prasad and Others to establish that an intention to deceive must exist at the time the inducement was offered. In the present case, the applicant had purchased goods from accused No. 1 and made payments to him, showing no mala fide intent toward the original complainant.

Final Order and Directions

Concluding that the continuation of the proceedings would amount to an abuse of the process of law, the Court allowed the application. The Court has following directions: "The impugned FIR being Part-A C.R.No.11210055220727 of 2022 registered with Salabatpura Police Station, Surat for offence under Sections 420 and 114 of the Indian Penal Code, 1860 and all the consequential proceedings arising therefrom are quashed and set aside, qua the applicant herein."

Background:

The dispute originated when the complainant, a fabric manufacturer, alleged he was cheated of Rs. 20,71,555. According to the FIR, Accused No. 1 (Lavish Bhardwaj) ordered fabrics and provided a post-dated cheque that was dishonored due to insufficient funds. The complainant discovered that the material was delivered to 'Mahabir Polyfab Industry' in West Bengal, where the applicant is a partner.

The applicant argued that she had no transaction with the complainant's firm but had purchased the goods from Accused No. 1's firm, L.B. Polypack. The applicant contended that she was falsely implicated in a monetary dispute between Accused No. 1 and the complainant. The Court agreed, noting that the applicant's case was covered by the principles laid down in State of Haryana vs. Bhajanlal, as the allegations did not disclose a criminal offence against her.

Case Details:
Case No.: R/CRIMINAL MISC.APPLICATION NO. 23433 of 2022
NeutralCitation: 2026:GUJHC:38163
Case Title: SANJANA AGARWAL PARTNER OF MAHABIR POLYFAB INDUSTRY Versus STATE OF GUJARAT & ANR.
Appearances:
For the Petitioner(s): KARTIKKUMAR G BAROT
For the Respondent(s): MR. RAHUL R DHOLAKIA (Respondent No. 2), MR JAY MEHTA APP (Respondent No. 1)

Source: 2026 CaseBase(GUJ) 308