Facts of the Case

The petitioner approached the Patna High Court seeking quashing of the order of cognizance dated 11 November 2022 passed by the learned Judicial Magistrate, 1st Class, Katihar in Complaint Case No. 591 of 2022 for offences under Sections 406 and 420 IPC.

The complainant alleged that he was operating a shop under the name Agrawal Cement Store at Kursela, Katihar and had been working as a dealer of Dalmia Cement for approximately ten years. The petitioner was stated to be the CNF of Dalmia Cement.

According to the complainant, there was an agreement between the parties. Pursuant to the said arrangement, the complainant allegedly came to know that the CNF had generated false bills, causing him a loss of approximately Rs. 20,00,000, and had forced him to sign a no-dues paper.

Issues Involved

The principal issues before the High Court were:

  1. Whether the allegations arising from a long-standing commercial and business transaction disclosed the essential ingredients of criminal breach of trust under Section 406 IPC.
  2. Whether an offence of cheating under Section 420 IPC could be sustained in the absence of any allegation or material showing dishonest intention on the part of the petitioner at the inception of the transaction.
  3. Whether continuation of criminal prosecution against the petitioner was justified where the underlying dispute related to business transactions between the complainant and the company.
  4. Whether the order of cognizance dated 11 November 2022 deserved to be quashed insofar as the petitioner was concerned.

Petitioner’s Arguments

Learned senior counsel appearing for the petitioner submitted that the matter arose from a dispute which had initially been settled. However, the complainant subsequently withdrew from the settlement and expressed his intention to continue with the prosecution.

The petitioner’s case was, in substance, that the dispute emerged from commercial dealings and did not justify continuation of criminal proceedings under Sections 406 and 420 IPC.

Complainant’s / Informant’s Arguments

Learned counsel for the complainant disputed the submissions advanced on behalf of the petitioner.

It was submitted that the company had prescribed specific terms and conditions governing dealers seeking delivery of cement. Any dealer intending to purchase cement was required to make payment of the cost of goods from the firm’s bank account into the company’s account. Thereafter, the dealer was required to generate a sale order from its own computer.

It was further submitted that once goods were delivered against proper acknowledgment by the dealer, the CNF generated the bill on the company’s linked website in the name of the dealer and against the company sale order.

According to the submissions, when a bill was generated on the company’s website pursuant to the dealer order link connected with the dealer’s mobile, complete particulars relating to quality, value, item, vehicle number and GST bill appeared.

It was also submitted that the petitioner had no concern with the dispute between the dealer and the company.

Respondent’s Arguments

Learned counsel for Opposite Party No. 2 and the learned Additional Public Prosecutor for the State strongly opposed the prayer for quashing the impugned order of cognizance dated 11 November 2022.

It was submitted that the petitioner had defalcated the complainant’s money by generating fake bills, used to clear bills in his own name, caused loss to the complainant and thereby secured wrongful gain to the accused.

Court’s Findings

The Patna High Court observed that a bare perusal of the allegations showed that the matter was “out and out business transaction”, particularly because the transactions had apparently continued for approximately ten years.

The Court found that there was no allegation or material suggesting that the petitioner had dishonest intention at the inception of the transaction.

On that basis, the High Court held that prosecution under Sections 406 and 420 IPC could not continue.

The Court further found that no offence under Sections 406 and 420 IPC was made out against the petitioner. Rather, the dispute related to a business transaction between the complainant and the company and not with the petitioner, who was the CNF of the company.

Court Order

The Patna High Court quashed the order of cognizance dated 11 November 2022 passed by the learned Judicial Magistrate, 1st Class, Katihar in Complaint Case No. 591 of 2022, insofar as the petitioner was concerned.

Accordingly, the criminal miscellaneous petition was allowed.

Important Clarification

The judgment importantly clarifies that a commercial or business dispute does not automatically constitute criminal breach of trust or cheating merely because one party alleges financial loss, false billing or wrongful gain.

For prosecution under Section 420 IPC, the existence of dishonest intention at the inception of the transaction is a crucial consideration. Where long-standing commercial transactions have continued for several years and there is no allegation or material indicating initial dishonest intention, continuation of criminal prosecution for cheating may not be sustainable.

The Court also distinguished the petitioner’s position as CNF of the company from the underlying business dispute between the dealer and the company. Since the dispute was found to relate to business transactions between the complainant and the company, and no offence under Sections 406 and 420 IPC was made out against the petitioner, the cognizance order was quashed insofar as the petitioner was concerned.

Sections Involved

·         Section 406 IPC – Punishment for Criminal Breach of Trust

·         Section 420 IPC – Cheating and Dishonestly Inducing Delivery of Property

Link to download the order - https://mytaxexpert.co.in/uploads/1783506638_1483compressed.pdf

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