VIJAY KUMAR GHAI & ORS. versus THE STATE OF WEST BENGAL & ORS.

Citation: [2022] 1 S.C.R. 884 · Decided: 22-03-2022 · Supreme Court of India · Bench: S. ABDUL NAZEER · Disposal: Appeal(s) allowed
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Judgment (excerpt)

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SUPREME COURT REPORTS
[2022] 1 S.C.R.
[2022] 1 S.C.R. 884
884
VIJAY KUMAR GHAI & ORS.
v.
THE STATE OF WEST BENGAL & ORS.
(Criminal Appeal No. 463 of 2022)
MARCH 22, 2022
[S. ABDUL NAZEER AND KRISHNA MURARI, JJ.]
Code of Criminal Procedure, 1973: s. 482 – Quashing of
complaint – Appellant No. 1 is the Managing Director of the Public
Limited Company and Appellant Nos.2 and 3 are the Directors of
the said Company –The company itself has been arrayed as proforma
Respondent No.3 – In January 2008, Respondent No. 2, an
authorized representative of SMC Global Securities Ltd, Delhi
desired to make an investment on its behalf with the appellants –It
was mutually decided between the parties that Respondent No. 2
will invest an amount of Rs. 2.5 crore with the company in lieu of
which they will be issued 2,50,000 equity shares of the company
(Respondent No. 3) – Subsequently, Respondent No. 2 filed share
application form along with the cheque of Rs. 2.5 crore – An
allotment letter was issued in favour of Respondent No. 2 whereby
2,50,000 shares were issued in lieu of the investment made by him –
The proforma Respondentno.3 and Respondent No.2 arrived at an
understanding, regarding the investment made by Respondent No.
2. – Having failed to bring the IPO as per memorandum of
understanding, Respondent No.2 issued a legal notice to the
Appellants, who duly replied to the legal notice denying all the
allegations contained in the legal notice – Respondent No. 2 filed a
police complaint in New Delhi – Respondent No. 2 filed a second
complaint underss.406, 409, 420, 468,120B and 34 IPC on the basis
of the same cause of action at Kolkata and the same was converted
into FIR under ss.406, 420, 120B IPC –High Court of Calcutta by
impugned judgment dismissed the quashing as well as the revision
petition filed by the Appellants – Hence instant appeal – Held: There
can be no doubt that a mere breach of contract is not in itself a
criminal offence and gives rise to the civil liability of damages –
While breach of contract cannot give rise to criminal prosecution,
for cheating, fraudulent or dishonest intention is the basis of the
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offence of cheating – In the case at hand, complaint filed by the
Respondent No. 2 does not disclose dishonest or fraudulent intention
of the appellants – In order to attract the ingredients of ss.406 and
420 IPC, it is imperative on the part of the complainant to prima
facie establish that there was an intention on part of the petitioner
and/or others to cheat and/or to defraud the complainant right from
the inception – It has to be prima facie established that due to such
alleged act of cheating, the complainant (Respondent No. 2) had
suffered a wrongful loss and the same had resulted in wrongful
gain for the accused (appellant) – In absence of these elements, no
proceeding is permissible in the eyes of law with regard to the
commission of the offence punishable u/s 420 IPC – The impugned
FIR and proceedings in pursuance of charge sheet against the
appellants for the offences under ss.406, 420,120B IPC quashed –
Penal Code, 1860 – ss.406, 420,120B.
Allowing the appeal, the court
HELD: 1. “Entrustment” of property under Section 405 of
the Indian Penal Code, 1860 is pivotal to constitute an offence
under this. The words used are, ‘in any manner entrusted with
property’. So, it extends to entrustments of all kinds whether to
clerks, servants, business partners or other persons, provided
they are holding a position of ‘trust’. A person who dishonestly
misappropriates property entrusted to them contrary to the terms
of an obligation imposed is liable for a criminal breach of trust
and is punished under Section 406 of the Penal Code. Section
420 IPC is a serious form of cheating that includes inducement
(to lead or move someone to happen) in terms of delivery of
property as well as valuable securities. This section is also
applicable to matters where the destruction of the property is
caused by the way of cheating or inducement. Punishment for
cheating is provided under this section which may extend to
7yearsand also makes the person liable to fine. [Paras 24, 30]
[903-E-F; 905-B-D]
2. There can be no doubt that a mere breach of contract is
not in itself a criminal offence and gives rise to the civil liability
of damages. While breach of contract cannot give rise to criminal
prosecution for cheating, fraudulent or dishonest intention is the
VIJAY KUMAR GHAI v. THE STATE OF WEST BEN
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