DELHI RACE CLUB (1940) LTD. & ORS.versusSTATE OF UTTAR PRADESH & ANR.

                 [2024] 8 S.C.R. 670 : 2024 INSC 626

                  Delhi Race Club (1940) Ltd. & Ors.
                                   v.
                    State of Uttar Pradesh & Anr.
                    (Criminal Appeal No. 3114 of 2024)
                                23 August 2024
               [J.B. Pardiwala* and Manoj Misra, JJ.]

                           Issue for Consideration
       High Court, if justified in declining to quash and set aside the
       summoning order passed by the Magistrate, against the appellants-
       company and its office bearers, for offence punishable u/ss. 406
       and 420 IPC.

                                  Headnotes†
       Penal Code, 1860 – ss.406, 420 and 120B – Criminal breach of
       trust and cheating – Private complaint filed by the respondent
       No. 2 in the court of Magistrate against the appellants for
       the offence punishable u/ss.406, 420 and 120B, alleging that
       certain amount was due and payable to him by the appellants
       towards the sale of horse grains and oats over a period of
       time – Trial court issued process for the offence punishable
       u/s.406 – Application u/s.482 CrPC by the appellants seeking
       quashing of the summoning order passed by the Additional
       Chief Judicial Magistrate – Rejected by the High Court –
       Correctness:
       Held: There was total non-application of mind by the High Court –
       Magistrate failed to pose unto himself the correct question as to
       whether the appellant Nos. 2 and 3-office bearers of the appellant
       No. 1 Company, were personally liable for any offence – Penal
       Code does not contain any provision for attaching vicarious
       liability on the part of the appellant Nos. 2 and 3 – Vicarious
       liability of the office bearers would arise provided any provision
       exists in that behalf in the statute – Furthermore, at the stage of
       pre-cognizance, the Magistrate is obliged to look into the complaint
       threadbare so as to reach to a prima facie conclusion whether
       the offence is disclosed or not, then he is expected to be more
       careful when he is actually taking cognizance upon a private
       complaint and ordering issue of process – High Court completely

* Author
[2024] 8 S.C.R.                                                             671

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     lost sight of the said aspect while rejecting the application u/s.482
     CrPC – Issuance of summons is a serious matter and, thus,
     should not be done mechanically and it should be done only upon
     satisfaction on the ground for proceeding further in the matter
     against a person concerned based on the materials collected
     during the inquiry – Plain reading of the complaint fails to spell
     out any of the ingredients of ss. 406 and 420 – At the most, the
     Magistrate could have issued process for the offence punishable
     u/s.420-cheating but in any circumstances no case of criminal
     breach of trust made out, because there was no entrustment of
     any property – Not even the case of the complainant that any
     property was lawfully entrusted to appellants and that the same
     has been dishonestly misappropriated – Case of the complainant
     is that the price of the goods sold by him has not been paid –
     Once there is a sale, s. 406 goes out of picture – Even if the
     Magistrate would have issued process for the offence punishable
     u/s.420-cheating the same would have been liable to be quashed
     and set aside, as none of the ingredients to constitute the
     offence of cheating disclosed from the materials on record – If
     it is the case of the complainant that a particular amount is due
     and payable to him then he should have filed a civil suit for
     recovery of the amount against the appellants – But he could
     not have gone to the court of the Judicial Magistrate by filing a
     complaint of cheating and criminal breach of trust – Till date, the
     complainant has not filed any recovery suit – Continuation of the
     criminal proceeding nothing but abuse of the process of law –
     Thus, the impugned order passed by the High Court as also the
     order passed by the Additional Chief Judicial Magistrate taking
     cognizance upon the complaint, set aside. [Paras 11, 12, 14, 18,
     19, 21, 26, 27, 31, 32, 39, 40, 45]
     Penal Code, 1860 – u/ss.406, 420 – Criminal breach of trust
     and cheating – Specific ingredients – Difference between:
     Held: In both the sections, ss. 406 and 420, mens rea-intention to
     defraud or the dishonest intention must be present, and in the case
     of cheating it must be there from the very beginning or inception –
     Distinction between mere breach of contract and the offence of
     criminal breach of trust and cheating is a fine one – In case of
     cheating, the intention of the accused at the time of inducement
     should be looked into which may be judged by a subsequent
     conduct, but for this, the subsequent conduct is not the sole test –
672                                                              [2024] 8 S.C.R.

                        Digital Supreme Court Reports


       Mere breach of contract cannot give rise to a criminal prosecution
       for cheating unless fraudulent or dishonest intention is shown right
       from the beginning of the transaction i.e. the time when the offence
       is said to have been committed – Thus, it is this intention, which
       is the gist of the offence – Whereas, for the criminal breach of
       trust, the property must have been entrusted to the accused or
       he must have dominion over it – Said property must be either of
       some person other than the accused or beneficial interest in or
       ownership’ of it must be of some other person – Accused must hold
       that property on trust of such other person – Although the offence
       of breach of trust and cheating involve dishonest intention, yet they
       are mutually exclusive and different in basic concept – There is
       a distinction between criminal breach of trust and cheating – For
       cheating, criminal intention is necessary at the time of making
       a false/misleading representation since inception – In criminal
       breach of trust, mere proof of entrustment is sufficient – Thus,
       in case of criminal breach of trust, offender is lawfully entrusted
       with the property, and he dishonestly misappropriates the same,
       whereas, in case of cheating, offender fraudulently or dishonestly
       induces a person by deceiving him to deliver any property – In
       such a situation, both the offences cannot co-exist simultaneously.
       [Paras 25, 26, 30]
       Code of Criminal Procedure, 1973 – s.202 – Magistrate
       issuing process – Inquiry under – Scope and ambit of –
       Discussed. [Paras 6, 7]
       Judicial deprecation – Offences of criminal breach of trust
       and cheating – Courts below not been able to understand the
       fine distinction between criminal breach of trust and cheating:
       Held: IPC remained in force for almost a period of 162 years until
       it was repealed and replaced by the Bharatiya Nyaya Sanhita-BNS
       in December 2023 which came into effect on 01.07.24 – Even
       after these many years, the courts below have not been able to
       understand the fine distinction between criminal breach of trust
       and cheating – Casual approach has been adopted by the courts
       below – In contrast, when a case arises from a FIR, responsibility is
       of the police to thoroughly ascertain whether the allegations levelled
       by the informant indeed falls under the category of cheating or
       criminal breach of trust – Unfortunately, it has become a common
       practice for the police officers to routinely and mechanically proceed
[2024] 8 S.C.R.                                                           673

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     to register FIR for both the offences, criminal breach of trust and
     cheating on a mere allegation of some dishonesty or fraud, without
     any proper application of mind – Police officers across the country
     to be imparted proper training in law so as to understand the
     fine distinction between the offence of cheating viz-a-viz criminal
     breach of trust – Both offences are independent and distinct – Two
     offences cannot coexist simultaneously in the same set of facts –
     They are antithetical to each other – Two provisions of the IPC
     (now BNS, 2023) are not twins that they cannot survive without
     each other. [Paras 41-43]

                             Case Law Cited
     D.N. Bhattacharjee v. State of West Bengal [1972] 3 SCR 973;
     (1972) 3 SCC 414 : AIR 1972 SC 1607 : (1972) Cri LJ 1037;
     Smt. Nagawwa v. Veeranna Shivalingappa Kanjalgi [1976] Supp.
     1 SCR 123 : (1976) 3 SCC 736; Pepsi Foods Ltd. v. Special
     Judicial Magistrate [1997] Supp. 5 SCR 12 : (1998) 5 SCC 749;
     Mehmood Ul Rehman v. Khazir Mohammad Tunda [2015] 4 SCR
     841 : (2015) 12 SCC 420; Sunil Bharti Mittal v. C.B.I. [2015] 1 SCR
     377 : (2015) 4 SCC 609; S.W. Palanitkar & Ors. v. State of Bihar
     & Anr. [2001] Supp. 4 SCR 397 : (2002) 1 SCC 241; Harmanpreet
     Singh Ahluwalia v. State of Punjab [2009] 7 SCR 563 : (2009) 7
     SCC 712 : (2009) Cr.L.J. 3462 (SC); Lalit Chaturvedi and Others
     v. State of Uttar Pradesh and Another, 2024 SCC OnLine SC
     171 – relied on.
     Mideast Integrated Steels Ltd. (MESCO Steel Ltd.) and Others v.
     State of Jharkhand and Another, 2023 SCC OnLine Jhar 301 –
     approved.
     Legal Remembrancer, West Bengal v. Abani Kumar Banerji, AIR
     1950 Cal 437; R.R. Chari v. State of U.P [1951] 1 SCR 312:
     AIR 1951 SC 207; Tilak Nagar Industries Ltd. & Ors. v. State of
     A.P. (2011) 15 SCC 571; Bhushan Kumar v. State (NCT of Delhi)
     [2012] 2 SCR 696 : (2012) 5 SCC 424; Hari Prasad Chamaria
     v. Bishun Kumar Surekha & Ors. (1973) 2 SCC 823; State of
     Gujarat v. Jaswantlal Nathalal [1968] 2 SCR 408; Velji Raghvaji
     Patel v. State of Maharashtra; [1965] 2 SCR 429; Jaswantrai
     Manilal Akhaney v. State of Bombay [1956] 1 SCR 483; Central
     Bureau of Investigation, SPE, SIU(X), New Delhi v. Duncans Agro
     Industries Ltd., Calcutta [1996] Supp. 3 SCR 360 : (1996) 5 SCC
     591 – referred to.
674                                                            [2024] 8 S.C.R.

                        Digital Supreme Court Reports


                                  List of Acts
       Penal Code, 1860; Code of Criminal Procedure, 1973.

                               List of Keywords
       Summoning order by Magistrate; Criminal breach of trust; Cheating;
       Quashing of summoning order; Vicarious liability; Pre-cognizance
       stage; Entrustment of property; Abuse of the process of law; Mens
       rea; Bharatiya Nyaya Sanhita.

                              Case Arising From
       CRIMINAL APPELLATE JURISDICTION: Criminal Appeal No.3114
       of 2024
       From the Judgment and Order dated 03.04.2024 of the High Court
       of Judicature at Allahabad in A482 No. 15453 of 2023
                           Appearances for Parties
       Suhail Dutt, Sr. Adv., Sankalp Goswami, Azhar Alam, Ms. B.
       Vijayalakshmi Menon, Advs. for the Appellants.
       Rajat Singh, Neeraj Kumar Sharma, Sarthak Chandra, Raghav Garg,
       Advs. for the Respondents.
                  Judgment / Order of the Supreme Court

                                   Judgment
       J.B. Pardiwala, J.
1.     This appeal arises from the order passed by the High Court of
       Judicature at Allahabad dated 03.04.2024 in Application No. 15453
       of 2023 filed by the appellant herein by which, the High Court
       rejected the same and thereby declined to quash and set aside the
       summoning order dated 28.02.2023 passed by the Additional Chief
       Judicial Magistrate, Khurja, Bulandshahar in Complaint Case No.
       547 of 2021.
2.     Facts giving rise to this appeal may be summarised as under:
       (i)   The respondent No. 2 herein is the original complainant. He
             lodged a private complaint in the court of Additional Chief Judicial
             Magistrate, Khurja, Bulandshahar against the appellants herein
             for the offence punishable under Sections 406, 420 & 120B
             respectively of the Indian Penal Code, 1860 (for short, “IPC”).
[2024] 8 S.C.R.                                                          675

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


           The complaint reads thus:
                “It is most respectful that the Applicant Vipin Kumar
                Agarwal, son of Late Shri Bhagwat Swaroop Agarwal,
                who is the owner of a firm Agarwal Udyog, New
                Mandi, Khurja. The applicant’s firm used to supply
                horse feed, barley and oats to Delhi Race Club 1940
                Limited, New Delhi since 1990. In the year 1995, the
                then head of the Race Club, Shri PS Vedi and the
                then Secretary Sehgal told the applicant that from
                now on the bills for the supply of horse grain and oats
                would be made in the name of Delhi Horse Trainers
                Association, Race Course Road, New Delhi. And the
                Head and Secretary of the same association have
                now been made separate, they will pay you for the
                goods supplied. Till the year 2017, the payment of
                the applicant’s firm continued to be regular and now
                at present Delhi Horse Trainers Association President
                Kazim Ali Khan and Secretary Sanjeev Charan owe
                a payment of Rs 9,11,434/- to the applicant’s firm.
                Whenever the applicant makes demands, they keep
                evading when the applicant tried to talk to the current
                President of the Race Club, J. S. Vedi and the current
                Secretary about this. Then the Secretary GS Vedi
                said that you should demand your dues from Delhi
                Horse Trainers Association only, we have no relation
                with them, then the applicant tried to meet Kazim Ali
                Pradhan along with Manish Kumar Sharma, son of
                Mahesh Kumar Sharma, resident of Nawalpura Khurja
                and Chirag Agarwal, son of Vijay Agarwal, resident
                of Malpura, Khurja but they refused to talk to the
                applicant and threatened that if he came here again, it
                would be very bad and started a scuffle. The applicant
                feels that both the above mentioned officials of Delhi
                Race Club 1940 Limited, New Delhi and Delhi Horse
                Trainers Association, in connivance with each other,
                cheated the applicant and dishonestly obtained the
                goods from the applicant’s firm in bad faith and they
                used it for their club and association and now they do
                not want to pay for the goods given by the applicant.
676                                                             [2024] 8 S.C.R.

                        Digital Supreme Court Reports


                   All of them under conspiracy want to grab the money
                   of the applicant’s firm, after which the applicant had
                   given a legal notice to the above mentioned people
                   through his advocate on 18th June 2020 but even
                   after receiving the notice, the above people neither
                   gave any reply to the notice nor was the applicant’s
                   outstanding amount paid. In this context, the applicant
                   gave an application to Inspector-in-charge of Kotwali
                   Khurja Nagar on 25.07.2021 and on 06.08.2021, an
                   application letter was sent to SSP Sir Bulandshahar
                   through postal registry, but till date no action has been
                   taken nor has the applicant’s report been registered.
                   Therefore, it is prayed that after the investigation,
                   please summon the accused along with evidence to
                   the court and punish them for the crime committed
                   by them.
                   Date 27.08.2021”
       (ii)   The plain reading of the complaint would indicate that the
              appellant No. 1 is a legal entity. The appellant No. 2 is the
              Secretary of the appellant No. 1 Company, and the appellant
              No. 3 is the Honorary President and Non-Executive Director of
              the appellant No. 1 Company. They used to purchase grains
              and oats from the complainant meant to be fed to the horses
              maintained by the appellant No. 1 Company. According to
              the complainant, an amount of Rs. 9,11,434/- (Rupees Nine
              Lakh Eleven Thousand Four Hundred Thirty Four) is due and
              payable to him by the appellants towards the sale of horse
              grains and oats over a period of time. It is alleged that as the
              appellants failed to make the payment, he thought fit to file
              the complaint as according to him he has been cheated by
              the appellants.
       (iii) The court concerned initially took cognizance upon the complaint
             but postponed the issuance of process as it thought fit to initiate
             magisterial inquiry under Section 202 of the Code of Criminal
             Procedure, 1973 (for short, “CrPC”). The statement of the
             complainant recorded by the Additional Chief Judicial Magistrate
             in the course of the magisterial inquiry under Section 202 of
             the CrPC reads thus:
[2024] 8 S.C.R.                                                       677

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


                “Name of the witness Ankit Agarwal S/o Vipin Agarwal
                aged about 34 years, Occupation-Businessman,
                resident of 13, Malpura, Subhash Road, Khurja, PS-
                Khurja Nagar, District Bulandshahar today on 08.3.22
                on oath gave statement that:- Vipin Kumar Agarwal is
                the owner of a firm Agarwal Udyog which is located
                in New Mandi Khurja. Delhi Race Course Club 1940
                Limited has been purchasing horse feed from the
                above mentioned firm for a long time and payment
                for the same has been done on time After the year
                2017, Delhi Horse Trainers Association President
                Kazim Ali and Secretary Sanjeev Charan kept paying
                the goods. Since thereafter, the above mentioned
                people owe Rs 9,11,434/- to the above firm. After
                repeated requests, both the above mentioned firms
                have been telling to make payment to each other but
                the opposite party has also not made the payment.
                Delhi Race Course Club President JS Bedi and
                Secretary HK Uppal are delaying the payment of
                horse feed purchased by them. The people of the
                above two firms have colluded with each other and do
                not want to pay for the goods taken. Vipin Agarwal,
                proprietor of Agarwal Udyog, is my father hence I
                am aware of the entire matter”
     (iv) The Magistrate also recorded the statement of one Manish
          Kumar in course of the inquiry under Section 202 of the CrPC.
          The statement reads thus:
                “Witness name Manish Kumar Sharma father’s
                name aged 33 years occupation labourer resident
                of Nawalpura, Khurja Police Station Khurja Nagar
                District Bulandshahar today on 08.03.22 on oath
                gave statement that:-
                I have been working as a bookkeeper for the last 17
                years at Vipin Kumar Agarwal’s firm Agarwal Udyog,
                which is located in New Mandi Khurja. From the above
                mentioned firm, Delhi Race Course Club 1940 Limited
                which is a New Delhi based firm. Have been buying
678                                                         [2024] 8 S.C.R.

                       Digital Supreme Court Reports


                  horse grain and oats. President of this firm J S Bedi
                  and Secretary H K Uppal have been coming to our
                  firm to buy horse feed and oats and the firm has been
                  paying for the purchased goods. It was said by the
                  above two that now the bills for horse feed and oats
                  will be made in the name of Delhi Horse Trainers
                  Association Delhi and the Head of this firm, Kazim
                  Ali and Secretary Sanjeev Charan will pay it. On the
                  request of the above people, horse grain and oats
                  continued to be supplied from our firm. The above
                  mentioned people owes Rs. 9,11,434/- to our firm,
                  upon being repeatedly asked for payment, the above
                  mentioned people are evading. Once Chirag Agarwal
                  and I went to their office in New Delhi, they refused
                  to talk to Vipin Agarwal and us and they threatened
                  that if they come here again, it will be very bad and
                  they started scuffle. The outstanding amount of Rs.
                  9,11,434/- has not yet been paid by the officials of
                  the above two firms. The above mentioned people
                  have fraudulently obtained the goods from our firm
                  in bad faith and do not want to pay for the same.
                  They have used the supplied goods. Certified after
                  reading and listening.”
       (v)   At the end of the magisterial inquiry, the court issued process
             for the offence punishable under Section 406 of the IPC. The
             order issuing process reads thus:
                  “Date:- 28.02.2023
                  The file was presented for orders. The complainant
                  has been heard on the question of summons on an
                  earlier date.
                  On behalf of the complainant Vipin Kumar Aggarwal,
                  the above complaint was presented against the
                  opposite parties Delhi Race Club etc. to the effect
                  that the firm of the complainant was supplying horse
                  grain, barley and oats to Delhi Race Club since the
                  year 1990. In the year 1995, the President of the
                  Race Club, Mr. P.S. Vedi and the then Sachin Sehgal
[2024] 8 S.C.R.                                                          679

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


                ji said that the bill would be made in the name of
                Delhi Horse Trainers Association, Race Course Road,
                New Delhi and the Head and Secretary of the same
                association have now been made separately. They
                will make the payment for the goods given by you.
                Till the year 2017, the applicant’s firm’s payment
                continued to be regular and now at present the
                payment of Rs 9,11,434/- is outstanding from the
                applicant’s firm when the applicant talked about this
                to the current President of the Race Club, J.S. Vedi
                and the current Secretary then the secretary said
                that you should demand your dues from Delhi Horse
                Trainers Association only. Then the applicant tried to
                meet Kajim Ali but he refused to talk to the applicant
                and got into a scuffle. The above two associations
                and officials unanimously cheated the applicant and
                obtained goods from the applicant’s firm and do not
                want to pay for the goods given by the applicant.
                The applicant had given a legal notice to the above
                people through his advocate on 18 June 2020 but
                even after receiving the notice, the above people
                neither gave any reply to the notice nor paid the
                outstanding amount of the applicant. In this context,
                the applicant gave an application to Khurja Nagar
                police station and on 06.08.2021 an application was
                given to SSP Bulandshahar but no action has been
                taken till date.
                On behalf of the complainant, he got himself examined
                under Section 200 of the Code of Criminal Procedure
                and under Section 202 CrPC, the statement of
                witnesses Ankit Aggarwal as PW-1 and Manish
                Kumar Sharma as PW-2 was recorded. In which they
                supported the statements mentioned in the complaint.
                One copy of the application sent by the complainant to
                the Senior Superintendent of Police as documentary
                evidence in support of his statements, a photocopy
                of the registry receipt, one copy of the net receipt
                postal registry, five copies of the bill book, one true
680                                                [2024] 8 S.C.R.

            Digital Supreme Court Reports


       copy of the remaining balance, one copy of receipt
       of goods, one copy of remaining balance, one copy
       of legal notice were filed per receipt.
       The complainant has stated in his statement under
       Section 200 CrPC, “after five years of 1990, these
       people said that we will not make the payment. A
       separate organization has been formed for payment,
       which will do it. An organization named Delhi Trainers
       Association has been formed. Now I owe these people
       nine lakh eleven thousand four hundred thirty-four
       rupees. When we asked for money several times,
       we did not receive it. The President of Delhi Race
       Course is not ready to talk. I am suffering from cancer.
       Business is seen by children only. We also gave them
       legal notice but nothing happened.”
       Perused the entire evidence material available on file.
       On the basis of the evidence presented by the
       complainant under section 200 CrPC and section
       202 CrPC, there is prima facie basis for summoning
       the opposition parties Delhi Race Course Club, Delhi
       Race Horse Trainers Association, JS Bedi, HK Uppal,
       Kazim Ali Khan and Sanjeev Charan for consideration
       under section 406 IPC. There are sufficient grounds
       for summoning for trial of a punishable offense under
       Section 406 IPC.
                              ORDER
       The opposite parties Delhi Race Course Club, Delhi
       Race Horse Trainers Association, JS Bedi, HK Uppal,
       Kazim Ali Khan and Sanjeev Charan are summoned
       for trial for the offense under section 406 of the
       Indian Penal Code. The complainant should process
       the summons against the opposition parties within a
       week, every summons should be issued along with
       a copy of the complaint letter, the complainant list
       should be filed and the witnesses should be filed.
       The case file be put up on 27.04.2023 for appearance.”
[2024] 8 S.C.R.                                                             681

     Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


3.     In such circumstances referred to above, the appellants preferred an
       application under Section 482 of the CrPC in the High Court, praying
       for quashing of the summoning order dated 28.02.2023 passed by
       the Additional Chief Judicial Magistrate, Khurja, Bulandshahar.
4.     The High Court rejected the application filed by the appellants herein,
       observing as under:
            “15. On the basis of averments made in the complaint, it
            is a case of the complainant who was regularly supplying
            Oats, used for horses. In the year 1995, the complainant
            was asked to raise invoice in favour of the ‘Association’.
            The complainant agreed and continued to raise invoice in
            favour of the ‘Association’. After 2017, an amount of Rs.
            9,11,434/- became due upon the applicants. He contacted
            Delhi Race Club (1940) Ltd. and he was directed to contact
            the ‘Association’. The applicant Delhi Race Club (1940)
            Ltd. and ‘Association’ are not separate legal entity. The
            applicants and the ‘Association’ were in collusion and
            committed fraud with complainant. The goods supplied by
            complainant were received but its payment was not made.
            16. Admittedly, no civil proceedings are pending for the
            amount in question between the parties. It is not the
            case of the applicants that transaction was a commercial
            transaction whereas the case of opposite party No. 2 is for
            the supply made by him. He is bound to raise his payment
            on the direction of the Delhi Race Club (1940) Ltd. He
            raised invoices in favour of the ‘Association’ from 1995.
            There is no change in the manner of raising invoices by
            the complainant. Delhi Race Club (1940) Ltd. continued
            to make payment upto the year 2017. The complainant
            was not being paid Rs. 9,11,434/- by the applicants who
            instead transferred their responsibility to the ‘Association’.
            17. Suffice to mention here that the copies of the invoices
            are brought on record through counter affidavit by the
            complainant and the same are not controverted by the
            applicants. Prima facie, it reflects that the invoices were
            raised by complainant in accordance with the advice
            received by him and he continued to receive payment on
682                                                           [2024] 8 S.C.R.

                       Digital Supreme Court Reports


            the basis of such invoices and when the payment of Rs.
            9,11,434/- was not paid to the complainant he contacted
            Delhi Race Club (1940) Ltd. which averted him to the
            ‘Association’. It appears that Delhi Race Club (1940) Ltd.
            and the ‘Association’ are not separate entity.
            18. On the face of record, it appears that originally
            complainant was supplying oats to the ‘Company’. In the
            year 1995, the complainant was directed to raise invoices
            in favour of the ‘Association’. The Company continued to
            receive supply of Oats made by the complainant even
            after 1995, whereas invoices were raised in favour of the
            ‘Association’. This direction of the company goes to show
            that there was some mala fide intention on the part of the
            Company. The complainant bona fide continued to make
            supply under the direction of the Company. The invoices
            were raised by the complainant in similar manner since
            1995 to 2017 and thereafter. It appears that there was an
            oral direction to raise invoices in favour of ‘Association’
            made by the Company, which indicates mala fide of the
            Company.
            19. After hearing the learned counsel for the parties and
            after perusing the impugned order, this Court is of the
            opinion that impugned order has been passed on the basis
            of facts and circumstances of the case after considering
            the evidence on record. There is no legal infirmity in the
            impugned orders, which may call for any interference by
            this Court in exercise of powers conferred under Section
            482 Cr.P.C.”
5.     Thus, according to the High Court, the intention on the part of the
       company was prima facie mala fide and the payment of Rs. 9,11,434/-
       could be said to be intentionally withheld.
       SCOPE OF INQUIRY UNDER SECTION 202 OF THE CRPC
6.     It is by now well settled that at the stage of issuing process it is not
       the duty of the Court to find out as to whether the accused will be
       ultimately convicted or acquitted. The object of consideration of the
       merits of the case at this stage could only be to determine whether
       there are sufficient grounds for proceeding further or not. Mere
[2024] 8 S.C.R.                                                           683

     Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


       existence of some grounds which would be material in deciding
       whether the accused should be convicted or acquitted does not
       generally indicate that the case must necessarily fail. On the other
       hand, such grounds may indicate the need for proceeding further
       in order to discover the truth after a full and proper investigation.
       If, however, a bare perusal of a complaint or the evidence led in
       support of it shows essential ingredients of the offences alleged
       are absent or that the dispute is only of a civil nature or that there
       are such patent absurdities in evidence produced that it would be
       a waste of time to proceed further, then of course, the complaint is
       liable to be dismissed at that stage only. What the Magistrate has
       to determine at the stage of issue of process is not the correctness
       or the probability or improbability of individual items of evidence on
       disputable grounds, but the existence or otherwise of a prima facie
       case on the assumption that what is stated can be true unless the
       prosecution allegations are so fantastic that they cannot reasonably
       be held to be true. [See : D.N. Bhattacharjee v. State of West
       Bengal : (1972) 3 SCC 414 : AIR 1972 SC 1607 : (1972 Cri LJ 1037)].
7.     Further it is also well settled that at the stage of issuing process
       a Magistrate is mainly concerned with the allegations made in the
       complaint or the evidence led in support of the same and he is
       only to be prima facie satisfied whether there are sufficient grounds
       for proceeding against the accused. It is not the province of the
       Magistrate to enter into a detailed discussion of the merits or demerits
       of the case nor can the High Court go into this matter in its inherent
       jurisdiction which is to be sparingly used. The scope of the inquiry
       under Section 202 of the CrPC is extremely limited — only to the
       ascertainment of the truth or falsehood of the allegations made in
       the complaint — (i) on the materials placed by the complainant
       before the Court (ii) for the limited purpose of finding out whether
       a prima facie case for issue of process has been made out, and
       (iii) for deciding the question purely from the point of view of the
       complainant without at all adverting to any defence that the accused
       may have. In fact in proceedings under Section 202 of the CrPC, the
       accused has got absolutely no locus standi and is not entitled to be
       heard on the question whether the process should be issued against
       him or not. It is true that in coming to a decision as to whether a
       process should be issued the Magistrate can take into consideration
       inherent improbabilities appearing on the face of the complaint or
684                                                            [2024] 8 S.C.R.

                       Digital Supreme Court Reports


       in the evidence led by the complainant in support of the allegations
       but there appears to be a very thin line of demarcation between a
       probability of conviction of the accused and establishment of a prima
       facie case against him. The discretion given to the Magistrate on this
       behalf has to be judicially exercised by him. Once the Magistrate
       has exercised his discretion, it is not for the High Court or even the
       Supreme Court to substitute its own discretion for that of the Magistrate
       or to examine the case on merits with a view to find out whether or
       not the allegations in the complaint, if proved, would ultimately end
       in the conviction of the accused. These considerations are totally
       foreign to the scope and ambit of an inquiry under Section 202 of
       the CrPC which culminates into an order under Section 204. [See :
       Smt. Nagawwa v. Veeranna Shivalingappa Kanjalgi : (1976) 3
       SCC 736]. It is no doubt true that in this very decision this Court has
       enumerated certain illustrations as to when the order of Magistrate
       issuing process against the accused can be quashed or set aside.
       These illustrations are as under :—
            “(1) Where the allegations made in the complaint or the
            statement of the witnesses recorded in support of the same
            taken at their face value make out absolutely no case
            against the accused or the complaint does not disclose
            the essential ingredients of an offence which is alleged
            against the accused.
            (2) Where the allegations made in the complaint are
            patently absurd and inherently improbable so that no
            prudent person can ever reach a conclusion that there
            is sufficient ground for proceeding against the accused.
            (3) Where the discretion exercised by the Magistrate in
            issuing process is capricious and arbitrary having been
            based either on no evidence or on materials which are
            wholly irrelevant or inadmissible; and
            (4) Where the complaint suffers from fundamental legal
            defects, such as want of sanction or absence of a complaint
            by legally competent authority and the like.”
8.     Each Penal Section of the Indian Penal Code or of the other laws can
       be subjected to an analysis by posing and answering the following
       questions: -
[2024] 8 S.C.R.                                                         685

     Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


       I.    What is the overt act stipulated in the Section, which overt act
             has resulted in an injury?
       II.   What is the state of mind stipulated in respect of the accused
             and which state of mind must precede or accompany the act
             of the accused?
       ANALYSIS
9.     Having heard the learned counsel appearing for the parties and
       having gone through the materials on record, the only question that
       falls for our consideration is whether the High Court committed any
       error in passing the impugned order.
10. The case at hand is one of an unpaid seller. It is the case of the
    complainant that he used to regularly supply consignments of grains
    & oats meant for horses at the Delhi Race Club. The complainant
    used to raise invoices in favour of the Club and the Club used to
    pay the requisite amount. However, according to the complainant
    after 2017, the Club stopped making the payment. It is the case of
    the complainant that an amount of Rs. 9,11,434/- is due and payable
    by the appellants towards the supply of the consignment of oats.
11. The impugned order passed by the High Court is a fine specimen of
    total non- application of mind. Although the complaint was filed for the
    offence punishable under Sections 406, 420 and 120B respectively
    of the IPC yet the Additional Chief Judicial Magistrate thought fit to
    take cognizance and issue process only for the offence of criminal
    breach of trust as defined under Section 405 of the IPC and made
    punishable under Section 406 of the IPC.
12. We are of the view that even if the entire case of the complainant is
    accepted as true no offence worth the name is disclosed.
13. This Court has time and again reminded that summoning of an
    accused in a criminal case is a serious matter. Criminal law cannot
    be set into motion as a matter of course. It is not that the complainant
    has to bring only two witnesses to support his allegations in the
    complaint to have the criminal law set into motion. The order of
    the Magistrate summoning the accused must reflect that he has
    applied his mind to the facts of the case and the law applicable
    thereto. He has to examine the nature of allegations made in the
686                                                             [2024] 8 S.C.R.

                        Digital Supreme Court Reports


       complaint and the evidence both oral and documentary in support
       thereof. It is not that the Magistrate is a silent spectator at the time of
       recording of preliminary evidence before summoning of the accused.
       The Magistrate has to carefully scrutinise the evidence brought on
       record and may even himself put questions to the complainant and
       his witnesses to elicit answers to find out the truthfulness of the
       allegations or otherwise and then examine if any offence is prima
       facie committed by all or any of the accused. [See: Pepsi Foods
       Ltd. v. Special Judicial Magistrate : (1998) 5 SCC 749]
14. Where a jurisdiction is exercised on a complaint petition filed in
    terms of Section 156(3) or Section 200 of the CrPC, the Magistrate
    is required to apply his mind. The Penal Code does not contain any
    provision for attaching vicarious liability on the part of the appellant
    Nos. 2 and 3 respectively herein who are none other than office
    bearers of the appellant No. 1 Company. When the appellant No. 1
    is the Company and it is alleged that the company has committed
    the offence then there is no question of attributing vicarious liability to
    the office bearers of the Company so far as the offence of cheating
    or criminal breach of trust is concerned. The office bearers could
    be arrayed as accused only if direct allegations are levelled against
    them. In other words, the complainant has to demonstrate that he
    has been cheated on account of criminal breach of trust or cheating
    or deception practiced by the office bearers. The Magistrate failed
    to pose unto himself the correct question viz. as to whether the
    complaint petition, even if given face value and taken to be correct
    in its entirety, would lead to the conclusion that the appellant Nos.
    2 and 3 herein were personally liable for any offence. The appellant
    No. 1 is a body corporate. Vicarious liability of the office bearers
    would arise provided any provision exists in that behalf in the statute.
    Statutes indisputably must contain provision fixing such vicarious
    liabilities. Even for the said purpose, it is obligatory on the part of
    the complainant to make requisite allegations which would attract
    the provisions constituting vicarious liability.
15. In Legal Remembrancer, West Bengal v. Abani Kumar Banerji
    reported in AIR 1950 Cal 437, a Division Bench of the Calcutta High
    Court speaking through Justice K.C. Das Gupta (as he then was)
    held that a magistrate is not bound to take cognizance of an offence
    merely because a complaint is filed before him. He is required to
[2024] 8 S.C.R.                                                            687

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     carefully apply his mind to the contents of the complaint before taking
     cognizance of any offence alleged therein. The relevant observations
     read as under: -
           “… As I read s. 190 of the Code of Criminal Procedure and
           the subsequent sections, it seems to me to be clear that a
           magistrate is not bound to take cognizance of an offence,
           merely because a petition of complaint is filed before him.
           Mr. Mukherji’s argument is that a magistrate cannot possibly
           take any action with regard to a petition of complaint,
           without applying his mind to it, and taking cognizance of
           the offence mentioned in the complaint necessarily takes
           place, when the magistrate’s mind is applied to the petition.
           Consequently Mr. Mukherji argues, whenever a magistrate
           takes the action, say, of issuing search warrant or asking
           the police to enquire and to investigate, he has taken
           cognizance of the case. In my judgment, this is putting a
           wrong connotation on the words “taking cognizance”. What
           is “taking cognizance” has not been defined in the Code of
           Criminal Procedure, and I have no desire now to attempt
           to define it. It seems to me clear, however, that before it
           can be said that any magistrate has taken cognizance of
           any offence under s. 190(1)(a) of the Code of Criminal
           Procedure, he must not only have applied his mind to the
           contents of the petition, but he must have done so for the
           purpose of proceeding in a particular way as indicated in
           the subsequent provisions of this Chapter,—proceeding
           under s. 200, and thereafter sending it for enquiry and
           report under s. 202. When the magistrate applies his mind
           not for the purpose of proceeding under the subsequent
           sections of this Chapter, but for taking action of some other
           kind, e.g., ordering investigation under s. 156(3), or issuing
           a search warrant for the purpose of the investigation, he
           cannot be said to have taken cognizance of the offence.
           My conclusion, therefore, is that the learned magistrate
           is wrong in thinking that the Chief Presidency Magistrate
           was bound to take cognizance of the case as soon as the
           petition of complaint was filed.”
                                                  (Emphasis supplied)
688                                                       [2024] 8 S.C.R.

                     Digital Supreme Court Reports


16. The aforesaid observation of the Calcutta High Court was referred
    to and relied upon with approval by this Court in its decision in R.R.
    Chari v. State of U.P. reported in AIR 1951 SC 207.
17. In Tilak Nagar Industries Ltd. & Ors. v. State of A.P. reported in
    (2011) 15 SCC 571, this Court held that the power under Section
    156(3) of the CrPC can be exercised by a magistrate even before he
    takes cognizance provided the complaint discloses the commission of
    cognizable offences and if the complaint does not disclose commission
    of cognizable offences, such an order of the magistrate directing
    investigation is liable to be quashed. The relevant observations
    read as under: -
          “11. After considering the rival submissions, we are of the
          view that the contentions of Mr Luthra are correct in view
          of Section 155(2) of the Code as explained in Bhajan
          Lal [1992 Supp (1) SCC 335 : 1992 SCC (Cri) 426] . We
          are of the opinion that the statutory safeguard which is
          given under Section 155(2) of the Code must be strictly
          followed, since they are conceived in public interest and as
          a guarantee against frivolous and vexatious investigation.
          12. The order of the Magistrate dated 21-6-2010 does not
          disclose that he has taken cognizance. However, power
          under Section 156(3) can be exercised by the Magistrate
          even before he takes cognizance provided the complaint
          discloses the commission of cognizable offence. Since in
          the instant case the complaint does not do so, the order
          of the Magistrate stated above cannot be sustained in law
          and is accordingly quashed.”
18. The aforesaid decision was in context with the power of the Magistrate
    to order police investigation under Section 156(3) of the CrPC. What is
    sought to be conveyed in the said decision is that when the Magistrate
    orders police investigation under Section 156(3) of the CrPC he does
    not take cognizance upon the complaint. It is only upon receipt of
    the police report that the Magistrate may take cognizance. If at the
    stage of pre-cognizance, the Magistrate is expected to be careful
    or to put it in other words, the Magistrate is obliged to look into the
    complaint threadbare so as to reach to a prima facie conclusion
[2024] 8 S.C.R.                                                         689

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     whether the offence is disclosed or not, then he is expected to be
     more careful when he is actually taking cognizance upon a private
     complaint and ordering issue of process.
19. The aforesaid aspect could be said to have been completely lost
    sight of by the High Court, while rejecting the application filed by the
    appellant herein under Section 482 of the CrPC, seeking quashing
    of the summoning order.
20. In Mehmood Ul Rehman v. Khazir Mohammad Tunda reported in
    (2015) 12 SCC 420, this Court held thus: —
           “22… The satisfaction on the ground for proceeding
           would mean that the facts alleged in the complaint would
           constitute an offence, and when considered along with
           the statements recorded, would, prima facie, make the
           accused answerable before the court…In other words,
           the Magistrate is not to act as a post office in taking
           cognizance of each and every complaint filed before him
           and issue process as a matter of course. There must be
           sufficient indication in the order passed by the Magistrate
           that he is satisfied that the allegations in the complaint
           constitute an offence and when considered along with the
           statements recorded and the result of inquiry or report
           of investigation under Section 202 of CrPC, if any, the
           accused is answerable before the criminal court, there
           is ground for proceeding against the accused under
           Section 204 of CrPC, by issuing process for appearance.
           Application of mind is best demonstrated by disclosure of
           mind on the satisfaction…To be called to appear before
           criminal court as an accused is serious matter affecting
           one’s dignity, self respect and image in society. Hence,
           the process of criminal court shall not be made a weapon
           of harassment.”
                                                 (Emphasis supplied)
21. The Principle of law discernible from the aforesaid decision is that
    issuance of summons is a serious matter and, therefore, should not
    be done mechanically and it should be done only upon satisfaction
    on the ground for proceeding further in the matter against a person
    concerned based on the materials collected during the inquiry.
690                                                         [2024] 8 S.C.R.

                     Digital Supreme Court Reports


22. In the aforesaid circumstances, the next question to be considered is
    whether a summons issued by a Magistrate can be interfered with in
    exercise of the power under Section 482, CrPC. In the decisions in
    Bhushan Kumar v. State (NCT of Delhi) reported in (2012) 5 SCC
    424 and Pepsi Foods Ltd. (supra), this Court held that a petition
    filed under Section 482, CrPC, for quashing an order summoning the
    accused is maintainable. There cannot be any doubt that once it is
    held that sine qua non for exercise of the power to issue summons
    is the subjective satisfaction “on the ground for proceeding further”
    while exercising the power to consider the legality of a summons
    issued by a Magistrate, certainly it is the duty of the Court to look
    into the question as to whether the learned Magistrate had applied
    his mind to form an opinion as to the existence of sufficient ground
    for proceeding further and in that regard to issue summons to
    face the trial for the offence concerned. In this context, we think
    it appropriate to state that one should understand that ‘taking
    cognizance’, empowered under Section 190, CrPC, and ‘issuing
    process’, empowered under Section 204, CrPC, are different and
    distinct. [See the decision in Sunil Bharti Mittal v. C.B.I. : (2015)
    4 SCC 609].
23. In Sunil Bharti Mittal (supra), this Court interpreted the expression
    “sufficient grounds for proceeding” and held that there should be
    sufficiency of materials against the accused concerned before
    proceeding under Section 204 of the CrPC. It was held thus: —
          “53. However, the words “sufficient ground for proceeding”
          appearing in Section 204 are of immense importance. It
          is these words which amply suggest that an opinion is to
          be formed only after due application of mind that there is
          sufficient basis for proceeding against the said accused
          and formation of such an opinion is to be stated in the
          order itself. The order is liable to be set aside if no reason
          is given therein while coming to the conclusion that there
          is prima facie case against the accused, though the order
          need not contain detailed reasons. A fortiori, the order
          would be bad in law if the reason given turns out to be
          ex facie incorrect.”
                                                 (Emphasis supplied)
[2024] 8 S.C.R.                                                          691

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     DIFFERENCE BETWEEN CRIMINAL BREACH OF TRUST AND
     CHEATING
24. This Court in its decision in S.W. Palanitkar & Ors. v. State of Bihar
    & Anr. reported in (2002) 1 SCC 241 expounded the difference in the
    ingredients required for constituting an of offence of criminal breach
    of trust (Section 406 IPC) viz-a-viz the offence of cheating (Section
    420). The relevant observations read as under: -
           “9. The ingredients in order to constitute a criminal breach
           of trust are: (i) entrusting a person with property or with
           any dominion over property, (ii) that person entrusted (a)
           dishonestly misappropriating or converting that property
           to his own use; or (b) dishonestly using or disposing of
           that property or wilfully suffering any other person so to
           do in violation (i) of any direction of law prescribing the
           mode in which such trust is to be discharged, (ii) of any
           legal contract made, touching the discharge of such trust.
           10. The ingredients of an offence of cheating are: (i) there
           should be fraudulent or dishonest inducement of a person
           by deceiving him, (ii)(a) the person so deceived should
           be induced to deliver any property to any person, or to
           consent that any person shall retain any property; or (b)
           the person so deceived should be intentionally induced to
           do or omit to do anything which he would not do or omit
           if he were not so deceived; and (iii) in cases covered by
           (ii)(b), the act of omission should be one which causes or
           is likely to cause damage or harm to the person induced
           in body, mind, reputation or property.”
25. What can be discerned from the above is that the offences of criminal
    breach of trust (Section 406 IPC) and cheating (Section 420 IPC)
    have specific ingredients.
     In order to constitute a criminal breach of trust (Section 406
     IPC): -
     1)    There must be entrustment with person for property or dominion
           over the property, and
     2)    The person entrusted: -
692                                                        [2024] 8 S.C.R.

                       Digital Supreme Court Reports


            a)   dishonestly misappropriated or converted property to his
                 own use, or
            b)   dishonestly used or disposed of the property or willfully
                 suffers any other person so to do in violation of:
                 i.    any direction of law prescribing the method in which
                       the trust is discharged; or
                 ii.   legal contract touching the discharge of trust (see:
                       S.W.P. Palanitkar (supra).
       Similarly, in respect of an offence under Section 420 IPC, the
       essential ingredients are: -
       1)   deception of any person, either by making a false or misleading
            representation or by other action or by omission;
       2)   fraudulently or dishonestly inducing any person to deliver any
            property, or
       3)   the consent that any persons shall retain any property and
            finally intentionally inducing that person to do or omit to do
            anything which he would not do or omit (see: Harmanpreet
            Singh Ahluwalia v. State of Punjab, (2009) 7 SCC 712 :
            (2009) Cr.L.J. 3462 (SC))
26. Further, in both the aforesaid sections, mens rea i.e. intention to
    defraud or the dishonest intention must be present, and in the case
    of cheating it must be there from the very beginning or inception.
27. In our view, the plain reading of the complaint fails to spell out any
    of the aforesaid ingredients noted above. We may only say, with a
    view to clear a serious misconception of law in the mind of the police
    as well as the courts below, that if it is a case of the complainant
    that offence of criminal breach of trust as defined under Section
    405 of IPC, punishable under Section 406 of IPC, is committed by
    the accused, then in the same breath it cannot be said that the
    accused has also committed the offence of cheating as defined
    and explained in Section 415 of the IPC, punishable under Section
    420 of the IPC.
28. Every act of breach of trust may not result in a penal offence of
    criminal breach of trust unless there is evidence of manipulating act
[2024] 8 S.C.R.                                                         693

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     of fraudulent misappropriation. An act of breach of trust involves a
     civil wrong in respect of which the person may seek his remedy for
     damages in civil courts but, any breach of trust with a mens rea,
     gives rise to a criminal prosecution as well. It has been held in Hari
     Prasad Chamaria v. Bishun Kumar Surekha & Ors., reported in
     (1973) 2 SCC 823 as under:
           “4. We have heard Mr. Maheshwari on behalf of the
           appellant and are of the opinion that no case has been
           made out against the respondents under Section 420 Penal
           Code, 1860. For the purpose of the present appeal, we
           would assume that the various allegations of fact which
           have been made in the complaint by the appellant are
           correct. Even after making that allowance, we find that the
           complaint does not disclose the commission of any offence
           on the part of the respondents under Section 420 Penal
           Code, 1860. There is nothing in the complaint to show that
           the respondents had dishonest or fraudulent intention at
           the time the appellant parted with Rs. 35.000/- There is
           also nothing to indicate that the respondents induced the
           appellant to pay them Rs. 35,000/- by deceiving him. It is
           further not the case of the appellant that a representation
           was made, the respondents knew the same to be false.
           The fact that the respondents subsequently did not abide
           by their commitment that they would show the appellant
           to be the proprietor of Drang Transport Corporation
           and would also render accounts to him in the month of
           December might create civil liability on the respondents
           for the offence of cheating.”
29. To put it in other words, the case of cheating and dishonest intention
    starts with the very inception of the transaction. But in the case of
    criminal breach of trust, a person who comes into possession of
    the movable property and receives it legally, but illegally retains it
    or converts it to his own use against the terms of the contract, then
    the question is, in a case like this, whether the retention is with
    dishonest intention or not, whether the retention involves criminal
    breach of trust or only a civil liability would depend upon the facts
    of each case.
694                                                        [2024] 8 S.C.R.

                     Digital Supreme Court Reports


30. The distinction between mere breach of contract and the offence
    of criminal breach of trust and cheating is a fine one. In case of
    cheating, the intention of the accused at the time of inducement
    should be looked into which may be judged by a subsequent
    conduct, but for this, the subsequent conduct is not the sole test.
    Mere breach of contract cannot give rise to a criminal prosecution
    for cheating unless fraudulent or dishonest intention is shown right
    from the beginning of the transaction i.e. the time when the offence
    is said to have been committed. Therefore, it is this intention, which
    is the gist of the offence. Whereas, for the criminal breach of trust,
    the property must have been entrusted to the accused or he must
    have dominion over it. The property in respect of which the offence
    of breach of trust has been committed must be either the property
    of some person other than the accused or the beneficial interest
    in or ownership’ of it must be of some other person. The accused
    must hold that property on trust of such other person. Although
    the offence, i.e. the offence of breach of trust and cheating involve
    dishonest intention, yet they are mutually exclusive and different in
    basic concept. There is a distinction between criminal breach of trust
    and cheating. For cheating, criminal intention is necessary at the time
    of making a false or misleading representation i.e., since inception.
    In criminal breach of trust, mere proof of entrustment is sufficient.
    Thus, in case of criminal breach of trust, the offender is lawfully
    entrusted with the property, and he dishonestly misappropriated
    the same. Whereas, in case of cheating, the offender fraudulently
    or dishonestly induces a person by deceiving him to deliver any
    property. In such a situation, both the offences cannot co-exist
    simultaneously.
31. At the most, the court of the Additional Chief Judicial Magistrate could
    have issued process for the offence punishable under Section 420
    of the IPC i.e. cheating but in any circumstances no case of criminal
    breach of trust is made out. The reason being that indisputably
    there is no entrustment of any property in the case at hand. It is
    not even the case of the complainant that any property was lawfully
    entrusted to the appellants and that the same has been dishonestly
    misappropriated. The case of the complainant is plain and simple.
    He says that the price of the goods sold by him has not been paid.
[2024] 8 S.C.R.                                                      695

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     Once there is a sale, Section 406 of the IPC goes out of picture.
     According to the complainant, the invoices raised by him were not
     cleared. No case worth the name of cheating is also made out.
32. Even if the Magistrate would have issued process for the offence
    punishable under Section 420 of the IPC, i.e., cheating the same
    would have been liable to be quashed and set aside, as none of the
    ingredients to constitute the offence of cheating are disclosed from
    the materials on record.
33. It has been held in State of Gujarat v. Jaswantlal Nathalal reported
    in (1968) 2 SCR 408, “The term “entrusted” found in Section 405
    IPC governs not only the words “with the property” immediately
    following it but also the words “or with any dominion over the
    property” occurring thereafter—see Velji Raghvaji Patel v. State
    of Maharashtra [(1965) 2 SCR 429]. Before there can be any
    entrustment there must be a trust meaning thereby an obligation
    annexed to the ownership of property and a confidence reposed in
    and accepted by the owner or declared and accepted by him for the
    benefit of another or of another and the owner. But that does not
    mean that such an entrustment need conform to all the technicalities
    of the law of trust — see Jaswantrai Manilal Akhaney v. State of
    Bombay [1956 SCR 483]. The expression “entrustment” carries
    with it the implication that the person handing over any property or
    on whose behalf that property is handed over to another, continues
    to be its owner. Further the person handing over the property must
    have confidence in the person taking the property so as to create
    a fiduciary relationship between them. A mere transaction of sale
    cannot amount to an “entrustment””.
34. Similarly, in Central Bureau of Investigation, SPE, SIU(X), New
    Delhi v. Duncans Agro Industries Ltd., Calcutta reported in (1996)
    5 SCC 591 this Court held that the expression “entrusted with
    property” used in Section 405 of the IPC connotes that the property
    in respect of which criminal breach of trust can be committed must
    necessarily be the property of some person other than the accused
    or that the beneficial interest in or ownership thereof must be in the
    other person and the offender must hold such property in trust for
    such other person or for his benefit. The relevant observations read
    as under: -
696                                                          [2024] 8 S.C.R.

                    Digital Supreme Court Reports


         “27. In the instant case, a serious dispute has been raised
         by the learned counsel appearing for the respective parties
         as to whether on the face of the allegations, an offence of
         criminal breach of trust is constituted or not. In our view, the
         expression “entrusted with property” or “with any dominion
         over property” has been used in a wide sense in Section
         405 IPC. Such expression includes all cases in which
         goods are entrusted, that is, voluntarily handed over for a
         specific purpose and dishonestly disposed of in violation of
         law or in violation of contract. The expression ‘entrusted’
         appearing in Section 405 IPC is not necessarily a term
         of law. It has wide and different implications in different
         contexts. It is, however, necessary that the ownership
         or beneficial interest in the ownership of the property
         entrusted in respect of which offence is alleged to have
         been committed must be in some person other than the
         accused and the latter must hold it on account of some
         person or in some way for his benefit. The expression
         ‘trust’ in Section 405 IPC is a comprehensive expression
         and has been used to denote various kinds of relationships
         like the relationship of trustee and beneficiary, bailor and
         bailee, master and servant, pledger and pledgee. When
         some goods are hypothecated by a person to another
         person, the ownership of the goods still remains with the
         person who has hypothecated such goods. The property in
         respect of which criminal breach of trust can be committed
         must necessarily be the property of some person other
         than the accused or the beneficial interest in or ownership
         of it must be in the other person and the offender must
         hold such property in trust for such other person or for his
         benefit. In a case of pledge, the pledged article belongs
         to some other person but the same is kept in trust by the
         pledgee. [...] ”
                                                 (Emphasis supplied)
35. The aforesaid exposition of law makes it clear that there should
    be some entrustment of property to the accused wherein the
    ownership is not transferred to the accused. In case of sale of
    movable property, although the payment may be deferred yet the
[2024] 8 S.C.R.                                                          697

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


     property in the goods passes on delivery as per Sections 20 and
     24 respectively of the Sale of Goods Act, 1930.
           “20. Specific goods in a deliverable state. — Where
           there is an unconditional contract for the sale of specific
           goods in a deliverable state, the property in the goods
           passes to the buyer when the contract is made and it is
           immaterial whether the time of payment of the price or the
           time of delivery of goods, or both, is postponed.
                           xxx        xxx          xxx
           24. Goods sent on approval or “on sale or return”. —
           When goods are delivered to the buyer on approval or “on
           sale or return” or other similar terms, the property therein
           passes to the buyer—
           (a) when he signifies his approval or acceptance to the
           seller or does any other act adopting the transaction;
           (b) if he does not signify his approval or acceptance to
           the seller but retains the goods without giving notice of
           rejection, then, if a time has been fixed for the return of
           the goods on the expiration of such time, and, if no time
           has been fixed, on the expiration of a reasonable time.”
36. From the aforesaid, there is no manner of any doubt whatsoever that
    in case of sale of goods, the property passes to the purchaser from
    the seller when the goods are delivered. Once the property in the
    goods passes to the purchaser, it cannot be said that the purchaser
    was entrusted with the property of the seller. Without entrustment
    of property, there cannot be any criminal breach of trust. Thus,
    prosecution of cases on charge of criminal breach of trust, for failure
    to pay the consideration amount in case of sale of goods is flawed
    to the core. There can be civil remedy for the non-payment of the
    consideration amount, but no criminal case will be maintainable for
    it. [See : Lalit Chaturvedi and Others v. State of Uttar Pradesh
    and Another : 2024 SCC OnLine SC 171 & Mideast Integrated
    Steels Ltd. (MESCO Steel Ltd.) and Others v. State of Jharkhand
    and Another : 2023 SCC OnLine Jhar 301]
37. The case at hand falls in category No. 1 as laid in Smt. Nagawwa
    (supra) referred to in para 7 of this judgment.
698                                                          [2024] 8 S.C.R.

                      Digital Supreme Court Reports


38. If it is the case of the complainant that a particular amount is due
    and payable to him then he should have filed a civil suit for recovery
    of the amount against the appellants herein. But he could not have
    gone to the court of Additional Chief Judicial Magistrate by filing a
    complaint of cheating and criminal breach of trust.
39. It appears that till this date, the complainant has not filed any civil
    suit for recovery of the amount which according to him is due and
    payable to him by the appellants. He seems to have prima facie lost
    the period of limitation for filing such a civil suit.
40. In such circumstances referred to above, the continuation of the
    criminal proceeding would be nothing but abuse of the process of law.
       FINAL CONCLUSION
41. Before we close this matter, we would like to say something as
    regards the casual approach of the courts below in cases like the
    one at hand. The Indian Penal Code (IPC) was the official Criminal
    Code in the Republic of India inherited from the British India after
    independence. The IPC came into force in the sub-continent during
    the British rule in 1862. The IPC remained in force for almost a period
    of 162 years until it was repealed and replaced by the Bharatiya
    Nyaya Sanhita (“BNS”) in December 2023 which came into effect
    on 1st July 2024. It is indeed very sad to note that even after these
    many years, the courts have not been able to understand the fine
    distinction between criminal breach of trust and cheating.
42. When dealing with a private complaint, the law enjoins upon the
    magistrate a duty to meticulously examine the contents of the
    complaint so as to determine whether the offence of cheating or
    criminal breach of trust as the case may be is made out from the
    averments made in the complaint. The magistrate must carefully apply
    its mind to ascertain whether the allegations, as stated, genuinely
    constitute these specific offences. In contrast, when a case arises
    from a FIR, this responsibility is of the police – to thoroughly ascertain
    whether the allegations levelled by the informant indeed falls under
    the category of cheating or criminal breach of trust. Unfortunately,
    it has become a common practice for the police officers to routinely
    and mechanically proceed to register an FIR for both the offences
    i.e. criminal breach of trust and cheating on a mere allegation of
    some dishonesty or fraud, without any proper application of mind.
[2024] 8 S.C.R.                                                        699

  Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.


43. It is high time that the police officers across the country are imparted
    proper training in law so as to understand the fine distinction
    between the offence of cheating viz-a-viz criminal breach of trust.
    Both offences are independent and distinct. The two offences cannot
    coexist simultaneously in the same set of facts. They are antithetical
    to each other. The two provisions of the IPC (now BNS, 2023) are
    not twins that they cannot survive without each other.
44. In view of the aforesaid, the appeal succeeds and is hereby allowed.
45. The impugned order passed by the High Court is set aside so also
    the order passed by the Additional Chief Judicial Magistrate, Khurja,
    Bulandshahar taking cognizance upon the complaint.
46. Pending applications, if any, shall stand disposed of.
47. We direct the Registry to send one copy each of this judgment to
    the Principal Secretary, Ministry of Law & Justice, Union of India and
    also to the Principal Secretary, Home Department, Union of India.

     Result of the case: Appeal allowed.



     †
         Headnotes prepared by: Nidhi Jain