NARESH KUMAR & ANR.versusTHE STATE OF KARNATAKA & ANR.

                 [2024] 3 S.C.R. 740 : 2024 INSC 196

                        Naresh Kumar & Anr.
                                  v.
                    The State of Karnataka & Anr.
                   (Criminal Appeal No. 1510 of 2024)
                             12 March 2024
           [Sudhanshu Dhulia* and Prasanna B. Varale, JJ.]

                         Issue for Consideration
       Refusal by High Court to quash criminal proceedings against
       Appellants/Accused arising out of a civil transaction between
       Appellants and Respondent No.2, if justified.

                                Headnotes
       Code of Criminal Procedure, 1973 – s.482 – Powers of the
       High Court under – Quashing of FIR filed by Respondent
       No.2 against Appellants – Appellants, employees of a
       bicycle manufacturing company engaged Respondent No.2
       for assembling, transporting and delivering bicycles –
       Respondent No.2 aggrieved by the fact of payment not being
       commensurate with the service rendered - FIR filed under
       Sections 406, 420, 506, Indian Penal Code – Subsequently,
       settlement arrived at between the parties – Appellants paid
       an additional amount of INR 26,00,000/- to Respondent No.2
       as full and final settlement, duly accepted by Respondent
       No.2 – Payment and receipt of settlement amount not
       disputed by parties – Chargesheet filed against Appellants
       – Appellants sought quashing of the FIR and proceedings
       arising therefrom under Section 482, CrPC on the ground of
       the dispute being civil in nature – Respondent No.2 objected
       to settlement on the ground of it being vitiated by coercion
       – High Court’s refusal to exercise powers under Section
       482, CrPC on the ground of a prima facie case being made
       out – Challenged:
       Held: Section 482 empowers High Court to prevent abuse of
       process and secure ends of justice – Though the power under
       Section 482 should be exercised sparingly, the High Court
       must not hesitate in quashing criminal proceedings which are
       essentially of a civil nature – Judgement in Paramjeet Batra

* Author
[2024] 3 S.C.R.                                                         741

               Naresh Kumar & Anr. v. State of Karnataka


     v. State of Uttarakhand (2013) 11 SCC 673 relied upon –
     Reference to observations in Randheer Singh v. State of U.P.
     (2021) 14 SCC 626 regarding misuse of criminal proceedings as
     a weapon of harassment and also Usha Chakraborty & Anr.
     v. State of West Bengal & Anr. 2023 SCC OnLine SC 90 for
     exercise of the inherent powers of the High Court under Section
     482 to quash civil disputes cloaked in criminal offence – High
     Court erred in holding that a prima facie case was made out based
     on the ground that Appellants’ intention to cheat Respondent
     No.2 from the beginning was evident from the fact that the
     Appellants had cumulatively paid Respondent No.2 an amount
     much higher than what the latter was entitled to receive for the
     services rendered by him – Additional amount paid in light of the
     settlement, cannot be presumed as an act of cheating – Nature
     of dispute in present case is civil and allegation of a coerced
     settlement is unlikely – No FIR or Complaint by Respondent
     No.2 alleging coercion, amount also duly accepted by him –
     Mere breach of contract would not attract criminal prosecution in
     every case, Sarabjit Kaur v. State of Punjab and Anr. (2023)
     5 SCC 360 relied upon – Every breach of contract would not
     amount to cheating and it must be proved that fraudulent or
     dishonest intention to cheat existed while making the promise,
     as held in Vesa Holdings (P) Ltd. v. State of Kerala, (2015) 8
     SCC 293 – Present dispute was not only civil in nature but also
     stood settled subsequently – In the instant case, no criminal
     element present, only an abuse of process – Impugned Order
     of the High Court set aside – FIR and criminal proceedings
     quashed – Appeal allowed. [Para 4-8]

                             Case Law Cited
           Paramjeet Batra v. State of Uttarakhand (2013) 11 SCC
           673; Sarabjit Kaur v. State of Punjab and Anr. (2023)
           5 SCC 360; Vesa Holdings (P) Ltd. v. State of Kerala
           [2015] 4 SCR 27 : (2015) 8 SCC 293 - relied on.
           Randheer Singh v. State of U.P. (2021) 14 SCC 626,
           Usha Chakraborty & Anr. v. State of West Bengal & Anr.
           2023 SCC OnLine SC 90 – referred to.

                               List of Acts
     Code of Criminal Procedure, 1973; Penal Code, 1860.
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                              List of Keywords
       Quashing of FIR; Inherent powers of the High Court; Criminal
       case arising from civil dispute; Inherent powers; Criminal breach
       of trust; Cheating; Settlement; Compromise.

                             Case Arising From
       CRIMINAL APPELLATE JURISDICTION : Criminal Appeal No.1510
       of 2024
       From the Judgment and Order dated 02.12.2020 of the High Court
       of Karnataka at Bengaluru in CRLP No.8003 of 2019
                          Appearances for Parties
       Aman Lekhi, Sr. Adv., Abhishek Gupta, Chaitanya Mahajan, Ms. Payal
       Kakra, Ritwiz Rishabh, Ujjwal Sinha, Aniket Seth, Ms. Snehilsonam,
       Snehil Sonam, Kunal K., Ms. Ishika Jain, Advs. for the Appellants.
       Anand Sanjay M Nuli, Sr. Adv., D. L. Chidananda, Ravindera Kumar
       Verma, Dharm Singh, Shiva Swaroop, M/s. Nuli & Nuli, Advs. for
       the Respondents.
                  Judgment / Order of the Supreme Court

                                    Judgment
       Sudhanshu Dhulia, J.
       Leave granted.
2.     The appellants before this Court have challenged the order dated
       02.12.2020 of the Karnataka High Court by which their petition
       under Section 482 of Criminal Procedure Code for quashing the
       FIR has been dismissed. The case of the appellants before the
       High Court of Karnataka was that the FIR which was instituted by
       the complainant i.e. respondent no. 2 is primarily a civil dispute and
       has no criminal element and the entire criminal proceedings initiated
       against the appellants is nothing but an abuse of the process and
       consequently, they had invoked the extraordinary powers of the High
       Court under Section 482 of the Criminal Procedure Code. The two
       appellants before this Court are the Assistant Manager (Marketing)
       and the Manging Director of a company, which is a manufacturer
       of bicycles. Respondent no.2 was given a contract, as it has been
       stated before this Court, for the assembly of bicycles, their transport
[2024] 3 S.C.R.                                                        743

               Naresh Kumar & Anr. v. State of Karnataka


     and their delivery, at the rate of Rs.122/- for each bicycle, and
     since they had assembled 83,267 bicycles, they raised invoices
     amounting to Rs. 1,01,58,574/- and were liable to be paid the same.
     However, respondent no.2 contends that instead, a payment of only
     Rs.35,37,390/- was given by the appellants. Hence, it was a case
     of criminal breach of trust and cheating and the First Information
     Report No. 113 of 2017 against the appellant no. 1 was filed on
     24.05.2017 under Sections 406, 420 and 506 of the Indian Penal
     Code at P.S. Doddaballapura, Bangalore Rural District. Subsequently,
     a Chargesheet dated 30.05.2019, was filed in the court where both
     the appellants were made an accused.
3.   Meanwhile, an important fact occurred, of which no importance
     seems to have been given by the High Court. Subsequent to the
     filing of FIR there is an admitted settlement between the appellants
     and respondent No. 2 by a Compromise Deed dated 27.12.2017
     by which as a full and final settlement between the two parties, an
     additional amount of Rs. 26 lakhs were to be paid by the appellant,
     which has been duly given and accepted. This amount was deposited
     in the account of respondent no. 2 on 29.12.2017. This was done by
     the appellants in order to give a quietus to the whole situation and
     to bring peace, according to the appellants. Therefore, as of now, a
     total amount of Rs.62 lakhs as against Rs. 1,01,58,574/- which was
     claimed by the complainant has been admittedly paid. The case of
     the respondent no. 2 against the settlement dated 27.12.2017 is that
     the respondent no. 2 was coerced in entering into this settlement and
     this is not a settlement arrived at by the free will of the complainant
     and therefore the prosecution of the appellants is necessary under
     the criminal law. The High Court has refused to accept the contention
     of the appellants that the dispute between the parties in any case
     is civil in nature. The High Court was of the opinion that since the
     appellants had claimed that the complainant assembled only 28,995
     bicycles, which would make them liable to pay only an amount of
     Rs.35 lakhs, but instead the appellants had paid an amount of Rs.62
     lakhs which shows that the actual number of bicycles which were
     assembled by the complainant was much more than 28,995 bicycles,
     as claimed by the appellants and therefore, the appellants had an
     intention to cheat the complainant right from the beginning. Thus,
     it was held by the High Court that prima facie a case of cheating is
     made out against the appellants.
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4.     Having heard the learned counsel for both the parties, we are of
       the considered view that the findings of the High Court on this
       aspect are not correct. We do not agree with the findings arrived at
       by the High Court for two reasons. Firstly, the dispute between the
       parties is primarily, civil in nature. It is after all a question of how
       many bicycles the complainant had assembled and the dispute
       between the parties is only regarding the figure of bicycles and
       consequently of the amount liable to be paid. This is a civil dispute.
       The complainant has not been able to establish that the intention
       to cheat the complainant was there with the appellants right from
       the beginning. Merely because the appellants admit that only
       28,995 bicycles were assembled, but they have admittedly paid an
       amount of Rs. 62,01,746/- to the complainant, which is of a much
       higher number of bicycles, would not prove that the intention of the
       appellants right from the beginning was to cheat. This amount i.e. the
       additional amount of Rs. 26 lacs have been paid by the appellants
       pursuant to a settlement. The reasons and the logic for arriving at
       a settlement are quite different. In this case it seems, it is primarily
       to bring a quietus to the dispute and to have peace and to avoid
       litigation. The mere fact that the appellants have paid an additional
       amount pursuant to the settlement, cannot be presumed as an act
       of cheating. Moreover, the complainant does not deny the fact that a
       settlement was reached between the parties though he says he was
       coerced into the settlement. He does not dispute that the additional
       amount paid by the appellants under the terms of the compromise
       deed, which is an amount of Rs.25,75,442 (after deducting TDS) was
       received by the complainant, as this amount has been received in a
       bank transaction through NEFT on 29.12.2017. The allegation that
       the complainant was coerced into a settlement, looks unlikely for
       two reasons. First, there is no FIR or Complaint that the complainant
       was coerced into this settlement. Secondly, this amount was duly
       accepted by the complainant.
5.     Under these circumstances, we are of the considered view that this
       is a case where the inherent powers should have been exercised by
       the High Court under Section 482 of the Criminal Procedure Code
       as the powers are there to stop the abuse of the process and to
       secure the ends of justice.
6.     In the case of Paramjeet Batra v. State of Uttarakhand (2013) 11
       SCC 673, this Court recognized that although the inherent powers of
[2024] 3 S.C.R.                                                        745

               Naresh Kumar & Anr. v. State of Karnataka


     a High Court under Section 482 of the Code of Criminal Procedure
     should be exercised sparingly, yet the High Court must not hesitate
     in quashing such criminal proceedings which are essentially of a
     civil nature. This is what was held:
           “12. While exercising its jurisdiction under Section 482
           of the Code the High Court has to be cautious. This
           power is to be used sparingly and only for the purpose of
           preventing abuse of the process of any court or otherwise
           to secure ends of justice. Whether a complaint discloses
           a criminal offence or not depends upon the nature of facts
           alleged therein. Whether essential ingredients of criminal
           offence are present or not has to be judged by the High
           Court. A complaint disclosing civil transactions may
           also have a criminal texture. But the High Court must
           see whether a dispute which is essentially of a civil
           nature is given a cloak of criminal offence. In such a
           situation, if a civil remedy is available and is, in fact,
           adopted as has happened in this case, the High Court
           should not hesitate to quash the criminal proceedings
           to prevent abuse of process of the court.”
                                                (emphasis supplied)
     Relying upon the decision in Paramjeet Batra (supra), this Court in
     Randheer Singh v. State of U.P. (2021) 14 SCC 626, observed that
     criminal proceedings cannot be taken recourse to as a weapon of
     harassment. In Usha Chakraborty & Anr. v. State of West Bengal
     & Anr. 2023 SCC OnLine SC 90, relying upon Paramjeet Batra
     (supra) it was again held that where a dispute which is essentially
     of a civil nature, is given a cloak of a criminal offence, then such
     disputes can be quashed, by exercising the inherent powers under
     Section 482 of the Code of Criminal Procedure.
7.   Essentially, the present dispute between the parties relates to a
     breach of contract. A mere breach of contract, by one of the parties,
     would not attract prosecution for criminal offence in every case, as
     held by this Court in Sarabjit Kaur v. State of Punjab and Anr.
     (2023) 5 SCC 360. Similarly, dealing with the distinction between the
     offence of cheating and a mere breach of contractual obligations,
     this Court, in Vesa Holdings (P) Ltd. v. State of Kerala, (2015) 8
     SCC 293, has held that every breach of contract would not give rise
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       to the offence of cheating, and it is required to be shown that the
       accused had fraudulent or dishonest intention at the time of making
       the promise.
8.     In the case at hand, the dispute between the parties was not only
       essentially of a civil nature but in this case the dispute itself stood
       settled later as we have already discussed above. We see no criminal
       element here and consequently the case here is nothing but an abuse
       of the process. We therefore allow the appeal and set aside the order
       of the High Court dated 02.12.2020. The criminal proceedings arising
       out of FIR No.113 of 2017 will hereby stand quashed.


       Headnotes prepared by:                              Result of the case:
       Niti Richhariya, Hony. Associate Editor               Appeal allowed.
       (Verified by: Kanu Agrawal, Adv.)