VESA HOLDINGS P. LTD. & ANR.versusSTATE OF KERALA & ORS.

                     [2015] 4 S.C.R. 27



           VESA HOLDINGS P. LTD. & ANR.                          A

                              v.

                STATE OF KERALA & ORS.

            (Criminal Appeal No. 2341 of 2011)                   B

                     MARCH 17, 2015

     [V. GOPALA GOWDA AND C. NAGAPPAN, JJ.]

        Penal Code, 1860: s. 420 - Cheating - Proceedings
                                                                 c
under- Petition for quashing the proceedings - Dismissed
by High Court - On appeal, held: Every breach of contract
would not give rise to an offence of cheating - For the purpose
of constituting an offence of cheating, fraudulent or dishonest D
intention should exist at the inception and if such intention
is developed later, would not encompass within itself the
offence of cheating-In the facts of the present case, offence
uls. 420 not made out- Code of Criminal Procedure, 1973
-£482                                                            E
       Code of Criminal Procedure, 1973 - s. 482 -
Quashing of criminal proceedings- Held: If set of facts make
out a civil wrong as also criminal offence, only because civil
remedy is available, that itself cannot be a ground to quash     F
a criminal proceeding.
       Administration of Justice -Abuse of process of court
- Held: Criminal proceedings not to be encouraged, if found
to be mala fide or otherwise an abuse of process of court.  G

       Allowing the appeals, the Court

       HELD: 1. Every breach of contract would not give
rise to an offence of cheating and only in those cases           H
                             27
28        SUPREME COURT REPORTS             [2015] 4 S.C.R.


A breach of contract would amount to cheating where there
  was any deception played at the very inception. If the
  intention to cheat has developed later on, the same
  cannot amount to cheating. For the purpose of
  constituting an offence of cheating, the complainant is
B required to show that the accused had fraudulent or
  dishonest intention at the time of making promise of
  representation. Even in a case where allegations are
  made in regard to failure on the part of the accused to
C keep his promise, in the absence of a culpable intention
  at the time of making initial promise being absent, no
  offence under Section 420 of IPC can be said to have
  been made out. [Para 8] [35-8-D]

         2. A given set of facts may make out a civil wrong
0
  as also a criminal offence and only because a civil
  remedy may be available to the complainant that itself
  cannot be a ground to quash a criminal proceeding. The
  real test is whether the allegations in the complaint
E disclose the criminal offence of cheating or not. In the
  present case there is nothing to show that at the very
  inception there was any intention on behalf of the
  accused persons to cheat which is a condition precedent
  for an offence under Section 420 IPC. The complaint
F does not disclose any criminal offence at all. [Para 9]
     [35-E-G]
        3. Criminal proceedings should not be
  encouraged which it is found to be malafide or otherwise
G an abuse of the process of the court. Superior courts
  while exercising this power should also strive to serve
  the ends of justice. In the facts of the present case,
  allowing the police investigation to continue would
  amount to an abuse of the process of court and the High
H
        VESA HOLDINGS P. LTD. & ANR. v. STATE OF                  29
                   KERALA & ORS.

    Court committed an error in refusing to exercise the A
    power under Section 482 CrPC to quash the
    proceedings. [Para 9] [35-G-H; 36-A])

      Uma Shankar Gopalika Vs. State of Bihar and Anr.
      (2005) 10 SCC 336; All Cargo Movers (India) Private         B
      Limited & Ors. Vs. Dhanesh Badarma/ Jain and Anr.
      (2007) SCC 776: 2007 (11) SCR 271; V. Y. Jose and
      Anr. Vs. State of Gujarat and Anr. (2009) 3 SCC 8: 2008
      (17) SCR 588 - relied on.
                                                                  c
      Vjayander Kumar and Ors. Vs. State of Rajasthan and
      Anr. (2014) 3 SCC 389: 2014 (1) CR 1012- referred
    · to.

                       Case Law Reference                         D
    (2005) 1o sec 336         relied on           Para 3

    2007 (11) SCR 271         relied on           Para 3

    2008 (17) SCR 588         relied on           Para 3          E
'
    2014 (1) CR 1012          referred to         Para 4

          CRIMINAL APPELLATE JURISDICTION : Criminal
    Appeal No. 2341 of 2011.                                      F
          From the Judgment and Order dated 28.01.2011 of the
    High Court of Kerala at Ernakulam in Criminal Miscellaneous
    Case No. 221 of 2011

                              WITH                                G

    Criminal Appeal Nos. 2342 - 2344 of 2011.

          A. Ramesh, R. Anand Padmanabhan, R. U. Deepan,
    Shashi Bhushan Kumar for the Appellants.                      H
30         SUPREME COURT REPORTS                   [2015] 4 S.C.R.



A         Devashish Bharuka, Ravi Bharuka, Jogy Scaria,
     Reegan S. Bel for the Respondents.

            The Judgment of the Court was delivered by

B           C. NAGAPPAN, J. 1. All these appeals are filed
     challenging the impugned common order dated 28.1.2011
     passed by the High Court of Kera la at Ernakulam in Criminal
     Misc. Nos.220 to 222 of 2011 whereby the petition filed by the
     appellants under Section 482 of Criminal Procedure Code
c    seeking to quash the FIR in Crime No.1461/2010 registered
     by Changanasserry Police Station against the appellants
     under Sections 417, 418, 420, 120B and 34 IPC was
     dismissed.

o            2. The undisputed facts in brief are as follows: The
     appellant in Criminal Appeal No.2341 of 2011 is a Limited
     company of which appellants Venkataraman in Criminal
     Appeal No.2344 of 2011 and appellant Mani Prasad in
     Criminal Appeal No.2343 of 2011 were Directors and the
E    appellant Chandrasekhran in Criminal Appeal No.2342 of 2011
     was the promoter. The Company availed a loan from the
     Industrial Investment Bank of India and respondent No.3 herein/
     complainant as theAGM of the said bank at the relevant time,
     dealt with their loan application and had sanctioned the same.
F    The company defaulted in repayment and wanted to settle the
     loan amount. The 3rd respondent on retirement from the bank
     agreed to act as a Consultant of the company in settling the
     loan and the company issued a letter dated 6.8.2008 stating
G    that the settlement of the Company dues should be at Rs.8.25
     crores and the acceptance letter from the llBI should be
     obtained on or before 30.10.2008 and it was also agreed that
     Rs. 75 lakhs would be given towards consultancy fees for the
     above settlement, out of which Rs.5 lakhs was given in advance
H    to the 3rd respondent and the balance amount to be paid on
     VESA HOLDINGS P. LTD. & ANR. v. STATE OF                        31
         KERALA & ORS. [C. NAGAPPAN, J.]

the completion of the assignment. The Company also issued            A
a cheque dated 6.8.2008 for a sum of Rs.30 lakhs drawn on
HDFC Bank Limited and the same was agreed to be
presented to the bank after obtaining the acceptance letter
from llBI on or before 30.10.2008 or otherwise the cheque
should be returned to the company. The 3rd respondent made           B
an endorsement in writing in the said letter agreeing to the
said terms and signed it. The 3rd respondent filed a private
complaint dated 13.10.2010 against the company, its Directors
and Promoter in the Court of Judicial First Class Magistrate         C
Changanasserry and the same was forwarded to the police
for investigation under Section 156(3) of the Code of Criminal
Procedure and the Police registered a case in Crime No.1461
of 2010 for the alleged offences under Sections 417, 418, 420,
120B and 34 IPC. It is alleged in the complaint that the loan        D
transaction of the company with II Bl was settled with the efforts
of the complainant/respondent No.3 herein but the company,
Directors and Promoter did not pay him the consultancy fee
as promised and they conspired together to deceive the
complainant and committed offences as alleged. The company           E
and its Directors filed petitions under Sectic .1 482 Criminal
Procedure Code in Criminal M.C.No.220 to 222 of 2011 on
the file of the High Court of Kerala at Ernakulam contending
that the understanding between the company and the
complainant was that the settlement with the llBI should be          F
completed by 30.10.2008 and the complainant was not able
to settle the loan before the said date and hence he could not
present the cheque in the light of the condition imposed on
him in the letter dated 6.8.2008 and the settlement was              G
completed only on 5.1.2009 due to the efforts of the company
itself and not at the instance of the complainant and at any rate
it can only be breach of contract for which no criminal liability
can be fastened against the company and its Directors. The
High Court dismissed the petitions by holding that the truth of      H
32          SUPREME COURT REPORTS                  [2015] 4 S.C.R.


A    the allegations have to be ascertained by the investigating
     agency. Challenging the said order the present appeals have
     been preferred.

           3. The learned senior counsel Mr. A. Ramesh appearing
B for the appellants contended that the contract under letter dated
  6.8.2008 was time bound and there was no element of fraud
  or dishonest intention in it and nothing fructified on the side of
  the complainant and due to continued efforts of the appellants
  the loan was settled by making payment of Rs.10.50 crores in
C total and the 3rd respondent to enrich himself illegally has
  resorted to criminal prosecution and it is liable to be quashed.
  It is his further contention that the allegation in the complaint
  does not disclose the commission of offence of cheating and
  only discloses the civil dispute at best and the complaint is
0
  nothing but an abuse of process to harass and extort money
  from the appellants and the High Court erroneously refused to
  quash the same. In support of submissions he relied on the
  following decisions - Uma Shankar Gopalika Vs. State of
E Bihar and Another [(2005) 10 SCC 336); All Cargo Movers
  (India) Private Limited and others Vs. Dhanesh Badarmal
  Jain and Another [(2007) 14 SCC 776); and V.Y. Jose and
  Another Vs. State of Gujarat and another ((2009)3 SCC
     78).
F
          4. Per contra the learned counsel appearing for
  respondent No.3 contended that there is no merit in the
  contention of the appellants thatthe FIR discloses only a civil
  case or that there is no allegation making out the criminal
G offence of cheating. It is his further contention that the facts in
  the present case may make out a civil wrong as also a criminal
  offence and only because a civil remedy may also be available
  to the complainant that by itself cannot be a ground to quash
  the criminal proceedings. In support of his submission he relied
H
     VESA HOLDINGS P. LTD. & ANR. v. STATE OF                      33
         KERALA & ORS. [C. NAGAPPAN, J.]

on the decision of this Court in Vijayander Kumar and others       A
Vs. State of Rajasthan and another [(2014) 3 SCC 389]

      5. We also heard the learned counsel for the State
namely respondent Nos. 1 and 2.
                                                                   B
         6. We have been taken through the complaint petition
in its entirety. The letter dated 6.8.2008 contains the offer of
the appellants as well as the acceptance made by 3rd
respondent, and it reads thus :

  "August 6, 2008
                                                                   c

  Mr. K.G.S. Nair
  Keezhoot, Changanasserry
  Kera la.                                                         D


   Dear Sir,

  Sub: Settlement of llBI dues at Rs.8.25 Crores.                  E


  Please refer to the discussion we had on the above
  subject. As discussed we are agreeable to pay you a              F
  lump sum amount of Rs. 75 lacs towards consultancy
  fee forthe above settlement, out of this amount Rs.5 lacs
  will be paid upfront for out of pocket expenses and the
  balance amount Rs.70 lacs will be paid on completion of
  the assignment.                                                  G

  We enclose herewith a cheque bearing number 47025
  for Rs.30,00,000 (Thirty lacs only) dated 06.08.2008
  drawn on HDFC Bank Ltd, which as agreed, this cheque
  should be presented to bank only after obtaining                 H
34         SUPREME COURT REPORTS                     [2015] 4 S.C.R.



A      acceptance letter from 1181 on or before 30th Octobe·
       2008 or otherwise the cheque should be reL:rned :, .
       Please note that company should be informed before
       presenting the said cheque.

8      If it is agreeable you may return the duplicate of this
       letter, duly signed in token of acceptance of the offer.

       Thanking you,

c
       Yours faithfully,
       ForVesa Holdings Private Limited

       Director
D      I Accord my consent to this assignment.
       (K.G.S. Nair)"



         7. It is also not in dispute that the 1181 did not issue any
E acceptance letter on or before 30.10.2008 with regard to the
  settlement of disputes of the appellant company. The 3rd
  respondent also did not present the cheque dated 6.8.2008
  issued by the appellant company for encashing a sum of Rs. 30
F lakhs. Due to the efforts of the appellant company 1181 finally
  agreed and issued letter of acceptance dated 5.1.2009. One
  year later, the 3rd respondent sent a letter dated 6.3.2010 to
  the appellant company demanding the balance amount of Rs. 70
  lakhs towards the consultancy fee. No allegation whatsoever
G was made against the appellants herein in the said letter. It
  was only mentioned in it that the consultation fee remains unpaid
  and the company is delaying the payment on one pretext or
  the other. In this context it is relevant to point out that after the
  expiry of the validity period of the cheque dated 6.8.2008, the
H
      VESA HOLDINGS P. LTD. & ANR. v. STATE OF                    35
          KERALA& ORS. [C. NAGAPPAN, J.]

 3rd respondent did not ask for re-issue of the same.              A

         8. From the decisions cited by the appellant, the settled
 proposition of law is that every breach of contract would not
 give rise to an offence of cheating and only in those cases
 breach of contract would amount to cheating where there was B
 any deception played at the very inception. If the intention to
 cheat has developed later on, the same cannot amount to
 cheating. In other words for the purpose of constituting an
 offence of cheating, the complainant is required to show that
 the accused had fraudulent or dishonest intention at the time C
 of making promise or representation. Even in a case where
 allegations are made in regard to failure on the part of the
 accused to keep his promise, in the absence of a culpable
 intention at the time of making initial promise being absent,
                                                                   0
 no offence under Section 420 of the Indian Penal Code can
 be said to have been made out.

         9. It is true that a given set of facts may make out a civil
 wrong as also a criminal offence and only because a civil
 remedy may be available to the complainant that itself cannot E
 be a ground to quash a criminal proceeding. The real test is
 whether the allegations in the complaint disclose the criminal
_offence of cheating or not. In the present case there is nothing
 to show that at the very inception there was any intention on F
 behalf of the accused persons to cheat which is a condition
 precedent for a·n offence under Section 420 IPC. In our view
 the complaint does not disclose any criminal offence at all.
 Criminal proceedings should not be encouraged when it is
 found to be malafide or otherwise an abuse of the process of G
 the court. Superior courts while exercising this power should
 also strive to serve the ends of justice. In our opinion, in view
 of these facts allowing the police investigation to continue would
 amount to an abuse of the process of court and the High Court
                                                                   H
36          SUPREME COURT REPORTS               [2015] 4 S.C.R.


A    committed an error in refusing to exercise the power under
     Section 482 Criminal Procedure Code to quash the
     proceedings.

             10. Accordingly all the appeals are allowed and the
B    impugned order dated 28.1.2011 rendered by the High Court
     is set aside and the complaint and the proceedings in Crime
     No. 1461/2010 of Changanasserry Police Station against the
     appellants are hereby quashed.

C    Kalpana K. Tripathy                          Appeals allowed.