Source: Supreme Court

Why in News?

Recently, a bench of Justices Sudhanshu Dhulia & Prasanna B Varale held that mere breach of contract, by one of the parties, would not attract prosecution for criminal offence in every case.

• The Supreme Court held this in the case of Naresh Kumar & Anr. v. The State of Karnataka & Anr.

What was the Background of Naresh Kumar & Anr. v. The State of Karnataka & Anr Case?

• The appellants challenged the order of the Karnataka High Court dismissing their petition under Section 482 of the Code of Criminal Procedure, 1973 (CrPC) to quash the First Information Report (FIR) filed against them.
• The dispute arose from a contract between the appellants (Assistant Manager and Managing Director of a bicycle manufacturing company) and respondent no. 2 for the assembly, transport, and delivery of bicycles.
• The appellants contended that the FIR, alleging criminal breach of trust and cheating, stemmed from a primarily civil dispute.
• An admitted settlement occurred between the parties after the FIR, where the appellants agreed to pay an additional amount to the respondent, which was duly paid and accepted.
• The High Court, however, refused to accept the appellants' contention and held that prima facie, a case of cheating was made out against them.
• Hence, the appellant approached the Supreme Court.

What were the Court’s Observations?

• The Supreme Court disagreed with the findings of the High Court, asserting that the dispute between the parties was primarily civil in nature.
• The settlement between the parties further indicated a lack of criminal intent on the part of the appellants.
• Consequently, the Court allowed the appeal, setting aside the High Court's order and quashing the criminal proceedings arising from the FIR while noting several landmark cases where criminal dispute of civil nature was dealt by the court.

What were the Landmark Judgements Cited in this Case?

• Paramjeet Batra v. State of Uttarakhand (2013):
  • The Supreme Court recognized the necessity to sparingly exercise the inherent powers of the High Court under Section 482 and emphasized the duty to quash criminal proceedings essentially of a civil nature. The Court held:
  • While exercising its jurisdiction under Section 482 of the Code, the High Court must be cautious.
  • This power is to be used sparingly and only to prevent 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.
• Randheer Singh v. State of U P (2021):
  • The Supreme Court underscored that criminal proceedings should not be utilized as a tool for harassment.
• Usha Chakraborty & Anr. v. State of West Bengal & Anr. (2023):
  • The Supreme Court reaffirmed the principle that disputes which are essentially civil in nature but given a criminal cloak can be quashed under Section 482 of CrPC.
• Sarabjit Kaur v. State of Punjab and Anr. (2023):
  • It was established by the Supreme Court that a mere breach of contract does not necessarily warrant criminal prosecution.
• Vesa Holdings (P) Ltd. v. State of Kerala (2015):
  • The Supreme Court clarified that not every breach of contract constitutes the offence of cheating; fraudulent or dishonest intention must be proven.

What is the New and Old Criminal Law on Inherent Powers of the High Court?