While ruling on a most significant legal topic with full clarity and conviction, we see that the Single Judge Bench comprising of Hon’ble Mr Justice Gautam Kumar Chaudhary of the Jharkhand High Court in a most learned, laudable, landmark, logical and latest judgment titled M/s Mideast Integrated Steels Ltd. (MESCO Steel Ltd.) vs State of Jharkhand in Cr.M.P. No. 1744 of 2022 that was finally pronounced on March 17, 2023 while allowing a criminal miscellaneous petition has held most sagaciously in no uncertain terms that a criminal prosecution, in any case, cannot be permitted as an arm twisting measure to settle and extract dues for which efficacious civil remedy is available. No doubt, all the courts in India must definitely always pay heed to what the Jharkhand High Court has held so explicitly in this leading case in similar such cases without fail. It must be also noted that Hon’ble Mr Justice Choudhary was of the firm view that the allegations that were made in the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence of cheating, criminal breach of trust or of criminal conspiracy.
At the very outset, this most brilliant, brief, bold and balanced judgment authored by the Single Judge Bench comprising of Hon’ble Mr Justice Gautam Kumar Chaudhary of the Jharkhand High Court sets the ball in motion by first and foremost putting forth aptly in para 1 that, “The instant Cr.M.P. has been filed for quashing of the entire criminal proceeding including the order dated 07.05.2019 passed by learned J. M. 1st Class, Jamshedpur in Complaint (C/1) Case No.3290 of 2018 whereby summons has been issued against the petitioners after finding a prima facie case under Sections 420, 406 & 120B of the Indian Penal Code.”
As we see, the Bench then states in para 2 that, “Opp. Party No.2/complainant has a partnership firm in the business of trading and transporting of lime stone having its head office at Sonari, Jamshedpur while the petitioner No.1 is a company registered under the Companies Act, 1956 having its office at New Delhi. Petitioner No.2 is C.M.D. of the company and petitioner No.3 is the Director of the company. The office of petitioner Nos.2 and 3 is situated in Delhi.”
To put things in perspective, the Bench then envisages in para 3 that, “It is alleged that on 22.05.2015, petitioner No.1 through other petitioners induced the opposite party No.2 to enter into a contract for supply lime stone lumps and in pursuance of it issued purchase order being No.MISL/DRM/RMHS/2015000007 in the office of the opposite party No.2, situated at Sonari, Jamshedpur, for supply of 4000 MT of the grade 10-40 MM lime stones of the quantity worth Rs.67,00,000/-. The agreed mode of payment was “material cost will be paid after 60 days from the date of issuance of R/R (Railway receipt)”. The Opp. Party No.2 accepted the said purchase order and accordingly supplied 3690.87 MT of lime stone as ordered by the accused persons worth Rs.64,92,862.55/- from Paradip Port by railway rake under R/R No.211004807 on 21.07.2015 and the same was delivered at Kalinga Nagar site of the petitioners.”
As it turned out, the Bench then lays bare in para 4 that, “In terms of the said purchase order, Opp. Party No.2 issued a bill against the supply of the material after expiry of 60 days from the date of issuance of R/R but the petitioners did not pay any amount against the said bill. After much persuasion, in the month of June, 2016 a meagre sum of Rs.6,00,000/- was paid by the petitioners to the Opp. Party No.2. It is further alleged that thereafter the Opp. Party No.2 on several occasions, demanded the balance payment of Rs.58,92,862/- through mails and telephonic conversation with all the petitioners, but no payment had been made till date. Thereafter, the Opp. Party No.2 sent a request letter along with banking details on 22.03.2018 under reference no./SALER/ 063/17-18, but again no payment was made by the petitioners, resultantly the complaint case was filed on 27.11.2018.”
Needless to say, the Bench then states in para 8 of this noteworthy judgment that, “The matter for consideration in the present case is whether materials brought on record during enquiry is sufficient to make out an offence of cheating or criminal breach of trust.”
Be it noted, the Bench then notes succinctly in para 9 that, “In order to make out a case of cheating, there should be material to make out a prima facie case that accused had fraudulent or dishonest intention at the time of making the promise. Deception is the essence of the offence of cheating. Mere breach of contract is not criminal, unless it was at the same time dishonest and was manifested by some overt act. It has been held in Hridaya Ranjan Prasad Verma v. State of Bihar & Others, (2000) 4 SCC 168 that mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. It is the intention which is the gist of the offence. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.”
To be sure, the Bench then mentions in para 10 that, “Here in the present case, it is alleged that the complainant was induced to enter into an agreement to supply lime stone to the petitioner company. There is no further detail in the complaint petition or in the enquiry as to how the inducement was made. It is left to conjecture that deception was practiced for obtaining the consent of the complainant to supply the said consignment of lime stone. Admittedly, Rs.6,00,000/- had been paid as part of the consideration amount and therefore, it cannot be said that there was an intention of deception since inception.”
Broadly speaking, the Bench then very rightly specifies in para 11 stating that, “In case of criminal breach of trust, the pivotal ingredient is entrustment of property followed by misappropriation. Deception since inception is not a fundamental ingredient of the offence, as it may arise later when the property so entrusted is misappropriated. There is a difference between misappropriation and the mere non-fulfillment of legal obligation. In every criminal breach of trust a breach of contract is implicit. The determining factor to impute criminality in a particular case is whether the proceeded against had acted dishonestly. The distinction between cheating and breach of contract lies in the intention of the accused at the time when the inducement was made. It has been held in State of Gujarat v. Jaswantlal Nathalal, (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, 498-500]. 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”.”
Simply put, the Bench enunciates in para 12 that, “From the above exposition of law, it is apparent 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 the property passes in the goods on delivery as per Sections 20 and 24 of the Sales 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.
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.”
As a corollary, the Bench minces just no words to hold in para 13 that, “From the above stated position of law, there cannot be 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.”
Do note, the Bench states in para 14 that, “Here in the present case, once the consignment of lime stone was delivered, property in it passed to the petitioner company, and did not remain the property of the complainant, consequently it cannot be said that the petitioner company was entrusted with property of the complainant.”
Quite significantly, the Bench then mandates in para 15 that, “This Court is of the view that the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence of cheating, criminal breach of trust or of criminal conspiracy.”
Finally and far most significantly, the Bench concludes by holding in para 16 that, “The present case is yet another instance of a purely civil dispute regarding non-payment of sale amount being given a criminal colour to launch criminal prosecution against the petitioners. In any case criminal prosecution cannot be permitted as an arm twisting measure to settle and extract dues for which efficacious civil remedy is available. It has been reiterated in Vijay Kumar Ghai v. State of W.B., (2022) 7 SCC 124 that any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged. For the reasons discussed above, the entire criminal proceeding including the order dated 07.05.2019 passed by learned J. M. 1st Class, Jamshedpur in Complaint (C/1) Case No.3290 of 2018, is quashed. Criminal miscellaneous petition is allowed. Pending I.A., if any, stands disposed of.”
In sum, we thus see that the Jharkhand High Court has minced absolutely no words to make it indubitably clear that using criminal prosecution to extract dues for which a civil remedy is available is unacceptable. It is high time and now all the courts in India must definitely pay heed to what the Jharkhand High Court has held so very commendably, cogently and convincingly in this leading case! No denying it!
Sanjeev Sirohi
Using Criminal Prosecution To Extract Dues For Which A Civil Remedy Is Available Is Unacceptable : Jharkhand HC
While ruling on a most significant legal topic with full clarity and conviction, we see that the Single Judge Bench comprising of Hon’ble Mr Justice Gautam Kumar Chaudhary of the Jharkhand High Court in a most learned, laudable, landmark, logical and latest judgment titled M/s Mideast Integrated Steels Ltd. (MESCO Steel Ltd.) vs State of Jharkhand in Cr.M.P. No. 1744 of 2022 that was finally pronounced on March 17, 2023 while allowing a criminal miscellaneous petition has held most sagaciously in no uncertain terms that a criminal prosecution, in any case, cannot be permitted as an arm twisting measure to settle and extract dues for which efficacious civil remedy is available. No doubt, all the courts in India must definitely always pay heed to what the Jharkhand High Court has held so explicitly in this leading case in similar such cases without fail. It must be also noted that Hon’ble Mr Justice Choudhary was of the firm view that the allegations that were made in the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence of cheating, criminal breach of trust or of criminal conspiracy.
At the very outset, this most brilliant, brief, bold and balanced judgment authored by the Single Judge Bench comprising of Hon’ble Mr Justice Gautam Kumar Chaudhary of the Jharkhand High Court sets the ball in motion by first and foremost putting forth aptly in para 1 that, “The instant Cr.M.P. has been filed for quashing of the entire criminal proceeding including the order dated 07.05.2019 passed by learned J. M. 1st Class, Jamshedpur in Complaint (C/1) Case No.3290 of 2018 whereby summons has been issued against the petitioners after finding a prima facie case under Sections 420, 406 & 120B of the Indian Penal Code.”
As we see, the Bench then states in para 2 that, “Opp. Party No.2/complainant has a partnership firm in the business of trading and transporting of lime stone having its head office at Sonari, Jamshedpur while the petitioner No.1 is a company registered under the Companies Act, 1956 having its office at New Delhi. Petitioner No.2 is C.M.D. of the company and petitioner No.3 is the Director of the company. The office of petitioner Nos.2 and 3 is situated in Delhi.”
To put things in perspective, the Bench then envisages in para 3 that, “It is alleged that on 22.05.2015, petitioner No.1 through other petitioners induced the opposite party No.2 to enter into a contract for supply lime stone lumps and in pursuance of it issued purchase order being No.MISL/DRM/RMHS/2015000007 in the office of the opposite party No.2, situated at Sonari, Jamshedpur, for supply of 4000 MT of the grade 10-40 MM lime stones of the quantity worth Rs.67,00,000/-. The agreed mode of payment was “material cost will be paid after 60 days from the date of issuance of R/R (Railway receipt)”. The Opp. Party No.2 accepted the said purchase order and accordingly supplied 3690.87 MT of lime stone as ordered by the accused persons worth Rs.64,92,862.55/- from Paradip Port by railway rake under R/R No.211004807 on 21.07.2015 and the same was delivered at Kalinga Nagar site of the petitioners.”
As it turned out, the Bench then lays bare in para 4 that, “In terms of the said purchase order, Opp. Party No.2 issued a bill against the supply of the material after expiry of 60 days from the date of issuance of R/R but the petitioners did not pay any amount against the said bill. After much persuasion, in the month of June, 2016 a meagre sum of Rs.6,00,000/- was paid by the petitioners to the Opp. Party No.2. It is further alleged that thereafter the Opp. Party No.2 on several occasions, demanded the balance payment of Rs.58,92,862/- through mails and telephonic conversation with all the petitioners, but no payment had been made till date. Thereafter, the Opp. Party No.2 sent a request letter along with banking details on 22.03.2018 under reference no./SALER/ 063/17-18, but again no payment was made by the petitioners, resultantly the complaint case was filed on 27.11.2018.”
Needless to say, the Bench then states in para 8 of this noteworthy judgment that, “The matter for consideration in the present case is whether materials brought on record during enquiry is sufficient to make out an offence of cheating or criminal breach of trust.”
Be it noted, the Bench then notes succinctly in para 9 that, “In order to make out a case of cheating, there should be material to make out a prima facie case that accused had fraudulent or dishonest intention at the time of making the promise. Deception is the essence of the offence of cheating. Mere breach of contract is not criminal, unless it was at the same time dishonest and was manifested by some overt act. It has been held in Hridaya Ranjan Prasad Verma v. State of Bihar & Others, (2000) 4 SCC 168 that mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. It is the intention which is the gist of the offence. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.”
To be sure, the Bench then mentions in para 10 that, “Here in the present case, it is alleged that the complainant was induced to enter into an agreement to supply lime stone to the petitioner company. There is no further detail in the complaint petition or in the enquiry as to how the inducement was made. It is left to conjecture that deception was practiced for obtaining the consent of the complainant to supply the said consignment of lime stone. Admittedly, Rs.6,00,000/- had been paid as part of the consideration amount and therefore, it cannot be said that there was an intention of deception since inception.”
Broadly speaking, the Bench then very rightly specifies in para 11 stating that, “In case of criminal breach of trust, the pivotal ingredient is entrustment of property followed by misappropriation. Deception since inception is not a fundamental ingredient of the offence, as it may arise later when the property so entrusted is misappropriated. There is a difference between misappropriation and the mere non-fulfillment of legal obligation. In every criminal breach of trust a breach of contract is implicit. The determining factor to impute criminality in a particular case is whether the proceeded against had acted dishonestly. The distinction between cheating and breach of contract lies in the intention of the accused at the time when the inducement was made. It has been held in State of Gujarat v. Jaswantlal Nathalal, (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, 498-500]. 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”.”
Simply put, the Bench enunciates in para 12 that, “From the above exposition of law, it is apparent 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 the property passes in the goods on delivery as per Sections 20 and 24 of the Sales 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.
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.”
As a corollary, the Bench minces just no words to hold in para 13 that, “From the above stated position of law, there cannot be 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.”
Do note, the Bench states in para 14 that, “Here in the present case, once the consignment of lime stone was delivered, property in it passed to the petitioner company, and did not remain the property of the complainant, consequently it cannot be said that the petitioner company was entrusted with property of the complainant.”
Quite significantly, the Bench then mandates in para 15 that, “This Court is of the view that the allegations made in the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence of cheating, criminal breach of trust or of criminal conspiracy.”
Finally and far most significantly, the Bench concludes by holding in para 16 that, “The present case is yet another instance of a purely civil dispute regarding non-payment of sale amount being given a criminal colour to launch criminal prosecution against the petitioners. In any case criminal prosecution cannot be permitted as an arm twisting measure to settle and extract dues for which efficacious civil remedy is available. It has been reiterated in Vijay Kumar Ghai v. State of W.B., (2022) 7 SCC 124 that any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged. For the reasons discussed above, the entire criminal proceeding including the order dated 07.05.2019 passed by learned J. M. 1st Class, Jamshedpur in Complaint (C/1) Case No.3290 of 2018, is quashed. Criminal miscellaneous petition is allowed. Pending I.A., if any, stands disposed of.”
In sum, we thus see that the Jharkhand High Court has minced absolutely no words to make it indubitably clear that using criminal prosecution to extract dues for which a civil remedy is available is unacceptable. It is high time and now all the courts in India must definitely pay heed to what the Jharkhand High Court has held so very commendably, cogently and convincingly in this leading case! No denying it!
Sanjeev Sirohi
