MITESH KUMAR J. SHAversusTHE STATE OF KARNATAKA & ORS.

                         [2021] 8 S.C.R. 875                               875


                     MITESH KUMAR J. SHA                                   A
                                   v.
              THE STATE OF KARNATAKA & ORS.
                 (Criminal Appeal No. 1285 of 2021)
                         OCTOBER 26, 2021                                  B
     [S. ABDUL NAZEER AND KRISHNA MURARI, JJ.]
       Code of Criminal Procedure, 1973: s.482 – Complaint by
respondent no.2 against appellant alleging that the appellant-builder
company had sold four excess flats beyond its share, in terms of the
                                                                           C
agreements entered into between them – Appellant filed s.482
application before High Court which was dismissed – Hence instant
appeal – Held: The facts did not show that appellants deceptively
or intentionally tried to sell excess flats as contended by respondent
No. 2 – Although, there is no doubt that a singular factual premise
can give rise to a dispute which is both, of a civil as well as criminal   D
nature, each of which could be pursued regardless of the other – In
the instant case, the actual question which required consideration
was not whether a criminal case could be pursued in the presence
of a civil suit, but whether the relevant ingredients for a criminal
case were even prima facie made out – Based on the facts, clearly
                                                                           E
no cogent case regarding a criminal breach of trust or cheating
was made out – Dispute could at best be termed as one involving
breach of contract – 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 – Therefore,      F
it is the intention which is the gist of the offence – Applying this
dictum to the instant factual matrix, the key ingredient of having a
dishonest or fraudulent intent under ss.405, 419 and 420 was not
made out – Criminal proceedings initiated against appellant quashed
– Penal Code, 1860 – ss.405, 419 and 420.
                                                                           G
       Abuse of the process of law: Imparting criminal color to a
civil dispute, made merely to take advantage of a relatively quick
relief granted in a criminal case in contrast to a civil dispute – Such
an exercise is nothing but an abuse of the process of law which
must be discouraged in its entirety – Code of Criminal Procedure,
1973 – s.482.                                                              H
                                 875
876            SUPREME COURT REPORTS                      [2021] 8 S.C.R.


A           Allowing the appeal, the Court
             HELD: 1.1 The complaint levelled against the appellants
      is one which involves commission of offences of criminal breach
      of trust and cheating. While a criminal breach of trust as postulated
      under section 405 of the Indian Penal Code, entails
B     misappropriation or conversion of another’s property for one’s
      own use, with a dishonest intention, cheating too on the other
      hand as an offence defined under section 415 of the Indian Penal
      Code, involves an ingredient of having a dishonest or fraudulent
      intention which is aimed at inducing the other party to deliver
      any property to a specific person. Both the sections clearly
C     prescribed ‘dishonest intention’, as a pre-condition for even prima
      facie establishing the commission of said offences. Thus, in order
      to assess the relevant contentions made by the parties, the
      question whether actions of the appellants were committed in
      furtherance of a dishonest or fraudulent scheme is one which
D     requires scrutiny. [Para 28][888-C-E]
            1.2 Upon a careful assessment of such facts, by no stretch
      can it be concluded that the Appellants have deceptively or
      intentionally tried to sell excess flats if any, as contended by
      Respondent No. 2. Subsequent to the revocation of GPA, it was
E     the Appellants who had first resorted to arbitration proceedings
      on 02.03.16 for redressal of dispute between the parties, to which
      Respondent No 2 had accordingly filed his statement of objections
      dated 09.03.16. It was only on 29.03.16 that Respondent No. 2
      had filed the FIR in question bearing Crime No. 185/2016 against
      the Appellants. Moreover, it was Respondent No. 2 who had
F     withdrawn his prayer with respect to selling of four excess flats
      by the Appellants, only to pursue the same in civil proceedings.
      [Para 35][889-F-H]
            1.3 Although, there is perhaps not even an iota of doubt
      that a singular factual premise can give rise to a dispute which is
G     both, of a civil as well as criminal nature, each of which could be
      pursued regardless of the other. In the instant case, the actual
      question which requires consideration is not whether a criminal
      case could be pursued in the presence of a civil suit, but whether

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  MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                    877


the relevant ingredients for a criminal case are even prima facie         A
made out. Relying on the facts clearly no cogent case regarding a
criminal breach of trust or cheating is made out. The dispute
between the parties, could at best be termed as one involving a
mere breach of contract. [Paras 37, 38][890-B-D]
      2. This Court in the case of Hridaya Ranjan Prasad Verma            B
& Ors. v. State of Bihar has observed 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. Therefore it is the intention which is the
gist of the offence. Applying this dictum to the instant factual          C
matrix where the key ingredient of having a dishonest or
fraudulent intent under sections 405, 419 and 420 is not made
out, the case at hand, is a suitable case necessitating intervention
of this Court. [Paras 39, 40][890-E-H; 891-A-B]
      *Hridaya Ranjan Prasad Verma & Ors. v. State of Bihar               D
      & Anr. (2000) 4 SCC 168 : [2000] 2 SCR 859 – relied
      on
       3. Existence of dishonest or fraudulent intention has not
been made out against the Appellants. Though the instant dispute
certainly involves determination of issues which are of civil nature,     E
pursuant to which Respondent No. 2 has even instituted multiple
civil suits, one can by no means stretch the dispute to an extent,
so as to impart it a criminal colour. There has been attempt to
stretch the contours of a civil dispute and thereby essentially
impart a criminal color to it. This Court has at innumerable              F
instances expressed its disapproval for imparting criminal color
to a civil dispute, made merely to take advantage of a relatively
quick relief granted in a criminal case in contrast to a civil dispute.
Such an exercise is nothing but an abuse of the process of
law which must be discouraged in its entirety. [Paras 41, 45,
47][891-B-C; 893-F; 894-C-D]                                              G
      M/s Indian Oil Corporation v. M/s. NEPC India Ltd &
      Ors. (2006) 6 SCC 736 : [2006] 3 Suppl. SCR 704; G.
      Sagar Suri and Anr. v. State of UP and Ors. (2000) 2
      SCC 636 : [2000] 1 SCR 417; State of Haryana & Ors.
                                                                          H
878            SUPREME COURT REPORTS                          [2021] 8 S.C.R.


A           v. Ch. Bhajan Lal and Ors. (1992) SCC (Cri) 426;
            Randheer Singh v. The State of U.P. & Ors. 2021(12)
            SCALE 55 – relied on.
            Prof. R. K. Vijayasarathy & Anr. v. Sudha Seetharam &
            Anr. (2019) SCC Online SC 208; State of Karnataka v.
B           M. Devendrappa & Anr. (2002) 3 SCC 89 : [2002] 1
            SCR 27; Priti Saraf & Anr. v. State of NCT of Delhi &
            Anr. 2021 SCC Online SC 206; Sri Krishna Agencies
            v. State of Andhra Pradesh & Anr. (2009) 1 SCC 69 :
            [2008] 16 SCR 20 – referred to.
C                             Case Law Reference
      [2002] 1 SCR 275                referred to                para 19
      [2008] 16 SCR 20                referred to                para 22
      [2000] 2 SCR 859                relied on                  para 39
D
      [2006] 3 Suppl. SCR 704         relied on                  para 41
      [2000] 1 SCR 417                relied on                  para 43
           CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
      No.1285 of 2021
E           From the Judgment and Order dated 13.08.2019 of the High Court
      of Karnataka at Bengaluru in Criminal Petition No.2691 of 2016.
           Shailesh Madiyal, Sudhanshu Prakash, Ms. Rakhi M., Vaibhav
      Sabharwal, Ms. Sruthi Iyer, Ms. Neha Jain, Advs. for the Appellant.
F           V. N. Raghupathy, Md. Apzal Ansari, Advs. for the Respondents.
            The Judgment of the Court was delivered by
            KRISHNA MURARI, J.
            1. Leave granted.
G           2. This appeal is directed against the judgment and order dated
      13.08.2019 passed by the High Court of Karnataka at Bengaluru in
      Criminal Petition No. 2691 of 2016, filed by the Appellants under Section
      482 of the Code of Criminal Procedure (hereinafter referred to as

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  MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                          879
                  [KRISHNA MURARI, J.]

‘CrPC’) challenging the FIR No. 185/2016 dated 29.03.2016 implicating           A
the appellants for offences under Section 420 read with Section 34 IPC
and to quash the proceedings in C.C. No. 20609 of 2017 on the file of VI
Additional CMM, Bengaluru, initiated pursuant to charge sheet dated
29.03.2017 against the appellants for offences punishable under Sections
406, 419, 420 read with Section 34 of IPC. The High Court vide order
                                                                                B
impugned herein dismissed the same.
      3. Pending instant appeal before this Court, Appellant No. 1 has
died and his name has been deleted vide order dated 29.09.2021. The
term ‘Appellants’ used herein should thus be construed to include only
Appellant No. 2.
                                                                                C
      Facts
       4. On 07.08.13 Respondent No. 2 had initially executed a Joint
Development Agreement (JDA) for developing a particular property
with the company of the Appellants (The Appellants being directors in
this company), i.e., Rajarajeshwari Buildcon Private Ltd. (hereinafter          D
referred to as ‘the builder company’). The property was to be developed
either entirely as residential apartments, or as residential apartments
with commercial complex. In furtherance of the Joint Development
Agreement, a General Power of Attorney (GPA) was also executed on
the same date. Respondent No. 2 thereafter also entered into a
Supplementary Agreement with the Appellants specifying their respective         E
shares in undivided area and super built up area.
       5. Further, on 19.02.15 a Memorandum of Understanding (MoU)
was entered into by Respondent No. 2 with the builder company, whereby
the company was authorized to sell 8000 sq. ft out of respondent No.2’s
share in the undivided area and super built up area. The MoU was entered        F
into by Respondent No. 2 for the purpose of making partial payment of
a loan borrowed by him from one Religare Finvest Ltd. Pursuant to the
MoU, Appellants had to obtain NOC for 15 flats by making payment of
Rs. 40,00,000/- for each flat.
       6. The Appellants herein contend at this juncture, that it was           G
verbally agreed between the parties, that the company would be entitled
to adjust the payments made to Religare Finvest Ltd., by way of selling
additional flats beyond its share, i.e., an additional 8000 sq.ft of built up
area would be allotted to the company’s share in lieu of the partial payment
of loan borrowed by Respondent No. 2 from Religare Finvest Ltd.
                                                                                H
880             SUPREME COURT REPORTS                          [2021] 8 S.C.R.


A           7. Eventually, at the instance of Respondent no. 2, the said
      developer company thereby executed sale-deeds for two flats, Flat No.
      202 & 203 in favour of the daughter and son-in-law of Respondent No.
      2. The company further executed a sale deed for another flat bearing
      No. 301 in favour of one Smt. Yashoda Sundararajan on 27.08.15.
B            8. Thereafter, vide an email the company informed Respondent
      no. 2 to execute and register the above said flats comprising 6821 sq. ft.
      (out of the 8000 sq. ft. given to the company as per the MoU dated
      19.02.15) in favour of the relevant purchasers and to further make
      payments to Religare Finvest Ltd. At this juncture, Respondent no. 2
      issued a letter to the Appellants contending that the company had not
C     adhered to the terms of the JDA, and consequently revoked the GPA.
            9. Aggrieved, the company filed an application for arbitration under
      section 9 of the Arbitration Act, praying for injunction restraining
      Respondent No. 2 from alienating or creating third party rights over the
      property. Respondent No. 2 on the other hand filed a police complaint
D     claiming that the sale of flats was in excess of the share agreed between
      the parties. The complaint (Respondent No.2), inter-alia, had two
      contentions-
            •      First, that the GPA was not executed in favour of the
                   company, therefore, company could not have sold the said
E                  apartments.
            •      Secondly, flats sold by the company belonged to Respondent
                   no. 2’s share. Flats alleged to have been sold in excess
                   bearing No. 002, 301, 304, 404.
             10. Pursuant to this complaint, FIR No. 185/2016 dated 29.03.2016,
F
      was registered against Appellant No. 1 and 2 for offences punishable
      under section 420 read with 34 of Indian Penal Code. Appellants herein,
      thereby approached the High Court of Karnataka seeking quashing of
      the said FIR invoking Section 482 of CrPC. Further on 29.03.17 charge
      sheet was filed against the appellants for offences under sections 406,
G     419, 420 read with Section 34 of the Indian Penal Code, which was also
      sought to be quashed in the said proceedings.
             11. Meanwhile, in the arbitration proceedings, the arbitrator partly
      allowed the claims of the Appellants as well as Respondent No. 2. The
      arbitrator held that unilateral revocation of GPA by Respondent no. 2
H     was illegal and that the company had the right to effectuate sale
  MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                           881
                  [KRISHNA MURARI, J.]

agreements/sale deeds in terms of MoU. Furthermore, regarding the                A
question of sale of four excess flats by the Appellants, the question was
left unanswered in the arbitral award as Respondent No. 2 had withdrawn
his claim prayed for in paras (e), (f) and (g) of the written submissions in
light of pending civil proceedings, with liberty to pursue the issue in those
proceedings. Prayer in para (f) in particular being:-
                                                                                 B
       “directing the Applicant/Developer to evict and remove the
       present occupants of Flat No. 002, 301, 304 & 404 and deliver
       possession of the said Flats, redoing and refurbishing the
       interiors, as if it was a new Flat, with Occupancy Certificate
       in respect of the said Flats.”
                                                                                 C
      12. Aggrieved by the award, Respondent no. 2 preferred a
challenge to the said award under section 34 of the Arbitration Act.
       13. Eventually, the quashing petition also came up before the High
Court, which was disposed of by observing that dispute regarding
alienation of flats by the Appellants herein has not been answered by the        D
arbitrator and was not a subject matter of the arbitration suit pending
between the parties. It was further observed that since there are
allegations against the Appellants for having sold the flats contrary to
the terms of MoU, there were no grounds to interfere with the matter.
The Appellants herein, thereby approached this court by way of the
present Special Leave Petition.                                                  E

       Contentions made on behalf of the Appellant
       14. The Appellants herein have contended that the sequence of
events in the instant case do not fulfill the necessary ingredients of an
alleged offence, therefore Respondent No. 2 has been simply trying to            F
impart criminal color to a civil dispute. It is contended that the issue of
alienation of flats had not been responded to by the arbitrator since
Respondent No. 2 had withdrawn his claim in respect of the said flats
from arbitral proceedings with liberty to pursue his case in pending civil
proceedings. Furthermore, since Respondent No. 2 had decided to pursue
his claim by way of a civil suit, therefore criminal complaint on the same       G
issue should be quashed.
       15. It is further submitted that the entire dispute between the parties
pertains to an alleged sale of flats in excess of the share agreed between
the parties, and that the complaint is filed by Respondent No. 2 for settling
scores in a dispute which is entirely of civil nature.                           H
882               SUPREME COURT REPORTS                          [2021] 8 S.C.R.


A            16. The Appellants placed reliance on the judgment of this Court
      in case of Prof. R. K. Vijayasarathy & Anr. Vs. Sudha Seetharam &
      Anr.1, to substantiate the above stated argument. The relevant paras
      referred are as hereunder:-
               “23. The jurisdiction under Section 482 of the Code of
B              Criminal Procedure has to be exercised with care. In the
               exercise of its jurisdiction, a High Court can examine whether
               a matter which is essentially of a civil nature has been given
               a cloak of a criminal offence. Where the ingredients required
               to constitute a criminal offence are not made out from a bare
C              reading of the complaint, the continuation of the criminal
               proceeding will constitute an abuse of the process of the court.
               24. In the present case, the son of the appellants has instituted
               a civil suit for the recovery of money against the first
               respondent. The suit is pending. The first respondent has filed
D              the complaint against the appellants six years after the date
               of the alleged transaction and nearly three years from the
               filing of the suit. The averments in the complaint, read on its
               face, do not disclose the ingredients necessary to constitute
               offences under the Penal Code. An attempt has been made
               by the first respondent to cloak a civil dispute with a criminal
E              nature despite the absence of the ingredients necessary to
               constitute a criminal offence. The complaint filed by the first
               respondent against the appellants constitutes an abuse of
               process of court and is liable to be quashed.”
             17. Learned counsel for the appellant further submits that
F     Respondent No. 2 has neither denied execution of MoU nor grant of
      marketing rights to the company of the Appellants. It is further submitted
      that since variation in supplementary agreement, allotting an additional
      area of 8000 sq. ft to the Petitioner Company in lieu of partial payment
      made to Religare Finvest Ltd. was not made in writing, therefore,
G     Respondent No. 2 has made an attempt to cloak the transactions of the
      Appellants as a criminal offence. It is also contended that since the
      dispute between the parties had any way been adjudicated by the
      arbitrator therefore the existing criminal complaint is liable to be quashed.


H     1
          (2019) SCC Online SC 208
     MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                         883
                     [KRISHNA MURARI, J.]

         Contentions made by Respondent No. 2 appearing in person                 A
       18. Respondent No. 2 who appeared in person on the contrary
submits that the developer company of the Appellants being entitled to
sell only 9 flats has executed a sale deed for 13 flats in all. Further the
sale of 4 flats (flat nos. 002, 301, 304 & 404) beyond the 9 flats is in
excess of the Appellants company’s share and therefore Respondent                 B
No. 2 has been constrained to lodge a complaint for cheating against the
Appellants.
       19. Respondent No. 2 in his objection to the contention of the
Appellants that civil dispute is being given a criminal color, relying upon
the dictum in State of Karnataka Vs. M. Devendrappa & Anr.2,submits               C
that reliance must be placed on whether the complaint spells out the
ingredients of a criminal offence or not, and not on the defenses available
to an accused, which if established in trial may lead to his acquittal.
       20. It is further submitted that the Appellants after selling a property
which they were unauthorized to sell cannot evade a criminal case merely          D
on the contention that the person whose property has been sold has filed
a civil suit for recovery of the said property. The Respondent further
relies upon the judgment of this Court in Priti Saraf & Anr. Vs. State of
NCT of Delhi & Anr.3, wherein it was observed that :-
         “32. In the instant case, on a careful reading of the complaint/
                                                                                  E
         FIR/charge-sheet, in our view, it cannot be said that the
         complaint does not disclose the commission of an offence.
         The ingredients of the offences under Sections 406 and 420
         IPC cannot be said to be absent on the basis of the allegations
         in the complaint/FIR/charge-sheet. We would like to add that
         whether the allegations in the complaint are otherwise correct           F
         or not, has to be decided on the basis of the evidence to be
         led during the course of trial. Simply because there is a remedy
         provided for breach of contract or arbitral proceedings
         initiated at the instance of the appellants, that does not by
         itself clothe the court to come to a conclusion that civil remedy
                                                                                  G
         is the only remedy, and the initiation of criminal proceedings,
         in any manner, will be an abuse of the process of the court
         for exercising inherent powers of the High Court under Section
         482 CrPC for quashing such proceedings.
2
    (2002) 3 SCC 89
3
    2021 SCC Online SC 206                                                        H
884      SUPREME COURT REPORTS                        [2021] 8 S.C.R.


A     33. We have perused the pleadings of the parties, the complaint/
      FIR/charge-sheet and orders of the Courts below and have
      taken into consideration the material on record. After hearing
      learned counsel for the parties, we are satisfied that the issue
      involved in the matter under consideration is not a case in
      which the criminal trial should have been short-circuited. The
B
      High Court was not justified in quashing the criminal
      proceedings in exercise of its inherent jurisdiction. The High
      Court has primarily adverted on two circumstances, (i) that it
      was a case of termination of agreement to sell on account of
      an alleged breach of the contract and (ii) the fact that the
C     arbitral proceedings have been initiated at the instance of
      the appellants. Both the alleged circumstances noticed by the
      High Court, in our view, are unsustainable in law. The facts
      narrated in the present complaint/FIR/charge-sheet indeed
      reveal the commercial transaction but that is hardly a reason
      for holding that the offence of cheating would elude from
D
      such transaction. In fact, many a times, offence of cheating
      is committed in the course of commercial transactions and
      the illustrations have been set out under Sections 415, 418
      and 420 IPC. Similar observations have been made by this
      Court in Trisuns Chemical Industry Vs. Rajesh Agarwal and
E     Ors.(supra) :-
      9. We are unable to appreciate the reasoning that the provision
      incorporated in the agreement for referring the disputes to
      arbitration is an effective substitute for a criminal prosecution
      when the disputed act is an offence. Arbitration is a remedy
F     for affording reliefs to the party affected by breach of the
      agreement but the arbitrator cannot conduct a trial of any
      act which amounted to an offence albeit the same act may be
      connected with the discharge of any function under the
      agreement. Hence, those are not good reasons for the High
      Court to axe down the complaint at the threshold itself. The
G     investigating agency should have had the freedom to go into
      the whole gamut of the allegations and to reach a conclusion
      of its own. Pre-emption of such investigation would be justified
      only in very extreme cases as indicated in State of Haryana v.
      Bhajan Lal [1992 Supp (1) SCC 335].”
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     MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                      885
                     [KRISHNA MURARI, J.]

       21. It has been further argued that reliance made by the Appellants     A
on the judgment of this Court in Prof. R K Vijayasarathy & Anr Vs.
Sudha Seetharam & Anr.4is misplaced, as the said case was decided
on different facts, wherein criminal proceedings were instituted as late
as three years after the institution of civil proceedings, and the necessary
ingredients to constitute an offence were also not made out in the
                                                                               B
complaint. On the contrary, in the instant case, relevant ingredients to
constitute an offence under section 405 and 415 have clearly been made
out.
       22. Placing reliance upon Sri Krishna Agencies Vs. State of
Andhra Pradesh & Anr.5, it is further contended by Respondent No. 2
that criminal proceedings cannot be quashed solely because the dispute         C
was referred to arbitration and that arbitration proceedings had taken
place thereafter. Para 7 of the said judgment has been particularly
emphasized upon by Respondent No. 2, wherein it has been observed as
under :-
         “On behalf of respondent No. 2, the submissions which had             D
         been urged before the High Court, were reiterated, which,
         however, appears to be unacceptable having regard to the
         decision cited by Mr. Adhyaru. We are also of the view that
         there can be no bar to the simultaneous continuance of a
         criminal proceeding and a civil proceeding if the two arise           E
         from separate causes of action. The decision in Trisuns
         Chemical Industry’s case (Supra) appears to squarely cover
         this case as well.”
        23. To simply put, what has been argued on behalf of Respondent
No. 2 is that cause of action in civil and criminal proceedings instituted     F
by Respondent No. 2 are separate and independent of each other, i.e.,
liability for breach of agreement is independent of the liability for
commission of offence under sections 405 and 415 of the Indian Penal
Code. Therefore, criminal proceedings so instituted against the Appellants
herein cannot be quashed.
                                                                               G
      24. It is further contended that sale deed in respect of 8000 sq. ft.
area cannot be executed by the Appellants as Respondent No 2 had not
given GPA to sell the said area. Therefore, the sale made by the
4
    2019 SCC Online SC 208
5
    (2009) 1 SCC 69                                                            H
886             SUPREME COURT REPORTS                           [2021] 8 S.C.R.


A     Appellants in excess of their authority is unlawful and is indicative of the
      criminal intent of the appellants. Moreover, the said excess four flats
      sold by the Appellants, have also been taken out of the arbitral proceedings
      and therefore the Appellants herein can place no reliance on the arbitral
      proceedings.
B           Contentions made on behalf of Respondent No. 1-State
             25. Counsel appearing for the State of Karnataka i.e. Respondent
      No. 1 submits that, as far as the argument of the Appellants that
      Respondent No. 2 has merely made an attempt to cloak a dispute of civil
      nature is concerned, the High Court has held that in the instant
C     circumstances there being clear allegations that the appellants had
      executed sale deed of the said flats without authority, there were no
      grounds to interfere with the matter. It is further submitted that in the
      instant facts clear ingredients of offences punishable under sections 406,
      419 and 420 read with section 34 of Indian Penal Code have been made
      out.
D
            Issues
            26. Having perused the relevant facts and contentions made by
      the Appellants and Respondents herein in our considered opinion, the
      following three key issues require determination in the instant case:
E           -      Whether the necessary ingredients of offences punishable
                   under Sections 406, 419 and 420 are prima facie made out?
            -      Whether sale of excess flats, even if made, amounts to a
                   mere breach of contract or constitutes an offence of
                   cheating?
F
            -      Whether the dispute is one of entirely civil nature and
                   therefore liable to be quashed?
           Whether the necessary ingredients of offences punishable
      under Sections 406, 419 and 420 are prima facie made out?
G            27. In order to ascertain the veracity of contentions made by the
      parties herein, it is imperative to firstly examine whether the relevant
      ingredients of offences which the appellants herein had been charged
      with, are prima facie made out. The relevant sections read as follows:-
            “405. Criminal breach of trust—Whoever, being in any manner
H           entrusted with property, or with any dominion over property,
MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                   887
                [KRISHNA MURARI, J.]

   dishonestly misappropriates or converts to his own use that         A
   property, or dishonestly uses or disposes of that property in
   violation of any direction of law prescribing the mode in which
   such trust is to be discharged, or of any legal contract, express
   or implied, which he has made touching the discharge of such
   trust, or wilfully suffers any other person so to do, commits
                                                                       B
   “criminal breach of trust”.
   [Explanation [1].—A person, being an employer [of an
   establishment whether exempted under section 17 of the
   Employees’ Provident Funds and Miscellaneous Provisions
   Act, 1952 (19 of 1952), or not] who deducts the employee’s
   contribution from the wages payable to the employee for credit      C
   to a Provident Fund or Family Pension Fund established by
   any law for the time being in force, shall be deemed to have
   been entrusted with the amount of the contribution so deducted
   by him and if he makes default in the payment of such
   contribution to the said Fund in violation of the said law,         D
   shall be deemed to have dishonestly used the amount of the
   said contribution in violation of a direction of law as
   aforesaid.] [Explanation 2.—A person, being an employer,
   who deducts the employees’ contribution from the wages
   payable to the employee for credit to the Employees’ State
   Insurance Fund held and administered by the Employees’ State        E
   Insurance Corporation established under the Employees’ State
   Insurance Act, 1948 (34 of 1948), shall be deemed to have
   been entrusted with the amount of the contribution so deducted
   by him and if he makes default in the payment of such
   contribution to the said Fund in violation of the said Act,         F
   shall be deemed to have dishonestly used the amount of the
   said contribution in violation of a direction of law as
   aforesaid.]
   406. Punishment for criminal breach of trust—Whoever
   commits criminal breach of trust shall be punished with
                                                                       G
   imprisonment of either description for a term which may
   extend to three years, or with fine, or with both.
   419. Punishment for cheating by personation—Whoever cheats
   by personation shall be punished with imprisonment of either
   de-scription for a term which may extend to three years, or
   with fine, or with both.                                            H
888             SUPREME COURT REPORTS                            [2021] 8 S.C.R.


A           420. Cheating and dishonestly inducing delivery of property—
            Whoever cheats and thereby dishonestly induces the person
            deceived to deliver any property to any person, or to make,
            alter or destroy the whole or any part of a valuable security,
            or anything which is signed or sealed, and which is capable
            of being converted into a valuable security, shall be punished
B
            with imprisonment of either description for a term which may
            extend to seven years, and shall also be liable to fine.”
             28. In the instant case, the complaint levelled against the Appellants
      herein is one which involves commission of offences of criminal breach
      of trust and cheating. While a criminal breach of trust as postulated
C     under section 405 of the Indian Penal Code, entails misappropriation or
      conversion of another’s property for one’s own use, with a dishonest
      intention, cheating too on the other hand as an offence defined under
      section 415 of the Indian Penal Code, involves an ingredient of having a
      dishonest or fraudulent intention which is aimed at inducing the other
D     party to deliver any property to a specific person. Both the sections
      clearly prescribed ‘dishonest intention’, as a pre-condition for even prima
      facie establishing the commission of said offences. Thus, in order to
      assess the relevant contentions made by the parties herein, the question
      whether actions of the Appellants were committed in furtherance of a
      dishonest or fraudulent scheme is one which requires scrutiny.
E
             29. Coming to the facts of the case at hands, the contested
      contention between the parties is that the builder company had sold four
      excess flats beyond its share, in terms of the JDA and supplementary
      agreement entered into between the parties. Respondent No. 2 contends
      that builder company which was entitled to sell only 9 flats in its favour,
F     has instead executed sale deed for 13 flats in total. Thus, the company
      simply could not have sold the flats beyond 9 flats for which it was
      authorized and resultantly cannot evade criminal liability on a mere premise
      that a civil dispute is already pending between the parties.
             30. The Appellants on the other hand contend that in terms of a
G     subsequent MoU dated 19.02.15, it was mutually agreed between the
      parties, that partial payment for a loan amount borrowed by Respondent
      No. 2 from Religare Finvest Ltd., would be paid out from the sale
      proceeds of the said development project undertaken by both the parties.
      Pursuant to this MoU, the Appellants had agreed to get an NOC for 15
H     flats by making payment of Rs. 40,00,000/- for each flat.
  MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                        889
                  [KRISHNA MURARI, J.]

       31. The key contention, and also the central point of dispute, made    A
by the Appellants is that, it was specifically agreed between the parties
that the Appellants would be entitled to sell additional flats beyond their
share, as adjustments for payment made to Religare Finvest Ltd on behalf
of Respondent No. 2. It is further contended that Respondent No. 2 had
also agreed to execute a ratification deed to the JDA and GPA eventually,
                                                                              B
which would have formally authorised the Appellants to sell additional
apartments.
      32. Nonetheless, the ratification deed was never made and
Respondent No. 2 subsequently even revoked the GPA unilaterally,
contending that the terms of JDA were not followed.
                                                                              C
      33. It was only after revocation of GPA that the company filed an
application for arbitration seeking interim orders to restrain the
Respondent No. 2 from alienating the disputed property. Simultaneously,
while this dispute was pending adjudication before the arbitrator
Respondent No. 2 filed a criminal complaint against the Appellants.
                                                                              D
        34. At this juncture, it further becomes pertinent to mention that
eventually though both the parties partly succeeded before the arbitrator,
in terms of their respective claims, the arbitrator observed that GPA
indeed could not have been revoked unilaterally at the instance of
Respondent No. 2. Aggrieved, Respondent No. 2 thereafter even
preferred a challenge to the award passed by the arbitrator. Moreover,        E
pending arbitration proceedings issue regarding selling of excess flats at
the instance of Appellants, was also withdrawn by Respondent No. 2
seeking liberty to pursue his claim with regard to selling of four excess
flats in pending civil proceedings.
       35. Upon a careful assessment of such facts, by no stretch can it      F
be concluded that the Appellants herein have deceptively or intentionally
tried to sell excess flats if any, as contended by Respondent No. 2.
Here, it must also be borne in mind that subsequent to the revocation of
GPA, it was the Appellants herein who had first resorted to arbitration
proceedings on 02.03.16 for redressal of dispute between the parties, to      G
which Respondent No 2 had accordingly filed his statement of objections
dated 09.03.16. It was only on 29.03.16 that Respondent No. 2 had filed
the FIR in question bearing Crime No. 185/2016 against the Appellants.
Moreover, it was Respondent No. 2 who had withdrawn his prayer with
respect to selling of four excess flats by the Appellants, only to pursue
the same in civil proceedings.                                                H
890                SUPREME COURT REPORTS                         [2021] 8 S.C.R.


A             36. At this stage, by placing reliance on the judgment of this Court
      inPriti Saraf & Anr. Vs. State of NCT of Delhi & Anr. (Supra) and
      Sri Krishna Agencies Vs. State of Andhra Pradesh & Anr. (Supra),
      it has been further submitted by Respondent No. 2 that Appellants cannot
      evade a criminal case by merely contending that the person whose
      property has been sold has filed a civil suit for recovery of the property,
B
      or that the dispute had been referred to arbitration.
             37. Although, there is perhaps not even an iota of doubt that a
      singular factual premise can give rise to a dispute which is both, of a civil
      as well as criminal nature, each of which could be pursued regardless of
      the other. In the instant case, the actual question which requires
C     consideration is not whether a criminal case could be pursued in the
      presence of a civil suit, but whether the relevant ingredients for a criminal
      case are even prima facie made out. Relying on the facts as discussed
      in previous paragraphs, clearly no cogent case regarding a criminal breach
      of trust or cheating is made out.
D            38. The dispute between the parties, could at best be termed as
      one involving a mere breach of contract. Now, whether and what, is the
      difference between a mere breach of contract and an offence of cheating
      has been discussed in the ensuing paragraphs.
           Whether sale of excess flats even if made amounts to a
E     mere breach of contract?
            39. This Court in the case of Hridaya Ranjan Prasad Verma &
      Ors. Vs. State of Bihar & Anr.6, has observed:-
               “15. ….that the distinction between mere breach of contract
F              and the offence of cheating is a fine one. It depends upon the
               intention of the accused at the time to inducement which may
               be judged by his subsequent conduct but for this subsequent
               conduct is not the sole test. 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
G              transaction, that is the time when the offence is said to have
               been committed. Therefore it is the intention which is the gist
               of the offence. To hold a person guilty of cheating it is
               necessary to show that he had fraudulent or dishonest
               intention at the time of making the promise…”
      6
H         (2000) 4 SCC 168
     MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                     891
                     [KRISHNA MURARI, J.]

      40. Applying this dictum to the instant factual matrix where the        A
key ingredient of having a dishonest or fraudulent intent under sections
405, 419 and 420 is not made out, the case at hand, in our considered
opinion is a suitable case necessitating intervention of this Court.
      Whether the dispute is one of entirely civil nature and
therefore liable to be quashed?                                               B
       41. Having considered the relevant arguments of the parties and
decisions of this court we are of the considered view that existence of
dishonest or fraudulent intention has not been made out against the
Appellants. Though the instant dispute certainly involves determination
of issues which are of civil nature, pursuant to which Respondent No. 2       C
has even instituted multiple civil suits, one can by no means stretch the
dispute to an extent, so as to impart it a criminal colour. As has been
rightly emphasised upon by this court, by way of an observation rendered
in the case of M/s Indian Oil Corporation Vs. M/s. NEPC India Ltd
& Ors.7, as under :-
                                                                              D
         “14. While no one with a legitimate cause or grievance should
         be prevented from seeking remedies available in criminal law,
         a complainant who initiates or persists with a prosecution,
         being fully aware that the criminal proceedings are
         unwarranted and his remedy lies only in civil law, should
         himself be made accountable, at the end of such misconceived         E
         criminal proceedings, in accordance with law.”
         42. It was also observed:-
         “13. While on this issue, it is necessary to take notice of a
         growing tendency in business circles to convert purely civil         F
         disputes into criminal cases. This is obviously on account of
         a prevalent impression that civil law remedies are time
         consuming and do not adequately protect the interests of
         lenders/creditors….There is also an impression that if a person
         could somehow be entangled in a criminal prosecution, there
         is a likelihood of imminent settlement. Any effort to settle civil   G
         disputes and claims, which do not involve any criminal offence,
         by applying pressure though criminal prosecution should be
         deprecated and discouraged.”

7
    (2006) 6 SCC 736
                                                                              H
892                SUPREME COURT REPORTS                        [2021] 8 S.C.R.


A           43. On an earlier occasion, in case of G. Sagar Suri and Anr.
      Vs. State of UP and Ors.8, this Court has also observed:-
                “8. Jurisdiction under Section 482 of the Code has to be
                exercised with a great care. In exercise of its jurisdiction High
                Court is not to examine the matter superficially. It is to be
B               seen if a matter, which is essentially of civil nature, has been
                given a cloak of criminal offence. Criminal proceedings are
                not a short cut of other remedies available in law. Before
                issuing process a criminal court has to exercise a great deal
                of caution. For the accused it is a serious matter. This Court
                has laid certain principles on the basis of which High Court
C               is to exercise its jurisdiction under Section 482 of the Code.
                Jurisdiction under this Section has to be exercised to prevent
                abuse of the process of any court or otherwise to secure the
                ends of justice.”
            44. Furthermore, in the landmark judgment of State of Haryana
D     & Ors. Vs. Ch. Bhajan Lal and Ors.9 regarding exercise of inherent
      powers under section 482 of CrPC, this Court has laid down following
      categories of instances wherein inherent powers of the can be exercised
      in order to secure the ends of justice. These are:-
                “(1) where the allegations made in the First Information Report
E               or the complaint, even if they are taken at their face value
                and accepted in their entirety do not prima facie constitute
                any offence or make out a case against the accused;
                (2) where the allegations in the First Information Report and
                other materials, if any, accompanying the F.I.R. do not disclose
F               a cognizable offence, justifying an investigation by police
                officers under Section 156(1) of the Code except under an
                order of a Magistrate within the purview of Section 155(2)
                of the Code;
                (3) where the uncontroverted allegations made in the FIR or
G               ‘complaint and the evidence collected in support of the same
                do not disclose the commission of any offence and make out
                a case against the accused;

      8
          (2000) 2 SCC 636
      9
H         (1992) SCC (Cri) 426
     MITESH KUMAR J. SHA v. THE STATE OF KARNATAKA & ORS.                       893
                     [KRISHNA MURARI, J.]

          (4) where the allegations in the FIR do not constitute a              A
          cognizable offence but constitute only a non-cognizable
          offence, no investigation is permitted by a police officer without
          an order of a Magistrate as contemplated under Section
          155(2) of the Code;
          (5) where the allegations made in the FIR or complaint are so         B
          absurd and inherently improbable on the basis of which no
          prudent person can ever reach a just conclusion that there is
          sufficient ground for proceeding against the accused;
          (6) where there is an express legal bar engrafted in any of
          the provisions of the Code or the concerned Act (under which          C
          a criminal proceeding is instituted) to the institution and
          continuance of the proceedings and/or where there is a
          specific provision in the Code or the concerned Act, providing
          efficacious redress for the grievance of the aggrieved party;
          (7) where a criminal proceeding is manifestly attended with           D
          mala fide and/or where the proceeding is maliciously instituted
          with an ulterior motive for wreaking vengeance on the accused
          and with a view to spite him due to private and personal
          grudge.”
         45. Applying this dictum to the instant factual matrix, it can be      E
safely concluded that the present case clearly falls within the ambit of
first, third and fifth category of the seven categories enlisted in the above
said judgment. The case therefore warrants intervention by this Court,
and the High Court has erred in dismissing the petition filed by the
Appellants under section 482 CrPC. We find that there has been attempt
to stretch the contours of a civil dispute and thereby essentially impart a     F
criminal color to it.
       46. Recently, this Court in case of Randheer Singh Vs. The
State of U.P. & Ors.10, has again reiterated the long standing principle
that criminal proceedings must not be used as instruments of harassment.
The court observed as under:-                                                   G
          “33. ….There can be no doubt that jurisdiction under Section
          482 of the Cr.P.C. should be used sparingly for the purpose
          of preventing abuse of the process of any court or otherwise
10
     Criminal Appeal No. 932 of 2021 (decided on 02.09.2021)                    H
894              SUPREME COURT REPORTS                          [2021] 8 S.C.R.


A            to secure the ends of justice. Whether a complaint discloses
             criminal offence or not depends on the nature of the allegation
             and whether the essential ingredients of a criminal offence
             are present or not has to be judged by the High Court. There
             can be no doubt that a complaint disclosing civil transactions
             may also have a criminal texture. The High Court has, however,
B
             to see whether the dispute of a civil nature has been given
             colour of criminal offence. In such a situation, the High Court
             should not hesitate to quash the criminal proceedings as held
             by this Court in Paramjeet Batra (supra) extracted above.”
              47. Moreover, this Court has at innumerable instances expressed
C     its disapproval for imparting criminal color to a civil dispute, made merely
      to take advantage of a relatively quick relief granted in a criminal case in
      contrast to a civil dispute. Such an exercise is nothing but an abuse of
      the process of law which must be discouraged in its entirety.
             48. In view of the above facts and discussions, the impugned
D     order dated 13.08.2019 passed by the High Court of Karnataka is set
      aside. The impugned F.I.R. No. 185 of 2016 dated 29.03.2016 and
      proceedings in C.C.No. 20609 of 2017 on the file of VI Additional CMM,
      Bengaluru, in pursuance of charge sheet dated 29.03.2017 against the
      appellants for offences under Sections 406, 419, 420 read with Section
E     34 IPC stands quashed.
             49. As a result, appeal stands allowed.


      Devika Gujral                                                 Appeal allowed.

F




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