Holding

The High Court’s order quashing the FIR is unsustainable; the FIR must stand and the investigation should proceed.

Summary

The State of Maharashtra appealed against the Bombay High Court’s order quashing a First Information Report (FIR) lodged by an investor who alleged cheating and misappropriation by City Limouzines Ltd. The High Court had held that the dispute was merely a civil matter concerning the interpretation of an investment agreement and that no offence under IPC sections 406, 420 or 1208 was made out. The Supreme Court examined the scope of the High Court’s inherent power under Section 482 of the CrPC and considered whether the allegations in the FIR disclosed a cognizable offence. Relying on precedents, the Court held that a breach of contract alone does not attract criminal liability, but the material gathered during investigation indicated possible cheating and misappropriation, rendering the FIR viable. Consequently, the Court set aside the High Court’s order, directing that the FIR stand and the investigation continue. The appeal was allowed.

Issues considered

Whether the Bombay High Court could quash the FIR under Section 482 of the CrPC on the ground that the matter was a civil dispute.
Whether the allegations in the FIR disclose an offence under IPC sections 406, 420 and 1208.
What is the proper scope of the inherent jurisdiction of a High Court to interfere with criminal proceedings.
Whether a simple breach of contract can amount to cheating under Section 420 IPC.

Legislation cited

Code of Criminal Procedure, 1973s. 482
Indian Penal Code, 1860s. 1208, s. 406, s. 420
Reserve Bank of India Acts. 45(1A)

Subjects

Section 482 CrPCquashing FIRcheatingbreach of contractcivil vs criminal disputeIPC 420IPC 406IPC 1208inherent jurisdictioninvestigation

Judgment

[2009] 12 S.C.R. 275

STATE OF MAHARASHTRA
v.
SAYED MOHAMMED MASOOD AND ANR.
(Criminal Appeal No. 1416 of 2009)

AUGUST 4, 2009
B
[S.B. SINHA AND DEEPAK VERMA, JJ.]

Code of Criminal Procedure, 1973 - s.482 - Quashing
of FIR - By High Court - Challenge to - Held: On facts, the
4 a/legation made in the FIR and the materials collected during c
investigation, ought to be taken to its logical end - In peculiar
facts and circumstances of the case, the impugned judgment
of High Court cannot be sustained - Penal Code, 1860 - ss.
406, 420 and 1208.
Respondent no.1 is Chairman-cum-Managing D
Director of a company. Respondent no.2 had entered into
--t an agreement with the said Company. He lodged FIR
.. alleging cheating and misappropriation of funds by the
Company. Respondent no.1 filed writ petition praying for
quashing of the FIR. The High Court quashed the FIR E
holding that the dispute between the parties revolved on
interpretation of clauses contained in the agreement
entered into between respondent no.2 and company and
-J.. that no offence u/ss. 406, 420 and 1208 IPC was made
out. Hence the present appeal. F
Allowing the appeal, the Court
HELD: A simple breach of contract or a case
involving pure civil dispute would not attract the penal
provisions contained in the Indian Penal Code either G
under Section 406 or Section 420 thereof. Had the dispute
;. between the parties rested in the aforementioned
premise, probably this Court would not have interfered
with the judgment of the High Court; but then, attention
275 H
276 SUPREME COURT REPORTS [2009] 12 S.C.R.

A was drawn to certain evidences which surfaced during
investigation and disclosed before this Court by the State +
in the grounds stated in this Memo of Appeal. The
allegation made in the FIR and the materials collected
during investigation, in the considered opinion of this
B Court, should be allowed to be taken to its logical end.
In the peculiar facts and circumstances of this case and
particularly in view of the materials which surfaced
during investigation, the impugned judgment cannot be
sustained. [Paras 12, 13, 14 and 17] [283-H; 284-A-B; 285-
F; 288-F-G]
c
R. Ka/yani v. Janak C. Mehta (2009) 1 SCC 516;
Mahesh Choudhary v. State of Rajasthan & Anr. 2009 (4)
SCALE 66; State of Maharashtra v. Mohd. Sajid Husain
Mohd. S. Husain (200S:) 1 SCC 213; A/pie Finance Ltd. v. P.
D Sadasivan & Anr. (2001) 3 SCC 513; Radha Bal/av Pal &
Anr. v. Emperor AIR 1~139 Calcutta 327; Velji Raghavji Patel
v. The State of Maharashtra AIR 1965 SC 1433; Vir Prakash ~

Sharma v. Anil Kumar Agarwal & Anr. (2007) 7 SCC 373; All ~

Cargo Movers (India) Private Limited & Ors. v. Dhanesh
E Badarmal Jain & Anr. (2007) 14 SCC 776; New india
Insurance Co. Ltd. v. Sadanand Mukhi & Ors. (2009) 1 SCALE
252; U. Dhar & Anr. v. State of Jharkhand & Anr. (2003) 2
SCC 219 and Uma Shankar Gopalika v. State of Bihar & Anr.
(2005) 10 sec 336, referred to.
F Case Law Reference:
c2009) 1 sec 516 referred to Para 11
2009 (4) SCALE 61) referred to Para 11

G {2oos) 1 sec 213 referred to Para 11
(2001) 3 sec 513 referred to Para 15 ...
AIR 1939 Calcutta 327 referred to Para 15
AIR 1965 SC 1433 referred to Para 15
H
STATE OF MAHARASHTRA v. SAYED MOHAMMED 277
MASOOD AND ANR.

(2001) 1 sec 373 referred to Para 15 A
., ~
(2007) 14 sec 776 referred to Para 15

(2009) 1 SCALE 252 referred to Para 15
j (2003) 2 sec 219 referred to Para 15 B
(2005) 1o sec 336 referred to Para 15

CRIMINAL APPELLATE JURISDICTION: Criminal Appeal
No. 1416 of 2009 .
... c
From the Judgment & Order dated 3.3.2008 of the High
Court of Judicature at Bombay in Criminal Writ Petition No.
2333 of 2007.

K.V. Vishwanathan, Sanjay Kharde, Ravindra Keshavrao
Adsure for the Appellants. D

~ Bindu K. Nair, Rishi Matoliya, Niraj Gupta, Atul B. Dakh,
~ Kailash Chand for the Respondents.
J

The Judgment of the Court was delivered by
E
S.B. SINHA, J. 1. Leave granted.

2. The State of Maharashtra is before us aggrieved by and
dissatisfied with a judgment and order dated 3rd March, 2008
+ passed by a Division Bench of the High Court of Judicature at
F
Bombay in Criminal Writ Petition No. 2333 of 2007 quashing
a First Information Report ("FIR") lodged by the respondent No.2
herein at the Cuff Parade Police Station, Mumbai.

3. The first respondent is the Chairman-cum-Managing
Director of Mis City Limouzines (India) Ltd. (hereinafter called G
and referred for the sake of brevity as, "the said Company").
'
A
He established the said Company. A scheme known as "Go/
Vehicle on rental basis and earning by sitting at home" was
floated. In terms of the said Scheme, assurances were given
H
278 SUPREME COURT REPORTS [2009] 12 S.C.R.

A to the people for earning money in easy way. A public
advertisement was also issued in a newspaper. They also
issued pamphlets and thereby attracted huge investments. In
terms of the said Scheme, Rs.97,907/- was to be invested in
'rent a car' scheme wherein agreement was executed inter alia
B providing that the car would be purchased in the name of
investor but would be used by the Company on rent to others
wherefor the investor would receive a sum of Rs.4,000/- per
month for a period of five years. After 60 months, i.e., at the
end of the agreement, the investor may take back his car in
c proper working condition. It was equally provided that an
investor was entitled to inspect the vehicle given on lease/rent
once in three months upon giving 15 days prior notice.

4. Clauses 4, 8, 10 and 15 of the said agreement read as
under:
D
"4. Inspection: The Lessor is entitled to inspect the Vehicle
given on Lease/rent once in 3 months by giving 15 days

E
prior notice to the above stated address and inspect the
vehicle at any of the offices of the Lessee in India.

xxx xxx xxx
-
8. Buy Back: The Lessee will have the option at the
discretion of the Lessor/registered owner to purchase the
vehicle at a fair market value upon mutual consent after the
F expiry of the agreement. However, this buyback clause is
not to be construed to be conferring any enforceable right
on the Lessee but the f,irst option to buy the car shall be
that of the Lessee herein.

G xxx xxx xxx

10. Completion of contract: Upon successful completion
of the terms of this agreement, the Lessor shall receive the
leased Vehicle in proper working condition including the
tyres and battery in good condition with normal wear and
H tear acceptable depending on the period of use.
STATE OF MAHARASHTRA v. SAYED MOHAMMED 279
MASOOD AND ANR. [S.S. SINHA, J.] ·
)()()( )()()( )()()( A

15. Issue of Preference Shares: The Lessee undertakes
to issue redeemable Preference shares to the Lessor
towards the margin money paid (excluding Insurance &
J
RTO Charges) which will be held by the Lessor as security
B
for the entire period of the validity of the agreement being
60 months from the date of issue to ensure smooth
installment payments to the bank and the lease/hire
charges to the Lessor."

5. The complainant - respondent No.2, pursuant to the said C
advertisement, invested a sum of Rs.97,907/-. Indisputably, he
was paid Rs.4,000/- per month for a period of five years.
However, despite demand, he was not given the car. He was,
however, given three post-dated cheques of ABN Amro Bank
amount to Rs. 25,000/-, Rs.20,000/- and Rs.10,000/- although D
he had asked for the said amount in cash.

6. In the said FIR, it was inter alia alleged:

"As mentioned above, Directors of the said Company in
their office without listening anything from me, as per their E
own wishes making changes on the document of
agreement, when I noticed that then I enquired about the
same in more detail. It is transpired that the said company
by showing false inducement about big return in various
financial schemes and transferring the motor vehicle in the F
name of investor, till date has accepted deposits of crores
of rupees under various schemes from 25000 investors.
But I came to know that said company has purchased motor
car only in the name of 500 investors.
G
All aspect of above mentioned schemes are in
existence only on paper but in reality not even a single
scheme is in force as per the scheme shown on the
document. I also came to know that apart from the above
mentioned office of the company at Bombay, and other H
280 SUPREME COURT REPORTS [2009] 12 S.C.R.

A places said company has office on rental basis and
Sayyed Masood Jamadar, in collusion with other directors
of the Company, induces people for making investment
and amount invested by people is being utilized for other
purpose, other than the original purpose and is being
B utiliz3d personally or for some other purposes. The said
company on the internet at its website namely
www.citylimouzines.com l~ www.city-money.com has
projected the said company as bearing IS0-9001-2000
certification and inducing common poor people to invest
c money in the said company and thereby cheating the
people. If immediate legal action is not taken against the
said company then there will be huge financial loss to
ordinary investors. Since Directors of the said company
threatened investors whenever investors go to ask back
money therefore, rein of fear against them is created.
D
Above mentioned persons namely Sayyed
Mohammad Masood Jamadar and Geeta Razzaki and
other persons have collusively established City Limouzines
Ltd. Company and through that company several other
E companies are established and through them false
inducement is given and financial investments is accepted
from the people and misappropriation of the same on large
scale is done and defrauded citizens and Government."
-+
F 7. The respondent No. ·1 filed a writ petition before the
Bombay High Court praying for quashing the said FIR.

The Division Bench of the High Court keeping in view the
various clauses in the agreement entered into by and between
the complainant and the said Company opined that although
G the investor might have been entitled to the car at the end of
the period of five years, but as there has been no intention to
defraud him at the time of inception of execution of the
agreement and the disputE~ between the parties revolved on
interpretation of the clauses of the agreement, no offence under
H
STATE OF MAHARASHTRA v. SAYED MOHAMMED 281
MASOOD AND ANR. [S.B. SINHA, J.]

__,,,,_,_ ,, Sections 406, 420 and 1208 of the Indian Penal Code has
been made out, stating:
A

C,/
"13. At the cost of repetition we may mention that the facts
in the present case are not at dispute at all that the
investment made by each of the consumers to the tune of B
Rs.97,907/- and in return they received Rs.2,40,0001-. The
only question which remained was whether the investors
-i
were entitled to the car at the end of the period of five
years or not. There has been no intention to defraud at the
=" - ...... time of inception of execution of the agreement. There can
be made several interpretations of the clauses in the
c
agreement if the agreement is taken as a whole. It is a well
accepted principle of interpretation that while interpreting
clause of agreement, whole of the agreement has to be
taken into consideration. Applying the principles laid down
by the various judgments of the Supreme Court D
-t hereinabove referred, we do not think that in the facts and

'
• circumstances of the case an offence of cheating is made
out."

The High Court, however, in its judgment only considered E
the case from the point of view of Section 420 of the Indian
Penal Code and not Sections 406 and 1208 thereof.

+ 8. Mr. T.K. Viswanathan, learned Senior Counsel
appearing on behalf of the State would contend that having
F
regard to the well settled principle of law that the High Court
does not quash an FIR save and except sparingly and in rarest
of rare cases, the impugned judgment is not sustainable.

9. Our attention in this behalf has been drawn to various
grounds taken in this Appeal to contend that the investigation G
l so far conducted reveals that a large number of illegalities have
been committed by the said Company including the violation
of the provisions of Section 45(1A) of the Reserve Bank of India
Act.
H
282 SUPREME COURT REPORTS [2009] 12 S.C.R.

A 10. Ms. Bindu K. Nair, learned counsel appearing on behalf
of the respondent, on the other hand, would take us through the
)
FIR, agreement entered into by and between the parties,
Lessee's covenants therein as also other documents to contend
that no offence can be said to have been made out either under
B Section 406 of the Indian Penal Code or Section 420 thereof.
It was urged that as no car was purchased in the name of the
respondent No.2, there was no property and, thus, there was
neither any question of any entrustment thereof nor any
misappropriation. The complainant himself having redeemed
c the merging money in terms of the provisions of the agreement,
the ingredients of the offence of Section 406 of the Indian Penal
Code cannot be said to have been made out. Drawing our
attention to the definition of 'cheatin[]' as contained in Section
415 of the Indian Penal Code, the learned counsel would
contend that neither there was •my inducement nor deception
0
having been made and pursuant to the agreement no property
having been delivered in favour of the accused by the
complainant nor there was any act of omission on his part which '
caused or likely to cause any damal1e to the property, the
E question of commission of any offencE~ under Section 420 of
the Indian Penal Code does not arise.

11. The legal position in regard to t:xercise of jurisdiction
by the High court for quashing of an FIR is now well settled. It
is not necessary for us to delve deep thereinto as the
F propositions of law have recently been stated by this Court in
R. Ka/yani v. Janak C. Mehta [(2009) 1 SCC 516] in the
following terms:

"15. Propositions of law which emerge from the said
decisions are:
G
(1) The High Court ordinarily would not exercise its
inherent jurisdiction to quash a criminal proceeding and,
in particular, a first information report unless the allegations
contained therein, even if given face value and taken to be
H correct in their entirety, disclosed no costnizable offence.
STATE OF MAHARASHTRA v. SAYED MOHAMMED 283
MASOOD AND ANR. [S.B. SINHA, J.]
(2) For the said purpose the Court, save and except A
in very exceptional. circumstances, would not look to any
document relied upon by the defence.

(3) Such a power should be exercised very
sparingly. If the allegations made in the FIR disclose
B
commission of an offence, the Court shall not go beyond
the same and pass an order in favour of the accused to
·' hold absence of any mens rea or actus reus.
I
-' (4) If the allegation discloses a civil dispute, the
same by itself may not .be a ground to hold that the c
_.i criminal proceedings should not be allowed to continue."
I
Yet again in Mahesh Choudhary vs. State of Rajasthan
& Anr. (2009 (4) SCALE 66], this Court stated the law thus:
D
"13. The principle providing for exercise of the power by
-t
.. a High Court under Section 482 of the Code of Criminal
Procedure to quash a criminal proceeding is well known.
The court shall ordinarily exercise the said jurisdiction, inter
.t alia, in the event the allegatim1s contained in the FIR or the
.
Complaint PeUtion even if on face value are taken to be
correct Wi· their entirety, does not disclose commission of
E

an offence."
.,_
We may also notice that in State of Maharashtra v. Mohd.
" Sajid Husain Mohd. S. Husain ((2008) 1 SCC 213], this Court F
laid down the law in the following terms:

"14. The learned counsel would submit that prima facie the
\..,, girl was above 16 years and she being a consenting party
and having been getting consideration, no case under
Section 376 IPC has been made out and, thus, this Court
G
~
should not interfere with the impugned judgment."

12. There cannot be any doubt or dispute whatsoever that
a simple breach of contract or a case involving pure civil
H
284 SUPREME COURT REPORTS [2009] 12 S.C.R.

A dispute would not attract the penal provisions contained in the
Indian Penal Code either under Section 406 or Section 420
thereof.

13. Had the dispute between the parties rested in the
aforementioned premise, probably we would not have interfered
8
with the judgment of the High Court; but then, our attention has
been drawn to certain evidences which have surfaced during
investigation and disclosed before us by the State in the •,
grounds stated in this Memo of Appeal. ,i..

C We may notice a few of them:

"(cc) Because preliminary findings shows that public at
large especially middle class and lower class
people have invested their hard earned money and
D or money received at the time of their VRS or
amount received from insurance companies after
casualty of their legal heirs, are likely to be cheated •
by the inducement of "Rosy picture" shown by the
company with respect to motor vehicle scheme.
Because as soon as influx of investors stops the
E
company will stop payment to the old investors, as
the company does not have any type of business
which generates fair legal income/profit.

xxx xxx xxx
F
(ff) Because another witness has stated in his
statement dated 03/10/07 that he has invested
Rs.1,07,000 for Maruti Omni in the month of
January 2005 immediately after the agreement he
has received three post dated cheques of Rs.4000/
G
- each from CUL. Company has taken Rs.25,630/
- for RTO & Insurance Charges but has not
purchased a vehicle in his name.

xxx xxx xxx
H
STATE OF MAHARASHTRA v. SAYED MOHAMMED 285
MASOOD AND ANR. [S.S. SINHA, J.]

(ii) Because another witness in his statement dated 17/ A
+ 11/07 that he is running Travelling Business in the
name as "Amey Tourist." He owns Maruti Esteem
Car No. MH-01-JA-6710 and the same is being
used for his business purpose. Neither he has given
<' his said m/v to CUL nor has invested money in B
C.L.l.L. An enquiry has been made with Shri Arun
Potade because CUL data on first mirror image
•:
shows this car as one which is from their scheme
as lndica and registered in the name of Smt.
...J..
Jayshree Devgude (File no. 15971 of CUL). c
Oi) Because another witness has stated in his
statement dated 19/11 /07 that he had Kinetic
Honda Scooter No. MH-01-E-6343 in his name but
due to rusting/damage he had scraped the said ml
v. He does not know anything about CUL. An D
-.+ enquiry has been made with Shri Deepak R. Kalwar
.. because CUL data on first mirror image shows that
Maruti Omni Car No. MH-01-E-6343 has been
registered in the name of one Smt. Asha Thakur
(file no.- 1738 of CLIL) and enquiry with RTO E
revealed that the vehicle No. MH-01-E-6343 is
Kinetic Honda Scooter and registered in the name
of Deepak Kalwar."
~

14. The allegation made in the FIR and the materials F
collected during investigation, in our considered opinion, should
be allowed to be taken to its logical end ..

15. We must, however, acknowledge that Ms. Nair has
cited the following decisions for our consideration.
G
~ i. A/pie Finance Ltd. vs. P. Sadasivan & Anr. [(2001)
3 sec 5131

ii. Radha Bal/av Pal & Anr. vs. Emperor [AIR 1939
Calcutta 327]
H
286 SUPREME COURT REPORTS [2009] 12 S.C.R.

A iii. Velji Raghavji Patel vs. The State of Maharashtra
-1·
[AIR 1965 SC 1433]

iv. Vir Prakash Sharma vs. Anil Kumar Agarvva/ &
Anr. [(2007) 7 sec 373]
8 V. All Cargo Movers (India) Private Limited & Ors.
vs. Dhanesh Badarmal Jain & Anr. [(2007) 14
sec 776]
vi. New India Insurance Co. Ltd. vs. Sadanand Mukhi
c & Ors. ((2009) 1 SCALE 252]

vii. U. Dhar & Anr. vs. State of Jharkhand & Anr.
[(2003) 2 sec 21191

viii. Uma Shankar Gopalika vs. State of Bihar & Anr.
D [(2005) 1o sec 2:361

In A/pie Finance Ltd. (supra) the dispute was found to be 1c

of pure civil nature. •

In Radha Bal/av Pal & Anr (supra), the Calcutta High
E Court looked to the policies and schemes floated by the
Company to opine that in the fact of the said case no case has
been made out for convicting the appellant therein. But the
matter having reached the High court after a judgment of
conviction was recorded, all the materials were brought on
F record by the parties by that time.

In Velji Raghavji Patel (supra), it involved a question of
dealing with the assets of a pa1inership firm by a partner.

In Vir Prakash Sharma (supra), this case primarily revolved
G
around bouncing of a cheque.

In Dhanesh Badarmal Jain (supra), the court found only a
civil liability on the part of the accused and opined that it was
at best a case of interpretation of agreement, stating
H
STATE OF MAHARASHTRA v. SAYED MOHAMMED 287
MASOOD AND ANR. [S.B. SINHA, J.]
"16. We are of the opinion that the allegations made in the A
~
complaint petition, even if given face value and taken to
be correct in its entirety, do not disclose an offence. For
the said purpose, this Court may not only take into
consideration the admitted facts but it is also permissible
to look into the pleadings of Respondent 1-plaintiff in the B
suit. No allegation whatsoever was made against the
appellants herein in the notice. What was contended was
negligence and/or breach of contract on the part of the
-d, carriers and their agent. Breach of contract simpiiciter
does not constitute an offence. For the said purpose, c
allegations in the complaint petition must disclose the
necessary ingredients therefor. Where a civil suit is
pending and the complaint petition has been filed one year
after filing of the civil suit, we may for the purpose of finding
out as to whether the said allegations are prima facie
D
correct, take into consideration the correspondences
r
--t exchanged by the parties and other admitted documents .
• It is one thing to say that the Court at this juncture would
not consider the defence of the accused but it is another
thing to say that for exercising the inherent jurisdiction of
this Court, it is impermissible also to look to the admitted E
documents. Criminal proceedings should not be
encouraged, when it is found to be mala fide or otherwise
~ an abuse of the process of the court. Superior courts while
exercising this power should also strive to serve the ends
• of justice." F

Sadanand Mukhi & Ors. (supra) involved a pure civil
dispute dealing with the compensation and insurance policies
in the Motor Vehicle Claims Tribunal (MACT).
G
Similar was the position !n Uma Shankar Gopalika (supra)
t
wherein it was stated:

".... It is well settled that every breach of contract would not
give rise to an offence of cheating and only in those cases
H
288 SUPREME COURT REPORTS [2009] 12 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. In the! present case it has nowhere
been stated that at the very inception there was any
B intention on behalf of the accused persons to cheat which
is a condition precedent for an offence under Section 420
IPC."

Hence the petition of complainant did not disclose any
criminal offence at all much less any offence either under
C Section 420 or Section 1208 o'f the Indian Penal Code. It was
purely civil in nature.

16. We have, however, no doubt in our mind that the
Investigating Officer shall conduct the investigation fairly and
o impartially and shall allow the company to carry on its business
without any hindrance whatsoever. If any books of account or
other documents are required, the Investigating Officer subject
to just exceptions may take the xerox copies thereof duly •
certified by the accused as also an undertaking that, as and
E when called upon, they would produce the said books of
account in a court of law.

Subject to the aforementioned directions, the Investigating
Officer shall carry out the investigation in accordance with law.

F 17. We, therefore, are of the opinion that in the peculiar •
facts and circumstances of this case and particularly in view of
the materials which have surfaced during investigation, the
impugned judgment cannot be sustained. It is set aside
accordingly. The appeal is allowed with the aforementioned
G directions.

B.B.B. Appeal allowed.