1. The petitioners/accused 1 to 6 in Crime No.214 of 2020 pending before the Additional Chief Judicial Magistrate, Bangalore Rural registered for offences punishable under Sections 120B, 109, 34,422, 406, 415, 420, 471, 403, 425, 409, 405 and 463 of the IPC and Sections 66C and 66D of the Information Technology Act, 2000 are before this court calling in question registration of the aforesaid FIR and investigation in the matter.

2. Heard Sri Shivaprasad Shantanagoudar, learned counsel appearing for the petitioners, Smt. K.P.Yashoda, learned High Court Government Pleader appearing for respondent- 1/State and Sri Reuben Jacob, learned senior counsel appearing for respondent No.2.

3. Brief facts leading to the filing of the present petition, as borne out from the pleadings, are as follows:-

On 05-09-2020 the complainant represented by his Power of Attorney Holder registered a complaint against one M/s Smart Owners Services India Private Limited, M/s Smart Asset Services India Private Limited and several other companies in respect of alleged offences committed by the Directors and employees of the Companies arising out of Master Services Agreements dated 23-08-2016, 07-03-2017 and Plot Booking Agreement dated 10-09-2016 concerning booking of 6 apartments in the apartment complexes supposed to be constructed by the companies. The complaint relates to two real estate projects viz., plotted development project named HIL and an apartment development project named PRK. The petitioner/company Smart Owners had marketed these apartments to the complainant. It is the allegation of the complainant that contractors of the 1st petitioner/company had lured the complainant for purchase of apartments in the supposed to be constructed apartment complex.

4. In the year 2016 it is alleged by the complainant that advertisement, through call messages, emails, brochures were piled upon the complainant and a pre-signature agreement was also executed offering the complainant a pre-launch opportunity to book plots in an ultra-premium gated plotted development project for a discount price of 980/- per sq. feet in an area where comparable plots are being sold at Rs.2000/- to 2500/- per sq.ft. The complainant appears to have made payment towards two projects one in HIL project and the other in PRK project as described in the complaint. Further allegation in the complaint is that the petitioners with dishonest intention have misappropriated the amount that was paid by the complainant towards booking of the plots. As service fee in the Escrow account that was to be made at the time of delivery of apartments was illegally withdrawn and made use of. In all, the allegation against the petitioners was of misrepresentation, Pinehill owns or has acquired rights of 100 acres of HIL land and are developing flats in the said land and brochures were printed to that effect to lure customers and one such customer was the complainant who has lost his money due to the act of cheating by the petitioners.

5. Pursuant to registration of complaint, crime is registered against the petitioners for the aforesaid offences. On registration of the crime, the petitioners have knocked the doors of this Court in the subject petition and this Court after entertaining the petition granted an interim order of stay of all further proceedings by its order dated 27-11-2020 and the same is in subsistence even as on date. In the light of the interim order being in operation, further investigation in the matter has not gone on.

6. The learned counsel appearing for the petitioners would vehemently argue and contend that all the allegations of the complainant are imaginary, there has been some delay in execution of the project which would not give rise to a criminal liability as is sought to be projected by the complainant. There is neither cheating nor criminal breach of trust, as in terms of the brochure, the complainant on getting interested in the project enters into an agreement which is an escrow agreement and for non-delivery of plots pursuant to an agreement, criminal law cannot be set in motion. The learned counsel would place reliance upon the judgments in the cases of:

"(i) HIRA LAL HARI LAL BHAGWATI v. CBI, NEW DELHI – (2003) 5 SCC 257 [LQ/SC/2003/582] ;

(ii) SANTHOSH CHINNAPPA REDDY & OTHERS v. STATE OF KARNATAKA & ANOTHER – Criminal Petition No.5194 of 2018 decided on 10-11-2021;

(iii) MITESH KUMAR J.SHA v. STATE OF KARNATAKA & OTHERS – 2021 SCC OnLine SC 976 and

(iv) SUSHIL SETHI AND ANOTHER v. STATE OF ARUNACHAL PRADESH AND OTHERS – (2020) 3 SCC 240 [LQ/SC/2020/160] ."

7. On the other hand, the learned senior counsel Sri Reuben Jacob appearing for the 2nd respondent/complainant would vehemently refute the submissions made by the learned counsel for the petitioners to contend that the petitioners are guilty of misappropriation of the property of the complainant. The property he would say is the amount that was given by the complainant towards purchase of apartments. It is on this line the learned senior counsel would submit that it is a criminal breach of trust, as the property/money was handed over to the petitioners by way of trust. The learned senior counsel would further submit that due to misrepresentation of the petitioners that they are constructing such flats and not even one flat is constructed even as on date, the complainant was induced into shelving out huge sums of money and would submit that it is a matter of trial in which the petitioners have to come out clean. The matter is still at the stage of investigation and it is only after the investigation is completed the role and intention of the petitioners would come to light. He would place reliance upon the judgments in the cases of:

(i) INDIAN OIL CORPORATION v. NEPC INDIA LIMITED AND OTHERS – (2006) 6 SCC 736 [LQ/SC/2006/634] ;

(ii) TRISUNS CHEMICAL INDUSTRY v. RAJESH AGARWAL – (1999) 8 SCC 686 [LQ/SC/1999/899] ;

(iii) RAJESH BAJAJ v. STATE NCT OF DELHI AND OTHERS – (1999) 3 SCC 259 [LQ/SC/1999/252] and

(iv) STATE OF M.P. v. AWADH KISHORE GUPTA AND OTHERS – (2004) 1 SCC 691 [LQ/SC/2003/1170] .

8. The afore-narrated facts with regard to genesis of the problem are not in dispute. One Ramachandra Muniraju Venugopal, power of attorney holder of the complainant files the complaint against four companies/accused 1 to 4. The petitioners are office bearers of the companies working in several activities. The allegation of the complainant is that he had invested Rs.2,26,38,000/- during the year 2016 on a plotted development project viz., HIL for about 10 plots and Rs.3,32,32,500/- in an apartment development project named PRK for 6 apartments during the year 2017. The said amounts were deposited in two separate escrow accounts, which according to the parties is to maintain transparency and protection of the amounts so invested. The said investment comes about on account of advertisement made by the petitioners about the purchase projected.

9. The allegation is that at the time of making payment and booking of plots the complainant was made to believe that Pinehill, one of the accused, had acquired rights over 100 acres for HIL project and the company Imperial/accused had acquired rights over 26 acres for PRK project. The complainant alleges that on 27-12-2018 he met the 6th petitioner at the office and at that time it was made known to him that the company had acquired only 50 acres of land for HIL project and was in the process of acquiring additional 50 acres of land and hence the project was not yet completed. It was also made known to him that the company had submitted its plan for approval to Chikkaballapur Planning Authority. It is the further allegation of the complainant that in the year 2019 he had requested the petitioners several times to provide documentary evidence of ownership of land for HIL and PRK projects and the petitioners had failed to do so.

10. The complainant further broaching with regard to the projects taken up by the petitioners comes to know that few of the projects had not yet started by the petitioners contrary to their assurance at the time when money was demanded by them. What triggered registration of the crime is that escrow account that was created and amount deposited in escrow account did contain a component of service charge of 6% of the entire amount that was deposited. The service charge deposited in the escrow account was partly withdrawn by the petitioners as part of their service fee. The moment service fee was withdrawn from escrow account, the complaint is registered by the complainant on the score that the petitioners have not handed over the apartments contrary to their assurance and have used service charge without fulfilling the terms of the agreement and have thus defrauded the complainant. The summary of the complaint as could be gathered from the complaint is as follows:

“27. Complaint Summary Table: As summary and for convenient reference, below table lists the attracted Sections of the Indian Penal Code (“IPC”), the ingredients necessary to constitute the respective offences, the facts which attract said ingredients/offences, and the supporting documents evidencing commission of said offences.

Complaint Summary Table
MSA=Master Services Agreement, POA=Power of Attorney, BA=Plot/Apartment Booking Agreement, SBA=Supplementary Booking Agreement
	IPC	Ingredient	Relevant facts	Supporting documents
1	405. Dishonest misappropriation of property	1. Dishonest misappropriation or conversion for own use of any moveable property.	1. HIL and PRK Event 3: Misappropriation and illegal withdrawal of 6% service fee from HIL and PRK Escrow Accounts by SmartOwner (se Para 23 above)	1. MSA (D37-38) Payment receipt (D2-3) Letters dated 19- 08-2019 to Smart Owner demanding 6% service fee (D17- 20) Legal notices dated 03-02-2020 to SmartOwner demanding 6% service fee (D21-23) Reply from SmartOwner dated 11-02-2020 (D30- 32)
2	405. Criminal breach of trust	Entrustment with property or with any dominion over property. Dishonest disposal of that property in violation of any legal contract, express or implied, which he has made touching the discharge of such trust. Dishonest misappropriation in violation of legal contract.
3	409. Criminal breach of trust by agent	1. Whoever being in any manner entrusted with property, or with

		any dominion over property in the way of his business as a broker or agent, commits criminal breach of trust in respect of that property.
4	415. Cheating	Fraudulent or dishonest inducement of a person by deceiving him. The person so deceived should be induced to deliver any property or To do or omit to do anything which he would not do or omit but for such deception and such act or omission causes or is likely to cause damage or harm to the property.	HIL and PRK Event 1: 1. Misrepresentation that Pinehill owns or has acquired rights to 100 acres of HIL Land.(see para 15 above) 2. Misrepresentation that HIL Project and Plots are being developed by one of the major developers of Bangalore. (See Para 16 above) 3. Misrepresentation that Imperial owns or has acquired rights to 26 acres of PRK Land. (see Para 15 above) 4. Misrepresentation that PRK Project and Apartments are being developed by a major grade A developer with an excellent track record of residential and commercial	1. Brochures (D4-8) 2. BA (D41-56) 3. Email declining to provide land and developerdocuments (D10)
5.	420. Cheating and dishonestly inducing delivery of property	Cheating and thereby dishonestly inducing person deceived to deliver any property or To alter or destroy the whole or part of a valuable security.

			projects. (see Para 17 above)
6	422. Dishonestly or fraudulently preventing debt being available for creditors	1. Dishonestly or fraudulently prevents any debt or demand due to himself or to any other person from being made available according to the law for payment of his debts or the debts of such other person.	1. HIL and PRK Event 2: SmartOwner, Smart Assets, Pinehill and Imperial have dishonestly and fraudulently abused POA to execute supplementary booking agreements to prevent the demand for refund by Kamal Kumar of consideration paid + 24% interest per section 3.1 of PBA from being made on Pinehill and Imperial. (see Para 20-22 above)	1. MSA s (D37-38) 2. POA s (D39-40) 3. BAs (D21-36) Letters dated 19- 08-2019 (D17-20) Legal notices dated 03-02-2020 (D21-23) Replies dated 11- 02-2020 (D24-26) Legal notices dated 29-02-2020 (D27-29) Replies dated 11- 03-2020 (D30-32) 9. SBAs (D11-13). 10.Repudiation notices dated 08- 04-2020 (D33-34) Replies dated 14-05-2020 (D35- 36) SmartOwner Control Panel screenshot showing SBA non-disclosure (D14) Emails showing SBA non-disclosure (D15-D16)
7	425. Mischief	Intention to cause or knowing that he is likely to cause wrongful loss or damage to any person. Causes destruction of any property or any such change in any property or in the situation thereof as destroys or diminishes its value or utility or affects it injuriously.	1. HIL and PRK Event 2: Smart Asset, SmarOwner, and Diana Mathew executed the supplementary booking agreements with a clear intention to cause or knowing that it will cause wrongful loss to Kamal Kumar and thereby brought about a change in the situation regarding the rights pertaining to the HIL Plots and PRK Apartments,

			injuriously affecting the Kamal Kumar’s right of recovery of consideration paid with 24% per annum interest. (see Para 20-22 above)
8	463. Forgery	Makes a false document With intention to cause damage or injury to any person or that fraud may be committed. 3.464: a person is said to make a false document who dishonestly or fraudulently makes, signs or executes a document with the intention of causing it to be believed that such document was made, signed, or executed by the authority of a person by whose authority he knows it was not made, signed, or executed.	1. HIL and PRK Event 2: The supplementary booking agreements are false documents, which have been executed by Diana Mathew dishonestly and fraudulently with an intention of causing it to be believed that the same has been executed under due authority from Kamal Kumar, when she knew that Kamal Kumar had neither given such authority under the POA nor had been informed nor had consentd to such execution. The supplementary booking agreements were executed with an intention to cause injury to Kamal Kumar. (see Para 20-22 above)
9	471. Using as genuine a forged	1. fraudulently or dishonestly using	1. HIL and PRK Event 2:

	document or electronic record	as genuine any document which he knows or has reason to believe to be a forged document.	Though SmartOwner, Smart Asset and Diana Mathew know that supplementary booking agreement is a forged document, they are using the same to defeat the rights of Kamal Kumar and to deny his lawful claim fraudulently and dishonestly. (see Para 20-22 above)
10	34. Acts done by several persons in furtherance of common intention	1. Acts done by several persons in furtherance of common intention. – When a criminal act is done by several persons in furtherance of the common intention of all, each of such persons is liable for that act in the same manner as if it were done by him alone.	1. HIL and PRK Event 1-3: Diana Mathew, Vikram Chari, Meenu Agarwal, Abhishek Singhvi, Narendra Numbudumada Subbaiah, AnandSitaraman Nitin, Mansi Sharma, and Jaya Nair have collectively by their acts and omissions (a) induced Kamal Kumar to invest in HIL and PRK and (b) executed supplementary booking	List of Dirctors of SmarOwner, Smart Assest, Pinehill, and Imperial – past and present (D9) Documents listed above for each offence.
11	109. Abetment	1. A person abets the doing of a thing, who-First- Instigates any person to do that	Agreements for HIL and PRK. Both (a) and (b) are illegal as they constitute offences,

		thing; or Secondly Engages with one or more other person or persons in any conspiracy for the doing of that thing, if an act or illegal omission takes place in pursuance of that conspiracy, and in order to the doing of that thing; or Thirdly. Intentionally aids, by any act or illegal omission, the doing of that thing.	which together with their reasons, are listed above in this table and all the aforesaid individuals together or at various points in time in combinations of two or more have committed the aforesaid illegal acts. (see Para 20 above)
12	120A. Criminal conspiracy	1. Two or more persons agreeing to do or cause to be done an illegal act or a legal act by illegal means.

In terms of the aforesaid summary of the complaint what can be unmistakably gathered is the entire narration in the complaint or the summary (supra) arises out of agreement between the parties. The allegation is for offences punishable under Sections 403, 405, 406, 409, 415, 420, 422, 425, 463, 471, 109 and 120B of the IPC. Section 403 deals with dishonest misappropriation of property. Whoever dishonestly misappropriates or converts to his own use any movable property becomes liable for punishment. The contention of the complainant is misappropriation and illegal withdrawal of 6% of the service fee from the escrow account. It is in this light the aforesaid provision of law is invoked by the complainant.

11. It is not in dispute that withdrawal of service charge was also a part of the agreement. The amount invested by the petitioners still lies in the escrow account. It is only service fee that is withdrawn for day to-day operation of the petitioners that too in terms of the agreement. Section 406 of the IPC deals with criminal breach of trust, ingredients of which are found in Section 405 of the IPC and reads as follows:

“405. Criminal breach of trust.—Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that 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 “criminal breach of trust”.

Explanation 1 — A person, being an employer 3 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 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, 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 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, shall be deemed to have dishonestly used the amount of the said contribution in violation of a direction of law as aforesaid.”

Section 405 of the IPC mandates that whoever entrusted with the property, dishonestly misappropriates or converts it to his own use, would become punishable under Section 406 of the IPC for criminal breach of trust. Here again, the service charge that the petitioners would in a way be entitled to in terms of the agreement is utilized by them.

12. The other allegation is Section 409 of the IPC. Section 409 of the IPC deals with criminal breach of trust by a public servant or agent. Even this provision cannot be invoked in the light of the reason as to why Sections 403 and 406 of the IPC could not be invoked. The allegation is cheating under Section 420 of the IPC. To drive home the offence of cheating under Section 420 of the IPC, the ingredients of Section 415 of the IPC will have to be satisfied. Section 415 of the IPC reads as follows:

“415. Cheating.—Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.

Explanation.—A dishonest concealment of facts is a deception within the meaning of this section.”

Whoever by deceiving any person fraudulently or dishonestly induces the person to deliver any property to the accused, the victim is said to have cheated. Therefore, the soul of the person is dishonest intention from the inception of the transaction.

13. The complainant herein, on going through the brochure and other details with regard to the projects that the petitioners proposed to start, invested money with eyes wide open, pursuant to an agreement being entered into between the parties. The foundation of allegation of cheating is made in the complaint only on the ground that the petitioners had misrepresented that they would acquire 100 acres of land and had acquired only 50 acres of land and had not procured any land for PRK project and were still in the process of acquisition of these lands. However, the complainant had entered into the agreement with the developer company for delivery of flats once it is completed. Therefore, no dishonest intention right from the beginning of the transaction or inducement by the petitioners upon the complainant could be made out in the transaction between the parties. All other allegations which touch upon cheating would all be rendered unsustainable in the light of the aforesaid reason that the entire transaction between the parties arise out of an agreement entered into for delivery of flat.

14. Section 463 of the IPC which deals with forgery is invoked, on an imaginary plea that supplementary booking agreements are false documents. It is an agreement that is entered into between the parties and the complainant or his power of attorney holder is a signatory to the said agreement. Having signed the agreement it would not lie with the complainant to allege that it was forged. Section 463 of the IPC dealing with forgery mandates that whoever creates false documents with intent to cause damage becomes liable for forgery. The agreement entered into between the parties either the main agreement or the supplemental booking agreement cannot be held to be a forged document. Section 471 of the IPC that is alleged also would be unsustainable for the reason that it is an agreement. If invocation of any provision of law afore- quoted is uninvokable, there can be no question of Section 109 of the IPC being alleged, as Section 109 of the IPC deals with abetment to a crime. In view of the afore-quoted analysis, the action arising out of an agreement cannot be held to be a crime and the question of abetment or criminal conspiracy under Section 120A of the IPC would not arise.

15. The other allegations made are concerning Sections 66C and 66D of the Information Technology Act, 2000. Sections 66C and 66D also deal with communication made electronically to cheat by impersonating somebody else. There can be no cheating in law of a project forwarded by way of mail to the complainant with an intention to cheat. If cheating under Section 420 of the IPC cannot be driven home, Sections 66C and 66D can hardly be invoked. Therefore, none of the provisions of law are invokable in the case at hand. In the light of entire allegations made against the petitioners arise of contract between the parties or breach of agreement between the parties, whether the breach of agreement between the parties can give rise to cause of action for setting criminal law in motion is no longer res integra as the Apex Court in the case of SUSHIL SETHI 2020) 3 SCC 240 (supra) holds as follows:-

“8.1. As observed hereinabove, the charge- sheet has been filed against the appellants for the offences under Section 420 read with Section 120- B IPC. However, it is required to be noted that there are no specific allegations and averments in the FIR and/or even in the charge-sheet that fraudulent and dishonest intention of the accused was from the very beginning of the transaction. It is also required to be noted that contract between M/s SPML Infra Limited and the Government was for supply and commissioning of the Nurang Hydel Power Project including three power generating units. The appellants purchased the turbines for the project from another manufacturer. The company used the said turbines in the power project. The contract was in the year 1993. Thereafter in the year 1996 the project was commissioned. In the year 1997, the Department of Power issued a certificate certifying satisfaction over the execution of the project. Even the defect liability period ended/expired in January 1998. In the year 2000, there was some defect found with respect to three turbines. Immediately, the turbines were replaced. The power project started functioning right from the very beginning—1996 onwards. If the intention of the company/appellants was to cheat the Government of Arunachal Pradesh, they would not have replaced the turbines which were found to be defective. In any case, there are no specific allegations and averments in the complaint that the accused had fraudulent or dishonest intention at the time of entering into the contract. Therefore, applying the law laid down by this Court in the aforesaid decisions, it cannot be said that even a prima facie case for the offence under Section 420 IPC has been made out.”

(Emphasis supplied)

Later, the Apex Court in the case of MITESH KUMAR J.SHA 2021 SCC OnLine SC 976 (supra) holds as follows:

“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 under section 405 of the Penal Code, 1860, 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 Penal Code, 1860, 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 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.

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, 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 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 flats by making payment of Rs. 40,00,000/- for each flat.

31. The key contention, and also the central point of dispute, made 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, which would have formally authorised the Appellants to sell additional apartments.

…. …. …. ….

Whether sale of excess flats even if made amounts to a mere breach of contract

39. This Court in the case of Hridaya Ranjan Prasad Verma v. State of Bihar6, has observed:—

“15. ….that the distinction between mere breach of contract 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 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…”

(Emphasis supplied)

The Apex Court in the case of VIJAY KUMAR GHAI v. STATE OF WEST BENGAL (2022) SCC Online SC 344 has held as follows:

“46. This Court in G. Sagar Suri v. State of UP21 observed that it is the duty and obligation of the criminal court to exercise a great deal of caution in issuing the process, particularly when matters are essentially of civil nature.

47. This Court has time and again cautioned about converting purely civil disputes into criminal cases. This Court in Indian Oil Corporation (Supra) noticed the prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. The Court further observed that:—

“13. …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.”

48. At the outset, Respondent No. 2/Complainant alleged that the Appellants were responsible for the offence punishable under Section 420, 405, 406, 120B IPC. Therefore, it is also imperative to examine the ingredients of the said offences and whether the allegations made in the complaint, read on their face, attract those offences under the Penal Code.

49. Section 405 of IPC defines Criminal Breach of Trust which reads as under:—

“405. Criminal breach of trust.— Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that 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 “criminal breach of trust”.

50. The essential ingredients of the offense of criminal breach of trust are:—

(1) The accused must be entrusted with the property or with dominion over it,

(2) The person so entrusted must use that property, or;

(3) The accused must dishonestly use or dispose of that property or wilfully suffer any other person to do so in violation,

(a) of any direction of law prescribing the mode in which such trust is to be discharged, or;

(b) of any legal contract made touching the discharge of such trust.

51. “Entrustment” of property under Section

405 of the Penal Code, 1860 is pivotal to constitute an offence under this. The words used are, ‘in any manner entrusted with property’. So, it extends to entrustments of all kinds whether to clerks, servants, business partners or other persons, provided they are holding a position of ‘trust’. A person who dishonestly misappropriates property entrusted to them contrary to the terms of an obligation imposed is liable for a criminal breach of trust and is punished under Section 406 of the Penal Code.

52. The definition in the section does not restrict the property to movables or immoveable alone. This Court in R K Dalmia v. Delhi Administration22 held that the word ‘property’ is used in the Code in a much wider sense than the expression ‘moveable property’. There is no good reason to restrict the meaning of the word ‘property’ to moveable property only when it is used without any qualification in Section 405.

53. In Sudhir Shantilal Mehta v. CBI23 it was observed that the act of criminal breach of trust would, Interalia mean using or disposing of the property by a person who is entrusted with or has otherwise dominion thereover. Such an act must not only be done dishonestly but also in violation of any direction of law or any contract express or implied relating to carrying out the trust.

54. Section 415 of IPC define cheating which reads as under:—

“415. Cheating.—Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.”

55. The essential ingredients of the offense of cheating are:

1. Deception of any person

2. (a) Fraudulently or dishonestly inducing that person-

(i) to deliver any property to any person :

or

(ii) to consent that any person shall retain any property; or

(b) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were no so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property.

56. A fraudulent or dishonest inducement is an essential ingredient of the offence. A person who dishonestly induces another person to deliver any property is liable for the offence of cheating.

57. Section 420 IPC defines cheating and dishonestly inducing delivery of property which reads as under:—

“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 with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”

58. Section 420 IPC is a serious form of cheating that includes inducement (to lead or move someone to happen) in terms of delivery of property as well as valuable securities. This section is also applicable to matters where the destruction of the property is caused by the way of cheating or inducement. Punishment for cheating is provided under this section which may extend to 7 years and also makes the person liable to fine.

59. To establish the offence of Cheating in inducing the delivery of property, the following ingredients need to be proved:—

1. The representation made by the person was false

2. The accused had prior knowledge that the representation he made was false.

3. The accused made false representation with dishonest intention in order to deceive the person to whom it was made.

4. The act where the accused induced the person to deliver the property or to perform or to abstain from any act which the person would have not done or had otherwise committed.

… … … …

62. There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. However, as held by this court in Hridaya Ranjan Prasad Verma v. State of Bihar26, the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one. While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by the Respondent No. 2 does not disclose dishonest or fraudulent intention of the appellants.

63. In Vesa Holdings Pvt. Ltd. v. State of Kerala27, this Court made the following observation:—

“13. It is true that a given set of facts may make out a civil wrong as also a criminal offence and only because a civil remedy may be available to the complainant that itself cannot be ground to quash a criminal proceeding. The real test is whether the allegations in the complaint disclose the criminal offence of cheating or not. In the present case, there is nothing to show that at the very inception there was any inception on behalf of an accused person to cheat which is a condition precedent for an offence u/s 420 IPC. In our view, the complaint does not disclose any criminal offence at all. Criminal proceedings should not be encouraged when it is found to be mala fide or otherwise an abuse of the process of the courts. Superior courts while exercising this power should also strive to serve the ends of justice. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse of the process of the court and the High Court committed an error in refusing to exercise the power under Section 482 Cr.P.C to quash the proceedings.”

64. Having gone through the complaint/FIR and even the chargesheet, it cannot be said that the averments in the FIR and the allegations in the complaint against the appellant constitute an offence under Section 405 & 420 Penal Code, 1860. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making promise being absent, no offence under Section 420 IPC can be said to have been made out. In the instant case, there is no material to indicate that Appellants had any malafide intention against the Respondent which is clearly deductible from the MOU dated 20.08.2009 arrived between the parties.

… … … …

72. The order of the High Court is seriously flawed due to the fact that in its interim order dated 24.03.2017, it was observed that the contentions put forth by the Appellant vis-à-vis two complaints being filed on the same cause of action at different places but the impugned order overlooks the said aspect and there was no finding on that issue. At the same time, in order to attract the ingredients of Section of 406 and 420 IPC it is imperative on the part of the complainant to prima facie establish that there was an intention on part of the petitioner and/or others to cheat and/or to defraud the complainant right from the inception. Furthermore it has to be prima facie established that due to such alleged act of cheating the complainant (Respondent No. 2 herein) had suffered a wrongful loss and the same had resulted in wrongful gain for the accused(appellant herein). In absence of these elements, no proceeding is permissible in the eyes of law with regard to the commission of the offence punishable u/s 420 IPC. It is apparent that the complaint was lodged at a very belated stage (as the entire transaction took place from January 2008 to August 2009, yet the complaint has been filed in March 2013 i.e., after a delay of almost 4 years) with the objective of causing harassment to the petitioner and is bereft of any truth whatsoever.”

(Emphasis supplied)

The Apex Court in the case of VIJAY KUMAR GHAI (supra) after considering the entire spectrum of law with regard to inter-play between breach of an agreement and criminal breach of trust or cheating and holds that breach of an agreement or recovery of money on such breach of agreement, the criminal law cannot be set into motion, as it would be giving predominantly civil proceeding, a colour of crime.

16. If the facts obtaining in the case at hand qua the judgments rendered by the Apex Court are noticed, it would become unmistakably clear that usage of service charge by the petitioners that too in terms of the agreement cannot become a subject matter of crime for the offences so alleged. The entire demand of the complainant, as could be gathered from communications made to the petitioners is, demand for refund of 6% service fee as per Clause 6 of the Master Services Agreement dated 23-08-2016. The Master Services Agreement that was entered into between the petitioners and the complainant clearly indicates usage of service charge by the petitioners. Clauses 2 and 6 of the Master Services Agreement read as follows:

…. …. …. ….

“2. SERVICES

The services to be provided by the Company may include: (i) facilitating transactions with respect to the Property; (ii) identifying buyers for the Property at an appropriate time for resale and facilitating the negotiation of an appropriate resale price with them; (iii) facilitating the creation and operation of suitable escrow accounts to ensure transparency; (iv) establishing an information technology enabled platform to facilitate purchase and resale of the Property; and (v) in order to secure the interest of the Client, providing such other services that are incidental and ancillary to the Services including, without limitation, obtaining on behalf of the Client (through third parties), title or lien over the land on which the Property is constructed or over any other property owned or made available by the seller or developer (“Developer”) of the Property. For avoidance of doubt, it is made clear that the Company shall not transact, buy or sell the Property in its own behalf, but only facilitate the same for the Client. To facilitate speedy redressal, the Client specifically empowers, authorises, nominates and appoints the Company or its nominees to act as his agent or on his behalf in the event that the Client has any dispute with the Developer.

…. …. …. ….

6. FEES AND TERMS OF PAYMENT

In consideration of the Services to be provided hereunder, the Client shall pay to the Company a service fee of 6% (six percent) of the amount paid by the Client at the time of purchase of the Property. The Fee shall be exclusive of any and all taxes, including service tax, which shall be borne by the Client. The Client agrees that the Fee shall be directly withdrawn by the company from the escrow account at the time of the Client’s purchase, details whereof will be provided to the Client.”

(Emphasis added)

Clause 6 which deals with ‘fees and terms of payment’ empowers the petitioners of an agreement by the complainant that the fee shall be directly withdrawn by the company from the escrow account at the time of client’s purchase. The amount so withdrawn by the petitioners even if it were to be earlier to the client’s purchase, it would not give a cause of action to the complainant to set the criminal law in motion. The agreement also speaks of resolution of the dispute between the parties by way of arbitration in terms of clause 5.7.

17. All these would clearly show that it is an agreement between the parties for a particular transaction and breach of such agreement cannot be made use of to set criminal law in motion. Insofar as judgments relied on by the learned senior counsel representing the 2nd respondent are concerned, they are distinguishable on facts obtaining in those cases at hand without much ado. The Apex Court in the case of INDIAN OIL CORPORATION (supra) clearly holds that if it is breach of contract, criminal law cannot be set in motion where the finding is, ingredients of mischief or criminal breach of trust were clearly made out. The Apex Court in the case of RAJESH BAJAJ (supra) also held that merely because it is a criminal transaction the offence of cheating cannot be given up if the ingredients of dishonest intention or fraudulent intention are clearly made out.

18. In the light of the reasons rendered hereinabove, it cannot be said that there was any dishonest or fraudulent intention on the part of the petitioners. Other judgments relied on by the learned senior counsel for the complainant in the case of AWADH KISHORE GUPTA or RAJESH AGARWAL (supra) were all judgments on facts of those cases and at that relevant point in time. The law laid down by the Apex Court in the later cases either by Benches of equal strength or larger Benches would become applicable to the facts of the case at hand. Therefore, in the teeth of the afore-narrated facts and the law laid down by the Apex Court in the cases of MITESH KUMAR J. SHA, SUSHIL SETHI AND VIJAY KUMAR GHAI (supra), permitting further proceedings to go on against the petitioners would become an abuse of the process of law and result in miscarriage of justice. However, the obliteration of proceedings against the petitioners will not preclude the complainant to initiate such civil proceedings in accordance with law.

19. For the aforesaid reasons, I pass the following:

O R D E R

(i) The Criminal Petition is allowed and the proceedings in Crime No.214 of 2020 pending before the Additional Chief Judicial Magistrate, Bangalore Rural stand quashed.

(ii) It is made clear that the observations made in the course of this order are only for the purpose of consideration of the case at hand under Section 482 of the Cr.P.C. This would not become an impediment for the complainant to initiate any such proceedings available in accordance with law, at which point in time the observations made hereinabove would not influence or bind those proceedings.

I.A.No.1/2021 stands disposed, as a consequence.