Introduction
The Hon’ble Supreme Court of India delivered a landmark ruling in the case of Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr.[i], examining the scope of inquiry under s. 202 of the Code of Criminal Procedure, 1973 (‘CrPC’), now s. 225 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS). The Court reaffirmed the well-established principles of Indian criminal law, stating that a prima facie case must exist to initiate criminal proceedings, demonstrating both actus reus (guilty act) and mens rea (guilty mind). The Court emphasised that criminal law should not be invoked without careful consideration. It highlighted that charging both criminal breach of trust and cheating – inherently contradictory offences – reflects a failure to apply the necessary legal scrutiny when initiating criminal proceedings.
Brief Facts
The complainant filed a complaint against the appellants, alleging offences under ss. 406, 420, and 120B of the Indian Penal Code, 1860 (‘IPC’), now correspond to ss. 316(2), 318(4), and 61(2) of the Bharatiya Nyaya Sanhita, 2023 (BNS), respectively. The complainant’s firm had supplied horse feed, barley, and oats to Delhi Race Club (1940) Ltd. since 1990. In 1995, the complainant was instructed to issue future bills in the name of the Delhi Horse Trainers Association (‘DHTA’).
Until 2017, the DHTA paid these bills regularly, but subsequent bills amounting to Rs. 9,11,434 remained unpaid. The complainant claimed that the DHTA’s office bearers had cheated them by dishonestly obtaining goods in bad faith. Despite sending a legal notice, the appellants neither responded nor paid the outstanding amount.
The trial court initially took cognizance of the complaint but ordered an inquiry under s. 202 of the CrPC. The magistrate recorded the statements of two witnesses, after which summonses were issued for the offence under s. 406 of the IPC, leading to a trial.
The appellants sought relief by invoking the inherent powers of the High Court under s. 482 of the CrPC, which is now s. 528 of the BNSS. The Allahabad High Court rejected this application, finding prima facie that the accused company’s intention to withhold payment was mala fide. Aggrieved by this decision, the accused appealed to the Supreme Court.
Held
The Supreme Court set aside the orders of the lower courts, concluding that the nature of the dispute was civil, not criminal. The Court held that the summoning of an accused in a criminal case is a serious matter and must not be done mechanically. The scope of inquiry under s. 202 of the CrPC was examined by the Court, and it was reiterated that at the stage of the issuing process, the primary objective is to assess whether sufficient grounds exist to proceed. It was emphasised that the inquiry under s. 202 is limited to verifying the truthfulness of the allegations in the complaint and does not extend to a detailed examination of the case’s merits. Notably, the accused has no right to be heard at this stage.
The Court criticised the High Court’s order as an example of a lack of application of mind, emphasising that the inherent jurisdiction of the High Court under s. 482 should be exercised sparingly. The Court further noted that criminal liability, particularly for corporate office bearers, requires direct allegations against the specific actions of those individuals and is not vicarious unless expressly provided by law.
In its analysis, the Court differentiated between the ingredients of criminal breach of trust and cheating, noting that these two offences cannot coexist in the same set of facts due to their contradictory nature. The Supreme Court clarified that cheating involves deceiving someone to induce them to deliver property or take any action that they would not have taken otherwise, resulting in wrongful gain or loss. The crux lies in the dishonest or fraudulent intent at the very outset. On the other hand, criminal breach of trust revolved around the accused being entrusted with property or dominion over it and then dishonestly misappropriating or converting it to their own use. Here, the key aspect was the breach of the trust reposed by the victim, which typically arises after possession is obtained lawfully.
The Court concluded that even if the allegations were true, they did not amount to an offence under s. 406 of the IPC, and that mere non-payment of a debt does not automatically translate into criminal liability for breach of trust or cheating. It was observed that the dispute was fundamentally civil, and the complainants had not pursued a civil suit for recovery within the limitation period. Thus, continuing with the criminal proceedings would abuse the legal process.
Our Analysis
This case is a landmark decision with significant implications for criminal jurisprudence in India. The Court emphasised the necessity for proper legal scrutiny in criminal investigations and inquiries, cautioning that neglecting this can result in severe consequences. The ruling reinforces the principle that criminal investigations are not mere formalities but require a thorough examination of the facts and the applicable law. It also highlights that the High Court’s inherent supervisory powers must be exercised with discretion and caution.
In today’s context, where civil or contractual disputes are frequently mischaracterised as criminal offences, this Supreme Court judgment is timely and essential. It clearly differentiates between criminal breach of trust and cheating – two offences that have increasingly been used interchangeably. Notably, the Supreme Court highlighted the sequence of actions as a decisive factor: cheating involves a fraudulent act from the outset. At the same time, a criminal breach of trust begins with lawful possession that is later breached through dishonest actions. The Court also admonished the police for often mixing these two distinct offences, leading to wrongful implications and misdirection in criminal proceedings. The police were specifically advised to determine whether the accused’s intent was fraudulent from the start (indicative of cheating) or if the breach of trust occurred after establishing a fiduciary relationship.
The Court’s distinction between civil and criminal liability is crucial in preventing the misuse of criminal law in disputes that are fundamentally civil. Although the Court acknowledged that a civil injury had occurred, it found no evidence of mala fide intent. The non-payment for goods supplied remains a valid issue, but the complainants missed the opportunity to file a civil suit due to the lapse of the limitation period. The Supreme Court did not suggest that the complainants had lost all avenues for remedy, only that criminal law should not be used to resolve what is essentially a civil dispute. It is equally vital for the courts to ensure that criminal law does not serve as a shield for wrongdoers simply because their intent was not clearly established as criminal.
End Note
[i]2024 SCC OnLine SC 2248.
Authored by Shivangi Bhardwaj, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.
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