Introduction
In the case of Shiv Kumar v. State of NCT of Delhi[i], the High Court of Delhi (‘Court’) examined a petition filed by Shiv Kumar (‘Petitioner’) seeking to quash a first information report (‘FIR’) lodged by Shivraj Krishna Gupta (‘Complainant’). The FIR accused the Petitioner of fraudulently inducing the Complainant to invest in a villa project and subsequently misappropriating the funds, leading to significant financial loss. The Court’s analysis focused on the critical legal issues of whether the dispute involved claims of cheating or criminal breach of trust under ss. 406, 420 read with s. 120B of the Indian Penal Code, 1860 (‘IPC’), was inherently a civil matter related to loan transactions rather than a criminal offence. The Court ultimately concluded that the FIR and related proceedings were an abuse of the criminal justice system intended to harass the Petitioner amidst ongoing civil proceedings.
Brief Facts
The Petitioner, the director of M/s Leading Hotels Limited (‘Company’), initiated a prestigious Golf Resort Villa project in Goa. The Company obtained various statutory approvals from multiple authorities.
The Petitioner, in this case, is accused of fraudulently inducing the Complainant to invest in the villa project by making false representations. He has also misappropriated funds he invested, leading to a substantial financial loss to the Complainant.
The Complainant filed an FIR with the Economic Offences Wing of Delhi Police, alleging that the Petitioners had committed offences under ss. 406/420 r/w 120B of the IPC. Subsequently, the chargesheet was also filed.
This case pertains to a petition filed by the Petitioner under s. 482 of the Code of Criminal Procedure, 1973 (‘CrPC’) seeking quashing of FIR, which the Complainant filed under ss. 406/420 r/w 120B of the IPC.
Allegations by the Complainant
In 2015, Mr. Girish Sareen, acting on behalf of the Petitioner, induced the Complainant to invest in a luxurious Golf Resort villa project in Goa, claiming it was in collaboration with Four Seasons and backed by Asian Hotels (North) Ltd and was safe to invest in.
The Complainant was assured that the project had all necessary licenses and permissions, leading him to pay a significant amount towards the villa’s sale consideration.
In 2017, Mr. Girish approached the Complainant for additional funds due to a claimed shortage, promising faster completion of the villa. The Complainant provided a substantial amount as an inter-corporate deposit.
The Complainant later discovered that construction was stopped due to ongoing litigation before the National Green Tribunal and that the project was not progressing as promised.
To gain further confidence, the Petitioners issued cheques as security and part-period interest cheques, which were later dishonoured with remarks such as ‘payment stopped/ account closed’.
The Petitioners were accused of cheating, criminal breach of trust, and misappropriation of funds, knowing that the land was under litigation and employing a strategy to control their parent company through overseas entities to protect personal assets from being attached in India.
Submissions by the Petitioner
The Petitioner submitted that the transaction was purely a loan transaction and not a villa purchase transaction, as interest was paid on a timely basis, and the Petitioner issued the cheques for the security of the principal amount.
The Petitioner highlighted that the Complainant had initiated proceedings under s. 138 of the Negotiable Instruments Act, wherein the High Court of Punjab and Haryana stayed the proceedings against the Petitioner. Additionally, the Complainant had submitted claims in the corporate insolvency resolution process (‘CIRP’) before the National Company Law Tribunal (‘NCLT’), and the same was accepted. These crucial facts were suppressed in the FIR.
The Petitioner argued that the FIR was filed with malicious intent, omitting crucial details that would clarify there was no wrongful inducement, as they always acted in good faith. The Petitioner contended that the FIR aimed to wrongfully criminalize a purely civil and contractual dispute to coerce the Petitioner into repaying amounts related to a company under insolvency. The complaint was seen as an abuse of the criminal justice system to resolve a civil matter.
Observations of the Court
The Court noted the dispute pertained to loan transactions, typically of a civil nature, and the FIR was lodged after seven years, suggesting misuse of the criminal justice system.
The Court observed a trend of filing frivolous FIRs for civil disputes to harass the accused, highlighting the importance of distinguishing between civil and criminal matters.
The Court observed that payments were made regularly between 2015-2020, indicating no intent to cheat. Interest payments further supported the argument that it was a loan transaction. Issuing post-dated cheques as security for the loan and making interest payments until 2019 indicated the transaction was a loan rather than a property sale.
The Complainant was recognized as a financial creditor (‘FC’) in the CIRP, indicating a civil dispute. The Court viewed filing the FIR during ongoing civil proceedings as an abuse of law.
The Court also observed various communications from the Complainant and found that the communication was never made to know the progress of the project.
The Court dismissed the Complainant’s argument about the petition not being amended to quash the chargesheet, stating that quashing the FIR would nullify subsequent proceedings.
The Court observed that the FIR was filed to harass the Petitioner after they filed complaints under the Negotiable Instruments Act and initiated NCLT proceedings. Therefore, the Court concluded that the FIR and all proceedings emanating from it should be quashed, as they constituted an abuse of the process of law.
Conclusion
The Court rightly held that the FIR and all subsequent proceedings should be quashed, recognising that the dispute was inherently civil in nature, involving a loan transaction rather than criminal misconduct. The filing of the FIR during ongoing civil proceedings and the Complainant’s status as an FC in the CIRP further proved the civil nature of the dispute.
End Note
[i] 2023 TAXSCAN (HC) 1063, CRL. M.C. 1537/2023, CRL.M.A. 5860/2023
Authored by Nitish Solanki, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.