The Supreme Court has clarified that a contractual dispute arising from a breach of a commercial agreement, such as a Joint Venture Agreement, is fundamentally civil in nature. Thus, no criminal proceedings should be initiated for such disputes, especially when the contract itself provides for civil remedies like indemnification and adjustment of funds.
To establish the criminal offense of cheating under Section 420 of the IPC in a contractual matter, the Court said it is essential to prove that a false representation was made dishonestly and fraudulently at the very inception of the contract. Hence, where the agreement does not contain the alleged false representation and instead includes clauses like indemnity, the element of initial dishonest intent is negated.
The Apex Court emphasized that an inordinate and unexplained delay in filing an FIR concerning a contractual dispute is a crucial factor that indicates the dispute is of a civil nature and that the criminal proceedings are an abuse of the process of law. The absence of prompt reporting suggests a lack of initial dishonest intention, which is a key ingredient for offenses like cheating.
When assessing a petition to quash an FIR, particularly in cases arising from contractual disputes, a court should not confine its analysis to the FIR’s contents alone, rather, it is empowered to consider admitted and undisputed documents, such as the underlying contract, to determine the true nature of the dispute and prevent the abuse of the criminal justice system for settling civil scores, added the Court.
A Two-Judge Bench comprising Justice Pamidighantam Sri Narasimha and Justice Manoj Misra observed that while considering a prayer to quash an FIR, the court must assess whether a dispute that is essentially civil in nature has been given the ‘cloak of a criminal offence’ and whether allowing the proceedings to continue would be an abuse of the process of law. In making this assessment, the court can look beyond the FIR to admitted documents like the JVA.
Upon examining the JVA, the Bnech noted that there was no specific representation by the appellants that no litigation was pending concerning the property. Instead, the appellants had assured that there was no restraint order from any court preventing them from entering into the JVA and had agreed to indemnify the second party regarding the marketability of the title. The allegation of false representation was therefore deemed unfounded.
Regarding the allegation of criminal breach of trust for non-refund of the security money, the Bench observed that Clause 5 of the JVA stipulated that the amount was non-refundable and was to be adjusted from the first party’s share of the sale proceeds. Therefore, its non-refund could at best give rise to a civil cause of action, not a criminal offense.
On the allegation of forgery, the complainant pointed to a letter from a Tehsildar which was reportedly untraceable in official records. The Bench therefore opined that a document cannot be considered forged merely because it is not traceable after 10 or 11 years, as such records may not be maintained in perpetuity. For an offense of forgery, it must be established that the document is a ‘false document’ within the meaning of Section 464 of the IPC, which was not alleged.
Lastly, the Bench placed significant weight on the 11-year delay between the signing of the JVA in 2010 and the lodging of the FIR in 2021. This delay, coupled with the absence of any prompt action, strongly indicated that the dispute was of a civil nature and that there was no dishonest intention on the part of the appellants from the inception of the agreement. The Bench concluded that the High Court had erred by not carefully examining the FIR and the JVA to determine if a cognizable offense was made out.
Briefly, the appellants and Respondent No. 2 entered into a Joint Venture Agreement (JVA) for the development of a plot of land in Kanpur. Under the JVA, the appellants’ contribution was the land, valued at INR 2.5 Crores, while the second party was to construct residential units at its own cost, with both parties holding a 50% share in the project. The JVA required the second party to provide INR 1 Crore as security money, which was to be adjusted from the first party’s share of the sale proceeds of the constructed flats. The JVA also contained an arbitration clause for the resolution of any disputes.
The project did not materialize, leading to disputes between the parties. Consequently, nearly 11 years after the JVA was signed, the second respondent lodged an FIR against the appellants under Sections 406 (criminal breach of trust), 420 (cheating), 467, 468, and 471 (forgery) of the Indian Penal Code, 1860. The FIR alleged that the appellants failed to hand over possession of the land despite receiving the security money, did not return the advance, falsely represented that the land was free from litigation, and used forged documents to deceive the complainant. The appellants challenged the FIR before the High Court, arguing that the dispute was purely civil, their title was clear, and there was no misrepresentation.
Appearances:
Senior Advocate Pradeep Kant, AOR E.C. Agrawala, along with Advocates Divyanshu Sahay, Shradha Narayan, Nitya Aggarwal, and Shubham Kumar, for the Appellant
AORs Shaurya Sahay and Devvrat, along with Advocates Aditya Kumar, Shweta Yadav, Devesh Kumar Agnihotri, Swati Setia, and Pabitra Pal Chowdhury, for the Respondent
