The Supreme Court partially allowed a special leave petition by M/s Shikhar Chemicals, setting aside an order of the Allahabad High Court which had refused to quash criminal proceedings arising from a trade dispute, and issued unprecedented directions withdrawing all criminal case assignments from the High Court judge concerned.
The litigation arose from a criminal complaint by a yarn supplier over alleged non-payment of trade dues after the sale of goods to the petitioner. The supplier’s complaint argued that the unpaid balance and accrued interest, with failed attempts at civil recovery and GST department notices, amounted to cheating and criminal breach of trust.
The Additional Chief Judicial Magistrate, Kanpur Nagar, after a magisterial inquiry, summoned the managing proprietor of the petitioner company for trial under Section 406 IPC, treating the matter as criminal breach of trust rather than a civil dispute. The petitioner’s application to quash the proceedings under Section 482 CrPC was rejected by the High Court, which emphasized the complainant’s limited resources and the delays of civil litigation, holding that the civil suit route would amount to a travesty of justice.
The Supreme Court Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan found both the Magistrate and the High Court to have fundamentally erred about the nature of the dispute, holding that the entire case was “one of the worst and most erroneous” orders seen by the bench.
The Court reaffirmed the well-settled law that mere non-payment of dues arising out of the sale of goods does not give rise to criminal liability when there is no entrustment or dishonest intention at the inception of the transaction, relying on the landmark judgment in State of Gujarat vs Jaswantlal Nathalal[1] and a recent ruling in Delhi Race Club (1940) Ltd. vs State of UP[2]. The Bench was especially critical of the High Court for justifying criminal action merely because civil remedies were time-consuming, observing that it is an extremely sad day for the legal system when criminal courts are used to shortcut civil recovery, which would be unreasonable and an abuse of process.
In a highly unusual move, the bench set aside the High Court’s order, remanded the quashing application, and directed the Chief Justice of Allahabad High Court to immediately withdraw all criminal cases from the concerned judge, assign the matter to another judge for fresh consideration, and prevent the concerned judge from handling any criminal matters, even on a single-judge bench, for the remainder of his tenure. The Supreme Court noted it had encountered multiple such erroneous orders from the judge in question and directed the Registry to forward its order to the Chief Justice of the High Court.
[1] (1968) 2 SCR 408
[2] (2024) 10 SCC 690
For the Petitioner(s): Mr. Surjadipta Seth, Adv.; Mr. Arindam Ghosh, AOR
