Bombay High Court Quashes FIR in ₹90 Lakh Commercial Dispute — “Breach of Contract Does Not Amount to Cheating or Criminal Breach of Trust”; Terms FIR an Abuse of Process

Court’s Decision

The Bombay High Court quashed FIR No. 339 of 2024 registered at Kashigaon Police Station under Sections 420 and 406 of the IPC against the petitioners, holding that the dispute between the parties was “purely civil in nature” and did not disclose any ingredients of a cognizable offence. The Court concluded:

“Filing of the complaint dated 17.10.2024 is an attempt on the part of the Respondent No.2 to wreak vengeance against the Petitioners… Respondent No.2 has made an attempt to give a criminal flavour to a dispute which is essentially of a civil nature.”

Facts

The petitioners are directors of Laxmi Dental Limited, which entered into an agreement dated 24.05.2019 with Respondent No. 2 for research and development services. As per the agreement, Respondent No. 2 was entitled to 45% of the profits from a division named ‘Vedia Solutions’. The Respondent also assigned intellectual property rights over the trademarks “TAGLUS” and “UL ALIGN” to the company.

Later, the company discovered that Respondent No. 2 had set up a competing firm, allegedly in breach of contractual non-compete and confidentiality obligations. Consequently, the company filed a commercial suit in 2022 for injunction and damages. In response, Respondent No. 2 filed a criminal complaint leading to the registration of the impugned FIR.

Issues

1. Whether the FIR dated 17.10.2024 disclosed the commission of any cognizable offence under Sections 420 and 406 IPC?
2. Whether the dispute was civil in nature, and whether continuation of criminal proceedings would amount to abuse of process?

Petitioner’s Arguments

• The FIR was a counterblast to civil proceedings pending between the parties.
• The allegations, even if taken at face value, reflected a breach of contractual obligations and not cheating or criminal breach of trust.
• Similar allegations had been earlier rejected by the Judicial Magistrate First Class, Nashik in Criminal Miscellaneous Application No. 1762 of 2022, confirming the civil nature of the dispute.
• The FIR lacked territorial jurisdiction as no incident occurred within the jurisdiction of Kashigaon Police Station.
• The FIR was filed maliciously and with an ulterior motive, constituting an abuse of process.

Respondent’s Arguments

• The pendency of civil proceedings does not bar the initiation of criminal proceedings where criminal breach of trust is alleged.
• The FIR disclosed fraudulent misappropriation of funds, wrongful removal from bank account access, and non-payment of agreed share, amounting to offences under Sections 420 and 406 IPC.
• The complaint was not retaliatory but based on documented breaches.

Analysis of the Law

The Court extensively relied on Supreme Court decisions distinguishing breach of contract from criminal offences. It reiterated that:

• An offence under Section 420 IPC requires dishonest intention from the inception of the transaction.
• An offence under Section 406 IPC requires entrustment and subsequent dishonest misappropriation.
• If the allegations disclose no such intent at inception, criminal proceedings cannot be sustained.

Citing Rikab Birani v. State of U.P., Hridaya Ranjan Prasad Verma v. State of Bihar, and Vesa Holdings Pvt. Ltd. v. State of Kerala, the Court emphasized that where commercial disputes are camouflaged as criminal cases, courts must intervene.

Precedent Analysis

The Court referred to several landmark rulings:

• Rikab Birani v. State of U.P.: Quashing FIR in a commercial property dispute for lack of criminal intent.
• Lalita Kumari v. State of U.P.: Requirement of disclosure of cognizable offence for registration of FIR.
• V.Y. Jose v. State of Gujarat: Breach of contract alone does not constitute cheating without fraudulent intent at inception.
• Vijay Kumar Ghai v. State of West Bengal: Multiple complaints by the same party on the same facts constitute abuse of process.
• Delhi Race Club v. State of U.P.: Offences of cheating and criminal breach of trust are distinct and cannot co-exist without necessary ingredients.

Court’s Reasoning

• The entire complaint was based on alleged breaches of a commercial agreement.
• There were no allegations of dishonest intention at the inception of the agreement.
• Civil litigation was already pending on the same subject matter.
• The respondent failed to disclose earlier criminal proceedings dismissed by the Nashik Magistrate.
• The FIR lacked material to disclose any offence under either Section 420 or 406 IPC.

“Assuming for the sake of argument that the intention to cheat had developed later on, the same cannot amount to cheating.”

Conclusion

The Court held that:

“If the criminal proceedings are allowed to continue against the Petitioners, the same will be abuse of process of law and result in miscarriage of justice.”

Accordingly, the FIR was quashed.

Implications

This judgment reaffirms the principle that criminal law cannot be used to settle civil disputes. It emphasizes that allegations must clearly disclose ingredients of criminal offences, and courts must prevent misuse of criminal proceedings for coercive tactics in commercial conflicts.

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