Court’s decision
The Madhya Pradesh High Court, Indore Bench, held that failure to pay the price of goods in a continuing commercial transaction cannot, by itself, establish the offence of cheating or criminal breach of trust under the Indian Penal Code. The Court quashed the FIR filed against the petitioners under Sections 420, 406, 409, 467, 468, and 471 IPC, observing that the dispute was purely civil in nature.
Justice Sanjeev S. Kalgaonkar emphasized that “mere non-payment or underpayment of the price of goods does not amount to commission of an offence of cheating or criminal breach of trust.” The Court further remarked that the investigating agency appeared to have been “swayed by the magnitude of the outstanding amount and the plight of farmers,” while the necessary ingredients of the alleged offences were absent.
Accordingly, invoking its inherent powers under Section 528 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023, the Court quashed the FIR and all subsequent proceedings.
Facts
The petitioners were traders engaged in the business of purchasing crops from farmers on credit. According to the complaint, they had initially purchased and paid for crops like wheat, soybean, mustard, lentils, and corn in 2023, thereby gaining the trust of several farmers. However, between October 2023 and February 2024, they allegedly purchased large quantities of crops without making payment and later absconded.
An FIR was registered at Police Station Khilchipur, District Rajgarh, for offences under Sections 420 and 406 IPC, which were later expanded to include Sections 409, 467, 468, and 471, based on allegations of forgery of purchase slips. The petitioners contended that the transactions were purely commercial, supported by documentary records, and did not disclose any element of criminal intent.
Issues
- Whether the allegations of non-payment for crop purchases constituted cheating or criminal breach of trust under Sections 420 and 406 IPC.
- Whether the addition of forgery-related offences (Sections 467, 468, 471 IPC) was justified in the absence of any false document or intent to deceive.
- Whether the High Court should exercise its powers under Section 528 BNSS to quash the FIR to prevent abuse of process.
Petitioner’s arguments
The petitioners contended that the transactions between them and the farmers were commercial in nature, governed by mutual agreements for sale and purchase of agricultural produce. The alleged default in payment arose from a civil breach of contract and did not constitute a criminal offence.
Their counsel argued that for an offence under Section 420 IPC, a dishonest or fraudulent intention must exist at the inception of the transaction, which was clearly absent here since the petitioners had previously made full payments for earlier purchases. They relied upon the Supreme Court’s decisions in Vir Prakash Sharma v. Anil Kumar Agarwal (2007) 7 SCC 373 and Ashok Kumar Jain v. State of Gujarat (2025 SCC OnLine SC 998), asserting that failure to fulfill a contractual obligation cannot be equated with criminal deception.
They also referred to Sushree Shehal v. State of Madhya Pradesh and Gauri Rahul Takalkar v. Rahul Dilip Takalkar to contend that criminal proceedings cannot be used as instruments of coercion in civil disputes.
Respondent’s arguments
The State and objecting farmers argued that the petitioners had intentionally defrauded multiple farmers by purchasing crops worth over ₹2.32 crore from 161 farmers and fleeing without payment. They alleged that forged purchase slips were created to show fictitious transactions. The respondents contended that the scale of fraud and the forged documents justified the continuation of investigation under Sections 409 and 468 IPC, as the actions involved misappropriation and deliberate deception.
Analysis of the law
The Court began by analyzing Section 420 IPC, which penalizes cheating through dishonest inducement to deliver property. Referring to Vir Prakash Sharma and Ashok Kumar Jain, the Court clarified that “mere breach of contract or non-payment does not imply criminal intent unless dishonest intention existed at inception.”
The Court further cited International Advance Research Centre for Powder Metallurgy and New Materials v. Nimra Cerglass Technics (P) Ltd., (2016) 1 SCC 348, to reiterate that three ingredients must exist to attract Section 420—(i) deception, (ii) dishonest inducement, and (iii) mens rea at the time of inducement. Unless these elements are proven, a civil breach cannot be elevated into a criminal charge.
Similarly, for Section 406 IPC (criminal breach of trust), the Court noted that there must be entrustment of property and subsequent dishonest misappropriation. In the present case, there was no evidence that any property had been entrusted to the petitioners; the transactions were simply purchases of goods on credit.
Regarding allegations of forgery, the Court referred to Section 464 IPC, which defines “making a false document.” It held that the purchase receipts, even if created dishonestly, were not made in the name or authority of another person, and hence could not constitute “false documents.”
Precedent analysis
The Court relied extensively on established Supreme Court precedents:
- Hridaya Ranjan Prasad Verma v. State of Bihar (2000) 4 SCC 168 — Held that to constitute cheating, dishonest intention must exist at the time of making the promise; subsequent non-performance cannot be presumed as cheating.
- S.W. Palanitkar v. State of Bihar (2002) 1 SCC 241 — Clarified that failure to keep a promise does not constitute cheating unless fraudulent intent existed from the start.
- Rashmi Jain v. State of U.P. (2014) 13 SCC 553 — Reiterated that criminal proceedings cannot be initiated merely for breach of contractual obligations.
- Radheyshyam v. State of Rajasthan (2024 SCC OnLine SC 2311) — Emphasized that default in performance of an agreement amounts to a civil wrong, not a criminal offence, unless deception is established.
- Mohd. Ibrahim v. State of Bihar (2009) 8 SCC 751 and Mir Nagvi Askari v. CBI (2009) 15 SCC 643 — Explained that forgery requires the making of a false document purporting to be executed by another person. The absence of impersonation or authority negates the offence of forgery.
- Sheila Sebastian v. R. Jawaharaj (2018) 7 SCC 581 — Affirmed that a person cannot be convicted for forgery unless he has made a false document as defined under Section 464 IPC.
Court’s reasoning
The Court held that the FIR did not disclose any dishonest inducement, misrepresentation, or entrustment of property. The farmers had voluntarily sold their produce on credit based on prior dealings. The petitioners’ later failure to pay did not imply that they had any fraudulent intention at the time of purchase.
Justice Kalgaonkar observed that “mere non-payment or underpayment of the price of goods cannot be the foundation for criminal prosecution.” The FIR, in essence, sought to convert a civil recovery dispute into a criminal case to exert pressure on the petitioners.
Regarding the alleged forgery, the Court held that the purchase receipts were not “false documents” within the meaning of Section 464 IPC, as they were not created in another’s name or by impersonation. Therefore, the offences under Sections 467, 468, and 471 were also not made out.
The Court concluded that continuation of the criminal proceedings would amount to an abuse of process and that intervention was warranted under Section 528 BNSS to secure justice.
Conclusion
The Madhya Pradesh High Court quashed the FIR registered at Police Station Khilchipur, District Rajgarh, and all related proceedings. It held that the case involved a purely civil dispute over payment for goods sold, lacking the essential elements of cheating, criminal breach of trust, or forgery. The petitioners were discharged from all allegations.
The judgment reinforces that criminal law cannot be invoked to settle civil and commercial disagreements and underscores that the existence of dishonest intent at inception is the cornerstone of offences under Sections 420 and 406 IPC.
Implications
This ruling serves as a crucial precedent for distinguishing between commercial defaults and criminal offences. It safeguards individuals engaged in legitimate business transactions from wrongful criminal prosecution and reiterates that civil remedies—such as recovery suits or specific performance—must be pursued where fraud or deceit is not apparent.
The decision also clarifies the interpretation of Section 528 BNSS, 2023, which mirrors Section 482 CrPC, reaffirming the Court’s inherent power to prevent misuse of criminal proceedings.