A Civil Dispute Cannot Be Cloaked as Criminal Offence by Alleging Inducement: Supreme Court Quashes Cheating FIR in ₹34 Lakh Saree Export Case

“Non-Payment Does Not Become Cheating Merely by Calling It Inducement”— In a significant judgment Supreme Court of India quashed a criminal FIR alleging cheating and criminal breach of trust in a commercial dispute involving export of sarees worth ₹34.71 lakhs. Supreme Court observed that the matter was purely civil in nature and the continuation of the FIR under Sections 406 and 420 IPC would amount to “an abuse of the process of law”.

Justice S.V.N. Bhatti, writing for the Bench, ruled: “A mere civil dispute has been given the colour of an offence of cheating and criminal breach of trust… Non-payment of the sale price, even if established, cannot be elevated to a criminal offence.”

The case concerned a business arrangement between Ansh Prints, a textile firm in Surat, and Ashok Kumar Jain, director of a Sri Lanka-based company Maayu Import & Export Ltd. Between October 2013 and March 2014, sarees worth ₹39,18,108 were exported by Ansh Prints through an intermediary, M/s. Oswal Overseas, which held the export license.

Out of this, goods worth ₹4,46,764 were not exported but settled domestically, leaving an outstanding claim of ₹34,71,344 for the goods delivered to Jain in Sri Lanka. In 2017, after failed payment follow-ups, Ansh Prints lodged an FIR alleging cheating and breach of trust, claiming that Jain had induced the transactions with dishonest intent from the outset.

The Gujarat High Court refused to quash the FIR, accepting that inducement could be investigated. Jain challenged this before the Supreme Court.

The Court analysed the nature of the transaction and held that the allegations in the FIR failed to satisfy the essential ingredients of offences under Sections 406 and 420 IPC.

Quoting established precedent, the Court noted:

“Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction.”
(Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168)

The Bench further emphasized: “To constitute an offence under Section 420 IPC, there must be dishonest inducement to deliver property… This must be shown to exist at the time the promise was made—not inferred retrospectively from non-payment.”

The Court rejected the claim that entrustment of goods was made directly to the appellant. It clarified: “Entrustment was made to M/s. Oswal Overseas, the exporter—not the appellant. The respondent attempts to bypass this chain by narrating an oral inducement contrary to the export documents.”

The invoices, payment documents, and shipping records all confirmed that M/s. Oswal Overseas acted as the legal intermediary, with Jain shown as consignee but not directly entrusted with goods by the complainant.

Holding that the dispute pertained to non-payment of sale price, the Court concluded that:

“Such non-payment may form the basis of civil recovery proceedings, but not a prosecution for cheating or criminal breach of trust.”

Accordingly, the Supreme Court allowed the appeal, set aside the Gujarat High Court’s order, and quashed FIR No. I-06 of 2017 registered at Salabatpura Police Station, Surat.

“The continuation of investigation/prosecution into the offence of cheating and breach of trust would amount to an abuse of the process of law.”

Date of Decision: May 1, 2025