Both Cheating and Criminal Breach of Trust Cannot Coexist Where Factual Prerequisites Are Antithetical: Supreme Court Quashes Criminal Case Between Business Partners

“Allegations Cannot Substitute Proof of Mens Rea…..To Continue Criminal Proceedings Would Be Oppressive And An Abuse Of Process”: In a judgment with far-reaching implications on the intersection of civil and criminal liability within business partnerships, the Supreme Court on 24 November 2025 set aside criminal proceedings arising from a post-dissolution dispute over partnership property. The Court categorically held that the complaint was an "abuse of criminal law machinery" aimed at exerting pressure through prosecution.

Delivering the judgment, Justice B.V. Nagarathna observed that “criminal law ought not to become a platform for initiation of vindictive proceedings to settle personal scores and vendettas.” The bench held that civil disputes over partnership assets and dissolution must remain within the realm of civil adjudication, especially when there is no evidence of fraudulent intent or dishonest inducement at the inception of the partnership.

The Court ruled: “We fail to understand as to how the allegations against the appellant-accused could be brought within the scope and ambit of Section 420 IPC. There is no allegation indicating any intentional deception or fraudulent/dishonest intention on the part of the appellant at the time of formation of the partnership deed.”

“Both Cheating and Criminal Breach of Trust Cannot Coexist Where Factual Prerequisites Are Antithetical”: Apex Court Applies Bhajan Lal and Inder Mohan Goswami Tests To Quash Proceedings

The case revolved around a 1976 partnership firm named Indrachand Bagri and Brothers, where the appellant, Inder Chand Bagri, had contributed land as part of his capital. In 2011, years after the partnership had been formally dissolved through a Deed dated 03.04.1997, he sold the land to his nephew. One of the ex-partners, Jagadish Prasad Bagri, challenged the transaction and filed a criminal complaint in 2013 under Sections 406, 420, and 120B IPC, alleging misappropriation and cheating.

However, the Court noted that the same complainant had earlier consented to a supplementary agreement in 1981, which explicitly permitted the land to revert back to the appellant once the lease with FCI expired. “The complainant cannot be allowed to blow hot and cold at the same time,” the Court held, rejecting the core basis of the criminal allegations.

In a stern warning against misuse of criminal process in commercial disputes, the Court said:

“To hold a person guilty of cheating, it is necessary to show that he had a fraudulent or dishonest intention at the time of making the promise… mere failure to subsequently keep a promise does not establish such intention” — quoting Inder Mohan Goswami v. State of Uttaranchal, (2007) 12 SCC 1.

Addressing the application of Section 406 IPC, the Court pointed out that there was no entrustment of property proven in the complaint. “On the contrary, the partnership deed itself shows that the disputed property was solely owned and brought in by the appellant. The reversion clause in the 1981 supplementary deed makes it impossible to infer any dishonest misappropriation,” the Court noted.

The Court applied the distinction laid down in Delhi Race Club Ltd. v. State of U.P., (2024) 10 SCC 690, observing that "criminal breach of trust and cheating are distinct offences and cannot co-exist on the same facts where one negates the other."

“Criminal Justice System Cannot Be Weaponised To Harass A Former Business Partner”: Supreme Court Enforces Bhajan Lal Guidelines

Referring to the canonical judgment in State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335, the Supreme Court found the case fit for quashing under the classic categories laid down in that ruling. “The complaint, even if taken at face value, does not prima facie constitute any offence,” the Bench held.

Justice Nagarathna added: “It is neither expedient nor in the interest of justice to permit the present prosecution to continue.”

In strong words of caution drawn from Vishal Noble Singh v. State of U.P., 2024 SCC OnLine SC 1680, the Court underscored that “criminal justice is being misused by certain persons for their vested interests… Courts must remain vigilant against such tendencies.”

The complaint, the Court concluded, was manifestly attended with mala fide and appeared to be maliciously instituted with an ulterior motive to exert pressure and create leverage in a parallel civil suit which the same complainant had already filed (Title Suit No. 160 of 2012).

Prosecution Quashed In Entirety, No Offence Made Out

Quashing the proceedings in their entirety, the Court held:

“No material has been placed on record to show entrustment of property, or dishonest misappropriation. Neither the ingredients of cheating nor those of criminal breach of trust are made out. The allegations are civil in nature, and the criminal proceedings are not legally sustainable.”

Setting aside the Gauhati High Court's refusal to quash the complaint under Section 482 CrPC, the apex court concluded that continuation of prosecution would result in undue harassment, lacking any legal basis under criminal law.

Date of Decision: 24 November 2025