Breach of Contract Doesn’t Automatically Mean Cheating: Delhi High Court Dismisses Plea Seeking FIR in ₹8.38 Crore Real Estate Dispute

“Every Breach of Contract Cannot Be Dressed as a Criminal Offence Unless Mens Rea Is Shown from the Inception”, Delhi High Court, in a significant commercial-cum-criminal law ruling, held that civil disputes arising from real estate investment agreements cannot be converted into criminal cases unless there is clear evidence of criminal intent at inception. Dismissing the petition filed under Section 482 CrPC in Mohinder Kumar Jain & Ors. v. State (NCT of Delhi) & Angle Infrastructure Pvt. Ltd., Justice Neena Bansal Krishna upheld the revisional court’s order which had earlier set aside a Magistrate’s direction to register an FIR under Section 156(3) against the developer company.

The High Court found that the alleged “fraud” and “cheating” by the developer was essentially a fallout of a failed Memorandum of Understanding (MoU), and that the petitioners were attempting to use criminal law to pressurise the respondents in what was fundamentally a civil, contractual disagreement governed by arbitration.

"Criminal Law Cannot Be Used to Bypass Civil Remedies or Pressurise Parties into Settlement"

The core grievance of the petitioners, a Hindu Undivided Family engaged in garment exports, stemmed from an MoU signed in August 2018, pursuant to which they invested ₹8.38 crore in the real estate project "Florence Estate", being developed by Angle Infrastructure Pvt. Ltd. The MoU promised the allotment of nine flats as “security interest” and sought to secure commercial development rights via Letters of Intent (LoI). When the project didn’t proceed as expected, and the promised flats were found to be meant only for Central Government employees, the petitioners alleged fraud, cheating, and criminal breach of trust, invoking Sections 109, 120B, 403, 405, 406, 417, and 420 IPC.

Initially, the Metropolitan Magistrate at Patiala House Courts, acting on a complaint under Section 200 CrPC and application under Section 156(3), directed the Economic Offences Wing (EOW) to register an FIR and investigate. However, this order was overturned by the learned Additional Sessions Judge (ASJ), who held that the Magistrate had passed the order mechanically without proper application of mind to whether a cognizable offence was disclosed.

The petitioners approached the High Court under Section 482 CrPC, seeking to quash the ASJ’s order and reinstate the FIR. The High Court, however, rejected this plea, reinforcing the principle that “not every failure to honour a commercial promise constitutes a criminal offence.”

High Court’s Analysis: No Mens Rea, No Criminality

Justice Neena Bansal Krishna emphasized that the criminal law should not be invoked unless there is clear intent to deceive at the inception of the transaction. The Court observed:

“It is trite law that not every breach of contract or commercial disagreement can be elevated to the level of criminal prosecution. There must be clear evidence of mens rea at the inception of the transaction.”

The Court relied upon the revisional court’s detailed reasoning, particularly its finding that the Respondent Company had, in fact, filed appropriate applications with authorities to seek approvals for additional FAR, and thus, its conduct was “inconsistent with fraudulent intent.”

The Court added:

“The fact that Respondent No.2 Company pursued this matter through multiple applications and engaged substantively with the regulatory process, demonstrates a genuine effort... not a fraudulent scheme.”

On the issue of the flats being reserved only for Central Government employees, the Court noted that the brochure and website of the developer, as well as the buyer’s agreement, clearly disclosed this restriction. Therefore, there was no deception, as the petitioners were well aware of the limitation.

“That these apartments were intended for Central Government employees was also published in the brochure and website of all real estate brokers... It was not a fact which was not in the public domain,” the Court held.

Further, the petitioners’ claim that the apartments were given as security interest did not, by itself, establish that criminal breach of trust occurred. The Court reasoned that the MoU clearly provided for arbitration in case of disputes and that the petitioners had in fact terminated the MoU voluntarily, indicating a civil breakdown rather than criminal misconduct.

Mechanical Exercise of Section 156(3) by Magistrate Criticized

Another significant takeaway from the judgment is the Court’s scrutiny of the process followed by the Magistrate under Section 156(3) CrPC. The Court endorsed the revisional court’s view that:

“The Magistrate must form his independent opinion... and unless there are exceptional circumstances recorded in writing, a status report must be called before ordering investigation.”

The Court further stressed that since the entire dispute was based on documents, and no urgent police intervention was necessary, the Magistrate could have simply proceeded under Section 202 CrPC for preliminary inquiry instead of ordering immediate registration of FIR.

Civil Dispute Masquerading as Criminal Complaint

Summarising its position, the High Court held:

“It is quite evident from the averments made in the Complaint and as appreciated by the learned ASJ, that the allegations were essentially flowing out of an MoU which according to the Petitioners, was not complied in true spirit... the parties were at liberty to invoke arbitration.”

The Court drew upon a long line of precedents, including Amit Kapoor v. Ramesh Chander (2012) 9 SCC 460, Murari Lal Gupta v. Gopi Singh, Inder Mohan Goswami v. State of Uttaranchal, and Indian Oil Corporation v. NEPC India Ltd., to caution against the abuse of criminal process in purely civil disputes.

Dispute Purely Civil, Petition Dismissed

In conclusion, the Delhi High Court dismissed the petition under Section 482 CrPC, upholding the order of the revisional court, and reiterated the settled position of law that civil disputes arising out of MoUs and investment agreements must be resolved through civil remedies and arbitration, not through criminal prosecution.

“There is no merit in the present Petition, which is hereby dismissed.”

Date of Decision: November 21, 2025