Criminal Law Cannot Be Weaponised for Breach of Contract: Supreme Court Quashes FIR in Property Deal Dispute

“When no ingredients of cheating or criminal breach of trust are made out, the continuation of prosecution amounts to abuse of process” – Supreme Court of India quashed a criminal case arising out of a failed oral agreement for the sale of a commercial property, stating that “civil wrongs cannot be converted into criminal prosecutions in the absence of criminal intent.”

A Bench comprising Chief Justice Sanjiv Khanna and Justice Sanjay Kumar delivered a strong rebuke to the increasing misuse of criminal law in property and money disputes, observing that “civil litigation is being increasingly camouflaged as criminal complaints,” particularly in Uttar Pradesh, and imposed ₹50,000 in costs on the State for failing to uphold basic prosecutorial discretion.

The appellants, Rikhab Birani and Sadhna Birani, had entered into an oral agreement to sell Roti Godown No. 28/27 at Birhana Road, Kanpur to respondent Shilpi Gupta for ₹1.35 crores in 2020. The buyer allegedly paid ₹19 lakhs in part-consideration, but a cheque of ₹10 lakhs issued thereafter bounced. No registered agreement or civil proceedings ensued. One year later, the appellants sold the property to another buyer for ₹90 lakhs.

Instead of pursuing civil remedies, the complainant filed an FIR under Sections 420, 406, 354, 504 and 506 IPC, after her earlier applications under Sections 156(3) and 200 CrPC were dismissed twice by the Metropolitan Magistrate, who found the matter purely civil.

Despite this, the police registered FIR No. 78/2023 and filed a chargesheet. When cognizance was taken, the appellants moved under Section 482 CrPC, but the Allahabad High Court dismissed the petition. The Supreme Court intervened in appeal.

The Court reiterated that criminal proceedings arising from a mere breach of contract are not maintainable unless there is clear evidence of dishonest intention at the inception.

Referring to earlier rulings, the Court emphasized: “A contractual dispute or breach of contract per se should not lead to initiation of a criminal proceeding… the ingredient of ‘cheating’, as defined under Section 415 IPC, is existence of a fraudulent or dishonest intention of making initial promise or representation thereof, from the very beginning.”

The Court further observed: “Merely on the allegation of failure to keep a promise will not be enough to initiate criminal proceedings… dishonest intention at the time of entering into the transaction must be established.”
On the complaint's content, the Court held that the chargesheet merely repeated allegations from the FIR and lacked any independent material: “The chargesheet is bereft of particulars… it merely reproduces the contents of the FIR… ingredients of offences under Sections 420, 406, 354, 504 and 506 IPC are not made out.”

Relying on Sharif Ahmed v. State of U.P., Lalit Chaturvedi v. State of U.P., and Thermax Ltd. v. K.M. Johny, the Court ruled that courts must be alert to vague and retaliatory criminal filings, particularly when “dishonest inducement” and “entrustment” are absent.

Justice Khanna emphasized: “The prevalent impression that civil remedies are inadequate must be discouraged… Criminal law cannot be used as a tool to apply pressure.”

The Court set aside the impugned judgment of the Allahabad High Court, quashed FIR No. 78/2023, the chargesheet dated 12.09.2023, and all resultant proceedings. While refraining from imposing costs on the complainant, the Court came down heavily on the State machinery: “We are constrained to impose costs of ₹50,000 on the State of Uttar Pradesh… it will be open to the State to recover the same from delinquent officers.”
The registry was directed to communicate this order to the Chief Secretary of Uttar Pradesh, holding him personally responsible for compliance.

In an era where civil disputes are increasingly turned into criminal complaints to browbeat and harass, the Supreme Court's ruling in Rikhab Birani v. State of U.P. sends a clear and necessary message: the criminal justice system is not a debt recovery forum, and prosecutorial discretion must not become a rubber stamp for private vendettas.

As the Court rightly concluded: “It is one thing to say a case is made out for trial, and another to say that a person must undergo a criminal trial despite the fact that no offence is made out.”

Date of Decision: 16th April 2025