Failure to Perform a Contract Is Not Cheating or Breach of Trust: Supreme Court Quashes 8-Year-Old FIR Terming It Civil Dispute in Criminal Garb

In a significant reiteration of the boundaries between civil and criminal law, the Supreme Court on 24 September 2025 held that mere failure to honour a sale agreement does not constitute cheating or criminal breach of trust under the IPC, especially when no fraudulent intention at inception is alleged or established. Quashing the FIR and complaint registered after an inordinate delay of eight years, the Court described the proceedings as “manifestly mala fide and an abuse of the criminal justice system.”

The judgment was delivered in a criminal appeal arising from the Jharkhand High Court’s refusal to quash an FIR registered under Sections 406, 420, and 120B of the Indian Penal Code. The FIR and Complaint Case No. 619/2021 had stemmed from a failed agreement to sell property, originally executed in 2013, where the complainant alleged non-transfer of title and non-refund of advance.

“Every Breach of Contract Is Not a Crime — Mens Rea Must Exist at Inception to Attract Cheating Charges”

The bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan observed that the allegations in the FIR and complaint “even if taken at face value, fail to make out the essential ingredients of cheating under Section 420 IPC.”

Quoting from the well-established principle laid down in Inder Mohan Goswami v. State of Uttaranchal, the Court reiterated:

“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. From his mere failure to subsequently keep a promise, one cannot presume that he had a culpable intention to break the promise from the beginning.”

Applying this test, the Court found no specific allegation or material showing that the appellant had the requisite mens rea or dishonest intention when the agreement to sell the land was executed.

“Sections 406 and 420 IPC Are Mutually Exclusive — Both Cannot Coexist Without Factual Foundation”

The Court also emphasized that cheating and criminal breach of trust are conceptually distinct offences, and that a complaint invoking both without proper foundation in fact or law is unsustainable.

Citing Delhi Race Club (1940) Ltd. v. State of U.P. (2024), the Court noted: “In the case of criminal breach of trust, the offender is lawfully entrusted with the property and then dishonestly misappropriates it. In cheating, the deception precedes the delivery of property. The two cannot coexist on the same set of facts unless both sets of ingredients are specifically pleaded and established.”

In the present case, no entrustment of property or dishonest misappropriation was alleged in the complaint, thereby ruling out the application of Section 406 IPC.

“Delay of 8 Years Without Justification Smacks of Malice — Criminal Law Cannot Be Weaponised to Settle Civil Disputes”

The Court was particularly critical of the fact that the FIR and complaint were filed eight years after the agreement for sale, with no explanation for the delay.

This delay, the Court held, “casts serious doubt on the bona fides of the complainant”, especially when a civil remedy was available and could have been pursued through a suit for specific performance or damages.

“The criminal law ought not to become a platform for initiation of vindictive proceedings to settle personal scores or vendettas,” the Court remarked.

The Court further observed that the existence of a mediation settlement, where the appellant agreed to return ₹24 lakhs in instalments (partly complied with), undermined the credibility of the criminal allegations, which were lodged only after default in instalment payments.

“A Civil Dispute Clothed in Criminal Allegations is an Abuse of Process — Bhajan Lal Principles Fully Attracted”

Relying heavily on the landmark judgment in State of Haryana v. Bhajan Lal (1992), the Court held that the present case squarely fell within several of the illustrative categories laid down for quashing criminal proceedings, particularly:

1. Where the allegations in the FIR do not disclose a cognizable offence;

2. Where the allegations are so absurd and improbable that no prudent person can believe them;

3. Where the proceeding is manifestly mala fide and instituted with an ulterior motive.

The Court observed: “None of the offences alleged against the appellant herein is made out… the allegations of criminal intent have been made with a mala fide intent… It is neither expedient nor in the interest of justice to permit the present prosecution to continue.”

“Criminal Law Cannot Be Used as a Tool for Private Vengeance or Commercial Coercion”

In a cautionary note, the Court referred to its recent observations in Vishal Noble Singh v. State of U.P. (2024), where it had warned against the growing trend of misusing criminal justice mechanisms to pressurise parties in civil or commercial disputes.

The bench noted:

“Such actions create distrust in society and impose an unnecessary burden on criminal courts. Acts having no criminal content must be nipped in the bud.”

The Court held that permitting the FIR and complaint to proceed would “unduly harass the appellant and cause a miscarriage of justice.”

Supreme Court Quashes FIR, Complaint, and All Criminal Proceedings — High Court Order Set Aside

Concluding that the criminal proceedings against the appellant were unjustified and legally untenable, the Court allowed the appeal and quashed the FIR No. 18/2021, Complaint Case No. 619/2021, and all proceedings arising therefrom. The Jharkhand High Court’s refusal to quash was also set aside.

“The appeal is allowed in the aforesaid terms,” the Court held, reiterating its consistent position that criminal law must not be used as a tool for coercion in private disputes.

Date of Decision: 24 September 2025