Mandatory Inquiry Under Section 202 CrPC Essential If Accused Resides Outside Jurisdiction; Commercial Breach Not Criminal Offence: Calcutta High Court

"Use of the expression 'shall' and the background and purpose for which the amendment has been brought there is no doubt that the enquiry or the investigation is mandatory before the summons are issued against the accused living beyond the territorial jurisdiction of the Magistrate," Calcutta High Court, in a significant ruling, held that a Magistrate is statutorily mandated to conduct an inquiry or investigation under Section 202 of the CrPC before issuing process against an accused residing outside the court's territorial jurisdiction.

A bench of Justice Chaitali Chatterjee Das observed that the failure to comply with this mandatory requirement, coupled with the criminalization of a purely commercial dispute, constitutes a palpable illegality. The court emphasized that the 2005 amendment to Section 202 was specifically intended to prevent the harassment of persons residing in far-off places through false and frivolous complaints.

The dispute arose between Pharma Corp Inc Ltd, a pharmaceutical company based in Indore, Madhya Pradesh (the Petitioner), and a distributor based in West Bengal (the Opposite Party). Following a breakdown in their commercial relationship over outstanding payments and the return of unsold goods, the Petitioner initiated proceedings under Section 138 of the Negotiable Instruments Act against the distributor. In a subsequent retaliatory move, the distributor filed a criminal complaint against the Petitioner company and its directors alleging cheating and criminal breach of trust under Sections 406, 420, and 120B of the IPC.

The primary question before the court was whether the Magistrate's failure to conduct a mandatory inquiry under Section 202 CrPC vitiated the issuance of process. The court was also called upon to determine if a dispute arising from a commercial contract, characterized by claims and counter-claims over payments, could sustain criminal charges under Sections 406 and 420 of the IPC. Finally, the bench examined whether the suppression of prior litigation between the parties amounted to an abuse of the judicial process.

Mandatory Nature of Section 202 CrPC Inquiry

The court observed that since the petitioners were residents of Indore, Madhya Pradesh, they were clearly residing outside the territorial jurisdiction of the Metropolitan Magistrate in Calcutta. Referring to the 2005 amendment to the Code of Criminal Procedure, the bench noted that the insertion of the word "shall" in Section 202 makes it obligatory for the Magistrate to postpone the issuance of process and either inquire into the case himself or direct an investigation.

Court Relies on Vijay Dhanuka Precedent

Citing the settled proposition in Vijay Dhanuka and others versus Nazima Mamtaz and others, the court highlighted that the requirement of an inquiry is not a mere formality but a safeguard against malicious prosecution. The bench found that the learned Magistrate had mechanically issued the process without conducting the required inquiry, despite having knowledge that the accused resided outside the jurisdiction.

"The said amendment was essential as false complaints are filed against persons residing at far off places in order to harass them. The use of the expression 'shall' prima facie makes the inquiry or the investigation as the case may, by the Magistrate mandatory."

Distinction Between Breach of Contract and Criminal Offence

The court delved deep into the distinction between a simple breach of contract and the criminal offences of cheating and breach of trust. Relying on Satishchandra Ratanlal Shah versus State of Gujarat, the bench observed that a mere failure to keep a promise or a dispute over the quality of goods supplied does not, ipso facto, constitute a criminal offence. For an offence under Section 405 IPC to be made out, there must be clear evidence of "entrustment" and subsequent dishonest misappropriation.

Necessity of Dishonest Intent from Inception

Regarding Section 420 IPC, the High Court reiterated that for a charge of cheating to stand, there must be a fraudulent or dishonest inducement at the very inception of the transaction. In the present case, the bench noted that the parties had a long-standing business relationship since 2019, involving multiple transactions and payments. This history of performance negated the allegation that the petitioners had a "pre-meditated scheme of deception" from the start.

"In order to attract the ingredients of Section 406 and 420 IPC, it is imperative on the part of the complainant to prima facie establish that there was an intention on part of the petitioner and/or others to cheat and/or to defraud the complainant right from the inception."

Suppression of Facts and Prior Section 138 NI Act Proceedings

A critical observation made by Justice Das was the complainant's suppression of the fact that the petitioner company had already initiated a Section 138 NI Act case against them. The court found that the criminal complaint was filed nearly two years after the initial dispute and only after the distributor had received summons in the NI Act case. This timeline strongly suggested that the criminal proceeding was a "vexatious" attempt to escape legal prosecution and avoid contractual payments.

Court Explains Abuse of Process Under Section 482 CrPC

The bench emphasized that the power under Section 482 of the CrPC must be exercised to prevent the abuse of the process of any court. Following the guidelines in the landmark Bhajan Lal case, the court concluded that the allegations in the complaint, even if taken at face value, did not constitute a prima facie case. The dispute was found to be civil in nature, stemming from a breach of performance of obligations for which a civil remedy was the appropriate course of action.

"The entire proceeding is liable to be quashed... as the order passed by the learned magistrate completely dehors the principal laid down by the Hon’ble Apex court and no complaints of Section 202 Cr.P.C while taking cognizance and issuance of process."

The High Court concluded that the proceedings were a complete abuse of the process of law, intended to harass the petitioners. The court held that judicial process should not be used as an instrument of oppression in a commercial dispute. Consequently, the Revisional Application was allowed, and the criminal proceedings pending before the Metropolitan Magistrate, 10th Court, Calcutta, were quashed.

Date of Decision: June 15, 2026