Mere Non-Payment of Business Dues Is Not Cheating: Calcutta High Court Protects Traders from Criminal Prosecution in Purely Civil Dispute

“Dishonest Intention Must Exist At The Very Inception — Subsequent Failure To Pay Cannot Be Treated As Cheating”, In a significant reaffirmation of the boundary between civil liability and criminal culpability, the Calcutta High Court holding that outstanding dues arising from commercial transactions cannot be converted into criminal prosecution in the absence of fraudulent intention at the inception of the transaction.

Justice Ajay Kumar Gupta, exercising inherent powers under Section 482 of the Code of Criminal Procedure, quashed criminal proceedings initiated under Sections 406 and 420 of the Indian Penal Code, observing that the dispute between the parties was “purely civil in nature” and that continuation of the prosecution would amount to “abuse of process of law.”

The proceedings in Arambagh P.S. Case No. 1066 of 2016 were thus set aside insofar as the petitioner was concerned.

Background: A Long-Standing Poultry Feed Business Relationship Turns Litigious

The petitioner, Pradyut Samanta, operated a poultry feed business under the name “Loknath Feed Centre,” duly registered and holding a valid trade certificate. Opposite Party No. 2 was a supplier of poultry feed, and their business relationship dated back to 2012.

The supplier regularly extended goods on credit, and the petitioner made payments in cash, by cheque, and through bank transfers. During the period from April 2013 to March 2014 alone, transactions amounted to more than Rs. 1.02 crore, of which over Rs. 75 lakh was paid. Notably, the supplier himself granted a 3% rebate on the outstanding amount in March 2014.

Business dealings continued smoothly even thereafter, and the last payment was made on 12 July 2016.

The dispute arose when the supplier alleged that approximately Rs. 40 lakh remained unpaid and filed a complaint accusing the petitioner of cheating and criminal breach of trust. An FIR was registered under Sections 406 and 420 IPC, and a charge sheet followed. Aggrieved, the petitioner invoked the High Court’s inherent jurisdiction seeking quashing of the proceedings.

“No Allegation Of Dishonest Intention At The Inception” — Court On Section 420 IPC

At the heart of the judgment lies the well-settled principle that dishonest intention must exist at the very beginning of the transaction to constitute cheating.

Justice Gupta observed:

“This Court finds that in the present case, it has nowhere been stated that at the very inception there was any intention on behalf of the petitioner to cheat, which is a condition precedent for an offence under Section 420 of the Indian Penal Code.”

Relying upon the Supreme Court’s ruling in State of Kerala v. A. Pareed Pillai, the Court reiterated:

“To hold a person guilty of the offence of cheating, it has to be shown that his intention was dishonest at the time of making the promise. Such a dishonest intention cannot be inferred from the mere fact that he could not subsequently fulfil the promise.”

The High Court emphasized that business transactions between the parties continued from 2012 to 2016, with regular payments being made. Even assuming that some amount remained outstanding, “by no stretch of imagination” could it be termed as dishonest inducement.

The Court further invoked Haridaya Ranjan Prasad Verma v. State of Bihar, noting that deception by fraudulent inducement “must be shown to exist right from the beginning of the transaction.” In the present case, the complaint was completely silent on any such initial deception.

“Merely Because Accounts Are Not Settled, It Does Not Constitute Criminal Offence” — On Section 406 IPC

Turning to the charge of criminal breach of trust, the Court underscored that entrustment and dishonest misappropriation are essential ingredients.

The judgment makes it clear:

“Merely because payment has not been made or accounts have not been settled, it does not constitute offences punishable under Sections 406/420 of the Indian Penal Code.”

The Court found no material to establish that the goods were entrusted in a fiduciary capacity or that there was any dishonest conversion. The dispute, at its core, was a ledger disagreement over alleged dues.

Even if the allegations were taken at face value, the Court held that they would “at best, give rise to a dispute civil in nature, amenable to adjudication before a competent Civil Court.”

High Court Deprecates Criminalisation of Commercial Disputes

Justice Gupta strongly cautioned against the growing tendency to convert recovery disputes into criminal cases.

“The disputes between the parties are purely civil in nature, and criminal proceedings in a civil case should not be allowed to be continued any further against the present petitioner; it would be an abuse of process of law.”

Referring to Hari Prasad Chamaria v. Bishun Kumar Surekha, the Court reiterated that even failure to honour contractual commitments may create civil liability, but not criminal liability, unless fraudulent intention at inception is clearly established.

Invoking Section 482 CrPC, the Court concluded that intervention was necessary “to secure the end of justice.”

Criminal Law Not A Tool For Debt Recovery

The Calcutta High Court’s ruling reaffirms a fundamental criminal law principle — “Every breach of contract is not cheating.” Non-payment of business dues, absent initial dishonest intention, cannot attract Sections 406 or 420 IPC.

By quashing the proceedings, the Court has sent a clear message that criminal prosecution cannot be used as a pressure tactic for recovery of money arising out of commercial transactions.

Date of Decision: 11.02.2026