Suppressing Earlier Complaint And Inflating Allegations To Give Criminal Colour Is Abuse Of Process: Kerala High Court Quashes Crypto Investment Cheating Case

“Suppression Of Material Facts To Infuse Criminality In A Civil Dispute Cannot Be Permitted”, Kerala High Court recently quashed criminal proceedings arising out of an alleged cryptocurrency investment fraud, holding that suppression of earlier complaints and introduction of improved allegations to give a dispute a criminal colour amounts to abuse of the process of law.

“The act of not stating about the filing of the first complaint, and the filing of the subsequent complaints with an improvised version and inflated claim is suppression of material facts, with an intention to infuse a colour of criminality in the complaint,” observed the Court.

Justice C.S. Dias exercised the High Court’s inherent powers to quash the private complaint, the police final report and all proceedings pending before the Judicial First Class Magistrate Court-III, Kollam.

The Court held that the allegations, even if accepted in entirety, disclosed a purely monetary investment dispute of civil nature, and did not satisfy the ingredients of offences under Sections 406, 420, 465 and 468 of the Indian Penal Code.

The proceedings originated from a private complaint filed by the fifth respondent before the Judicial First Class Magistrate Court-III, Kollam. The Magistrate forwarded the complaint for investigation under Section 156(3) of the Code of Criminal Procedure, leading to registration of Crime No.808 of 2022 by Kollam West Police Station.

According to the complainant, the petitioner had introduced himself as the Managing Director of a Dubai-based trading company and allegedly persuaded the complainant to invest in Bitcoin and cryptocurrency trading schemes by promising high returns.

The complainant initially invested small sums and was shown alleged profits through spreadsheets. Subsequently, he transferred additional amounts to various persons purportedly associated with the petitioner. The complaint eventually alleged that the petitioner and his associates had cheated the complainant and others of about ₹96,00,000.

After investigation, the police filed a final report accusing the petitioner of offences under Sections 406, 420, 465 and 468 IPC.

Challenging these proceedings, the petitioner approached the High Court seeking quashing of the complaint and the final report.

Multiple Complaints And Suppression Of Earlier Version

A significant aspect considered by the Court was the existence of multiple complaints filed by the complainant with varying allegations.

The first complaint submitted on 20 June 2022 before Kollam East Police Station stated that the complainant had transferred ₹36,05,066 to unknown persons on the petitioner’s instructions. It also admitted that the petitioner had already repaid ₹8,85,000, leaving an alleged balance of ₹27,20,066.

The High Court noted that the subsequent complaints suppressed the existence of this earlier complaint. In later complaints filed before another police station and before the Magistrate, the complainant inflated the claim to ₹96,00,000 and introduced additional alleged victims.

The Court found that this improved version fundamentally altered the nature of the allegations.

“Had the subsequent complaints contained the same allegations as the first complaint, the police would have referred the matter as a civil dispute,” the Court observed while accepting the petitioner’s contention.

Relying on the Supreme Court’s rulings in Rekha Sharad Ushir v. Saptashrungi Mahila Nagari Sahkari Patsansta Ltd. and Krishna Lal Chawla v. State of Uttar Pradesh, the Court reiterated that suppression of material facts disentitles a complainant from invoking criminal law.

Cheating Requires Dishonest Intention At Inception

The High Court also examined whether the allegations satisfied the ingredients of cheating under Section 420 IPC.

Referring to Vesa Holdings (P) Ltd. v. State of Kerala and Shailesh Kumar Singh v. State of Uttar Pradesh, the Court emphasized that cheating requires fraudulent or dishonest intention at the very inception of the transaction.

“Every breach of contract would not give rise to an offence of cheating. It will amount to cheating only when there is deception at the very inception,” the Court reiterated.

The materials on record revealed only that the complainant had invested money expecting profits and later alleged non-payment of returns. There was no material indicating dishonest intention at the inception of the transaction.

The Court therefore concluded that the dispute was essentially a monetary dispute arising from an investment transaction, which could not automatically attract criminal liability.

Criminal Law Cannot Be Used To Settle Civil Disputes

Justice Dias also relied on the principles laid down by the Supreme Court in State of Haryana v. Bhajan Lal, Delhi Race Club v. State of U.P., Vijay Kumar Ghai v. State of West Bengal, and Ankul Singh v. State of Uttar Pradesh.

The Court reiterated that where allegations do not disclose the essential ingredients of criminal offences and the proceedings appear to have been initiated with mala fide intention, the High Court is justified in exercising its inherent jurisdiction to prevent abuse of the process of law.

“The alleged transaction between the petitioner and the 5th respondent is of a civil nature, which has been given a cloak of criminality,” the Court observed.

The judgment further noted that the criminal case appeared to have been instituted with the ulterior motive of pressuring the accused, which courts must guard against.

High Court Quashes Proceedings Under BNSS Inherent Powers

Finding that continuation of the criminal prosecution would amount to abuse of process, the High Court exercised its inherent jurisdiction under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 to quash the proceedings.

Accordingly, the Court set aside the private complaint, the police final report and all further proceedings in C.C. No.78 of 2023 pending before the Judicial First Class Magistrate Court-III, Kollam.

The Court also directed the registry to return the fixed deposit submitted by the petitioner after lifting the lien.

Date of Decision: 03 March 2026