Aaditya Khaitan and Others v. State of Jharkhand and Others · 2025 INSC 575

Facts

A public-sector building corporation awarded a project contract to a company, which engaged the complainant to perform part of that work through a separate subcontract. The work was begun, halted after the corporation complained of delay, resumed following directions in litigation between the corporation and the company, and later became the subject of unpaid invoices and part payments.

The principal contract prohibited subletting without the corporation's consent, a condition which the complainant said had not been disclosed when it entered its own agreement with the company. After seeking unsuccessfully to intervene in the litigation between the principal parties, the complainant said it learned of that restriction, yet its complaint also described further work carried out after that point.

The complainant pursued recovery before the insolvency tribunal and invoked arbitration, while the latter process was stayed because of a moratorium in proceedings concerning the company under the Insolvency and Bankruptcy Code, 2016. It also obtained an FIR alleging offences of breach of trust, cheating, forgery-related conduct and common intention under the Indian Penal Code, 1860 against the company and its officers.

Issues

The High Court had quashed the FIR against an officer of the corporation but declined relief to the company and its officers under Section 482 of the Code of Criminal Procedure, 1973. The Supreme Court had to decide whether the accusation against these remaining appellants, if read in full and accepted for threshold purposes, actually described a criminal offence or instead sought to recover money payable under a contract.

The issue included the effect of the consent restriction in the principal project agreement. The question was not merely whether that restriction existed or had been disclosed, since the complainant had contracted with the main company rather than with the corporation whose rights the restriction protected.

Submissions recorded

The appellants submitted that criminal proceedings were being used as pressure for payment while the contractual recovery route was delayed by the insolvency moratorium. They pointed to the arbitration invoked for the outstanding balance and to the corporation's separate agreement as reasons for examining what the complainant's FIR truly alleged against them.

The complainant's account asserted that the company had hidden the limitation on subletting and had left bills for completed work unpaid. The High Court had accepted that the restriction might disclose dishonest or fraudulent conduct, even while granting relief to the corporation's officer, so the Supreme Court considered whether this inference followed from the reported dealings as a whole.

Reasoning

The Court applied the established rule that an FIR may be quashed where its allegations, taken on their face, do not constitute the offences asserted. This inquiry requires a reading of the complaint as a whole without determining the credibility of evidence or carrying out a detailed trial-like examination of each document.

The High Court had recited authority on that limited inquiry, yet the Supreme Court found that it had not actually carried out the whole-complaint exercise. Its reliance on the negative covenant in the corporation's agreement bypassed the complainant's own description of the separate subcontract, renewed work and payment transactions that formed the substance of the FIR.

On that reading, the complainant knew from the outset that it was undertaking only a portion of a project awarded to the accused company by the corporation. It did not claim to have inspected the principal contract before accepting the work, and, after learning of the restrictive covenant through the failed intervention, it resumed performance under the subcontract when the project restarted.

The FIR gave substantial attention to bills, partial payment and the amount said to remain due. Those features made the monetary claim central to the report and explained why the Court would not infer criminality simply from the fact that a separate contractual restriction had not been made available to the subcontractor at the beginning.

Even assuming that the company had sublet without consent and had not disclosed the restriction, the Court reasoned that the corporation, as a party to the principal agreement, could address the breach against the company. The complainant had no contractual privity with the corporation and could not treat a possible breach of that principal agreement as a substitute for facts showing an Indian Penal Code offence against itself.

Conversely, a difficulty under the corporation's contract did not extinguish the company's potential duty to pay bills submitted under a valid subcontract. The Court identified lawful recovery as the appropriate route for those amounts and recognised that the insolvency moratorium had stalled that route, while declining to use criminal prosecution as a replacement mechanism for collection.

Decision

The Supreme Court allowed the appeal, held that the FIR did not prima facie make out an offence against the appellants, and exercised the quashing power which the High Court had declined to use. It quashed the FIR so that no further proceedings would be taken upon it.

The judgment did not determine the exact value of the outstanding bills or decide the arbitration claim. Its result was confined to the criminal case, leaving the complainant to pursue proper recovery remedies within the constraints governing the company's insolvency proceedings.