Supreme Court Quashes FIR in Sarabjit Kaur v. State of Punjab, 2023: Breach of Contract Not Cheating

Case Details

The Supreme Court of India, in a judgment delivered on March 1, 2023, by a bench comprising Justices Abhay S. Oka and Rajesh Bindal, allowed Criminal Appeal No. 581 of 2023. The appeal arose from the dismissal of a petition under Section 482 of the Code of Criminal Procedure, 1973, seeking the quashing of FIR No. 430 dated 16.10.2017 registered under Sections 420 (Cheating and dishonestly inducing delivery of property), 120-B (Criminal conspiracy), and 506 (Criminal intimidation) of the Indian Penal Code, 1860, at Police Station Sadar, Ludhiana (Rural). The core legal setting involved the distinction between a civil breach of contract and the criminal offence of cheating, and the exercise of the inherent powers of the High Court, and by extension the Supreme Court, to prevent the abuse of the process of the court.

Facts

The appellant, Sarabjit Kaur, entered into an Agreement to Sell dated 18.11.2013 with Sarabjit Kaur, wife of Darshan Singh (the second respondent), for a plot of land measuring 1 Kanal. This agreement was predicated on a prior agreement that the appellant had with one Malkit Kaur dated 27.05.2013. The agreement explicitly stated that the appellant/vendor was not the absolute owner at the time. The total consideration was Rs. 22,00,000/-, out of which the appellant received Rs. 5,00,000/- as earnest money, with the date for registration of the sale deed fixed as 25.06.2014. This date was later extended to 24.12.2014 upon the payment of an additional Rs. 75,000/- by the second respondent. The second respondent, Darshan Singh (acting on behalf of his wife), did not initiate any civil proceedings for specific performance or for recovery of the earnest money after the extended deadline passed. Instead, he filed a series of police complaints. The first complaint dated 30.09.2015 was against two property dealers, Manmohan Singh and Ranjit Singh, seeking recovery of money paid in three transactions, including the one with the appellant. After investigation, the Economic Offences Wing sought legal opinion, and the District Attorney opined on 18.05.2016 that the dispute was civil in nature and no criminal offence was made out. A second complaint by Darshan Singh dated 05.10.2016, with similar allegations, was consigned to record on 23.01.2017. A third complaint dated 15.06.2017, which for the first time specifically named the appellant alongside the property dealers, led to the registration of the impugned FIR under Sections 420, 120-B, and 506 IPC on 16.10.2017. The chargesheet was subsequently filed. The appellant's petition under Section 482 CrPC for quashing the FIR was dismissed by the Punjab and Haryana High Court, leading to the present appeal before the Supreme Court.

Issues

The primary legal issue before the Supreme Court was whether the allegations contained in the FIR and the attendant circumstances disclosed the necessary ingredients for the criminal offences of cheating, conspiracy, and intimidation, or whether the dispute was purely civil in nature, making the continuation of criminal proceedings an abuse of the process of the court. A corollary issue was whether the conduct of the complainant in serially filing police complaints, improving his version over time, and eschewing civil remedies, indicated an ulterior motive to exert criminal pressure for the resolution of a contractual dispute.

Decision

The Supreme Court allowed the appeal, set aside the order of the High Court, and quashed FIR No. 430 dated 16.10.2017 and all subsequent proceedings. The court held that allowing the criminal proceedings to continue would constitute an abuse of the process of the court. The reasoning of the court was detailed and multi-faceted, addressing both the substantive law on cheating and the procedural misuse evident from the facts.

The court began its analysis by reaffirming a fundamental principle of criminal law: a breach of contract, by itself, does not give rise to criminal prosecution for the offence of cheating under Section 420 IPC. For an act to constitute cheating, the complainant must demonstrate that the accused had a fraudulent or dishonest intention right at the beginning of the transaction. The mere failure to fulfill a promise or keep up an engagement, which may result in a breach of contract, is insufficient to establish the mens rea required for the crime of cheating. The court emphasized that criminal liability attaches only where the intention to deceive and induce delivery of property exists from the very inception of the dealings between the parties.

Applying this principle to the facts, the court found a complete absence of any material to suggest that the appellant had a dishonest intention at the time of entering into the Agreement to Sell in 2013. The agreement itself was transparent about the appellant's derivative title based on her own agreement with Malkit Kaur. The transaction proceeded with the payment of earnest money and even an extension of the performance date upon further payment. There was no allegation that the appellant never intended to perform her part of the contract from the start. The failure to execute the sale deed by the extended date of 24.12.2014, at its highest, pointed to a possible breach of contract, not an initial fraudulent intent.

The court then examined the conduct of the complainant (respondent No. 2) as a critical factor revealing the abuse of process. It noted three significant aspects. First, the complainant never initiated any civil proceedings for specific performance of the agreement or for recovery of the earnest money, which was the natural and appropriate remedy for a breach of contract. The readiness and willingness of the vendee, a crucial element in a suit for specific performance, was never tested in a civil forum. Second, the complainant did not issue any legal notice to the appellant demanding performance or refund before resorting to criminal complaints. Third, and most telling, was the trajectory of the complaints themselves. The first complaint in 2015 did not even name the appellant as an accused; it was directed only against the property dealers and sought a refund of money. After this complaint was officially closed on the opinion that it was a civil dispute, the complainant filed a second and then a third complaint, progressively improving his version to include the appellant and allegations of cheating. The court found that the entire sequence demonstrated a calculated effort to convert a civil dispute into a criminal case to pressurize the appellant into returning the money. The court categorically stated that criminal courts are not meant to be used for settling scores or pressurizing parties to settle civil disputes.

The court also highlighted the inordinate delay in invoking the criminal machinery. The FIR was registered in October 2017, based on a complaint filed in June 2017, which was nearly three years after the last date fixed for the execution of the sale deed (24.12.2014). This long silence, coupled with the avoidance of civil remedy, further undermined the bona fides of the criminal complaint.

The court distinguished situations where the ingredients of a criminal offence are plainly made out from the facts alleged, in which case the criminal courts must duly take cognizance. However, on a holistic reading of the FIR and the uncontroverted documentary history, the court concluded that no prima facie case of cheating, conspiracy, or intimidation was disclosed. The allegations, even if taken at face value, did not travel beyond the realm of a civil breach of contract. Therefore, to subject the appellant to the rigors of a criminal trial in such circumstances would be oppressive and unjust, amounting to a clear abuse of the judicial process. Consequently, the court exercised its powers to quash the FIR to secure the ends of justice.

Quotes

"A breach of contract does not give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction. Merely on the allegation of failure to keep up promise will not be enough to initiate criminal proceedings."

"The entire idea seems to be to convert a civil dispute into criminal and put pressure on the appellant for return of the amount allegedly paid. The criminal Courts are not meant to be used for settling scores or pressurise parties to settle civil disputes."

"Wherever ingredients of criminal offences are made out, criminal courts have to take cognizance. The complaint in question on the basis of which F.I.R. was registered was filed nearly three years after the last date fixed for registration of the sale deed. Allowing the proceedings to continue would be an abuse of process of the Court."