SUPREME COURT REITERATES LIMITS OF CHEATING AND CRIMINAL BREACH OF TRUST

In a decisive judgment dated September 24, 2025, the Supreme Court of India, through Justices B.V. Nagarathna and R. Mahadevan, addressed fundamental legal questions regarding the criminalization of contractual disputes and the misuse of criminal justice machinery.

The Hon’ble Apex Court, in Arshad Neyaz Khan v. State of Jharkhand & Another, [Criminal Appeal Arising out of SLP (Criminal) No. 3606 of 2024], categorically quashed FIR No. 18 of 2021 and Complaint Case No. 619 of 2021, sending a strong message against the invocation of criminal law in matters that are fundamentally civil in nature.

BACKGROUND OF THE CASE

The dispute arose from an agreement for sale executed in February 2013 between the Appellant Arshad Neyaz Khan and the Complainant Md. Mustafa, regarding properties in Ranchi, Jharkhand. Out of the agreed consideration of Rs. 43,00,000, an advance payment of Rs. 20,00,000 was paid by the Complainant to the Appellant. However, no transfer of property took place and the Complainant, after nearly eight years, filed criminal proceedings alleging offences under Sections 406, 420, and 120B of the Indian Penal Code (IPC) for breach of trust, cheating and criminal conspiracy.

The case saw various procedural twists, including mediation and partial settlement, anticipatory bail and subsequent cancellation of bail for non-compliance with settlement terms, culminating in the Appellant approaching the Supreme Court for quashing of criminal proceedings.

KEY LEGAL ISSUES

The Hon’ble Supreme Court was called upon to decide on the following core issues:

1. Whether the allegations in the complaint and FIR satisfied the essential ingredients of cheating (Section 420 IPC), criminal breach of trust (Section 406 IPC) and criminal conspiracy (Section 120B IPC);
2. Whether the invocation of criminal law was just and proper, especially when an alternative civil remedy for damages was available;

• The applicability of precedents, including Inder Mohan Goswami v. State of Uttaranchal[1] and State of Haryana v. Bhajan Lal[2], in guarding against abuse of process and harassment;

1. The permissibility of simultaneous charges of cheating and criminal breach of trust in cases stemming from a single contractual dispute;

COURT’S ANALYSIS AND FINDING

1. Absence of dishonest intent: The Supreme Court relied on well-established principles that to sustain a charge under Section 420 IPC, there must be evidence of fraudulent or dishonest intent at the inception of the contract. Mere failure to discharge contractual obligations or refund advance payments cannot, by itself, constitute cheating. The Court found no credible evidence or pleadings suggesting that the Appellant intended from the outset to deceive or cheat the Complainant.
2. No Entrustment or Misappropriation: Analyzing the allegations relating to criminal breach of trust, the Court emphasized that such an offence requires clear entrustment of property and subsequent dishonest misappropriation. The Complaint did not establish any meaningful entrustment or detail how the property was fraudulently diverted by the Appellant. The absence of these core elements precluded prosecution under Section 406 IPC.
3. Civil vs. Criminal Remedy: The Judgment underlined the availability of an adequate civil remedy to recover money or damages for breach of contract and sharply critiqued the attempt to weaponize criminal law for what was essentially a civil dispute. The Complainant’s eight-year delay in initiating proceedings and preference for criminal court over a civil suit further weakened the bona fides of the allegations.
4. Precedent on quashing criminal proceedings: Citing the principles of State of Haryana v. Bhajan Lal[3], the Court emphasized its powers under Section 482 CrPC to prevent abuse of judicial process and to quash vexatious criminal litigation. The facts fell squarely within the categories outlined in Bhajan Lal, particularly where allegations failed to constitute a cognizable offence or where proceedings were manifestly attended with mala fide intent.
5. Simultaneity of Cheating and Criminal Breach of Trust: The Judgment clarified that offences of cheating and criminal breach of trust require distinct factual foundations and cannot co-exist on the same set of facts unless all statutory ingredients are met. In the present case, neither offence was established, rendering the complaint doubly unsustainable.

 

 

 

DIRECTIONS OF THE COURT

The Hon’ble Supreme Court in its ruling:

• Quashed all criminal proceedings, including FIR, complaint and consequential actions.
• Set aside the Jharkhand High Court’s orders and allowed full relief to the Appellant.
• Reiterated that criminal law must not serve as a substitute for civil remedies nor as an instrument of harassment and vendetta.

CONCLUSION

This Judgment marks a robust reaffirmation of the need to maintain the proper boundary between civil and criminal law. By quashing the criminal proceedings, the Supreme Court delivered a clear message that loosely framed complaints, devoid of any real evidence of criminal intent or misappropriation, should not trespass into the realm of penal law.

The decision safeguards the rights of parties against vexatious litigation and underscores the responsibility of complainants to seek remedies through appropriate channels. It signals a caution to litigants and practitioners to pursue justice within the contours of law, ensuring that courts are not misused for collateral purposes.

 

Soumen Dash
(Legal Associate)

The Indian Lawyer & Allied Services

 

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[1] (2007) 12 SCC 1

[2] 1992 AIR 604

[3] 1992 AIR 604