SUPREME COURT RULES COMMERCIAL DISPUTE DOES NOT CONSTITUTE CHEATING UNDER SECTION 420 IPC IN COAL SUPPLY AGREEMENT
The Judgment in the Caseof Manish v. State of Maharashtra & AnotherCriminal Appeal No. __ of 2025 (Arising out of SLP (Criminal) No. 10931 of 2022)was delivered by a Division Bench of the Supreme Court of India, comprising Hon’ble Justice Pamidighantam Sri Narasimhaand Justice Joymalya Bagchionon 2nd April 2025. This Case deals with whether a commercial dispute arising from non-payment in a coal supply agreement amounts to cheating under Section 420 IPC. It examines if criminal proceedings can be sustained when no dishonest intention is shown at the inception of the transaction.
Facts
The Appellant, Manish, was involved in a business transaction with the second Respondent, Nitin Agrawal, wherein coal was supplied to the Appellant between November 2015 and June 2017 on a 15-day credit basis. Initially, payments were made, but over time, the Appellant defaulted and the sum of ₹76,82,883 became due. In 2019, a legal notice was issued demanding paymentand later in July 2020, a notarized agreement (Agreement) was executed wherein the Appellant agreed to pay ₹80 lakhs in five installments. Only ₹5 lakhs was paid under this Agreement and no further payment was made. Consequently, the second Respondent lodged a complaint, leading to the registration of FIR No. 80/2022 under Section 420 IPC for cheating. The Appellant approached the High Court seeking quashing of the FIR, which was dismissed. The Appellant then Appealed to the Supreme Court.
Issues
- Whether the allegations in the FIR constitute a criminal offence under Section 420 IPC or are they merely of a civil nature arising out of a commercial transaction?
- Whether the Appellant had the intention to deceive the Respondent at the inception of the transaction, which is necessary to attract the offence of cheating?
Contentions by Both Parties
Contentions of the Appellant
The Appellant contended that the dispute was purely commercial and arose due to business setbacks. He argued that the supply of coal took place over a long period and there was no dishonest intention from the beginning. The failure to pay arose from financial difficulties and no further supply or wrongful loss occurred after the notarized agreement. He emphasized that breach of contract or inability to pay does not constitute cheating under Section 420 IPC unless dishonest intention at inception is proven.
Contentions of the Respondent
The Respondent argued that the Appellant induced him to supply coal by misrepresenting himself as a reputed and trustworthy businessman. He claimed that the Appellant never intended to pay the full amount, which amounts to cheating. The notarized Agreement reflected the Appellant’s acknowledgment of his liability and the failure to fulfill the terms of this Agreement further indicated fraudulent conduct.
Supreme Court
The Supreme Court held that the materials on record, including statements from bank officials and the Appellant’s financial history, did not support the claim of deception at the inception of the transaction. The Court clarified that mere non-payment or breach of a contractual obligation, without more, does not constitute cheating. Since no further coal was supplied nor any wrongful loss suffered after the execution of the notarized Agreement, the FIR did not disclose the necessary ingredients of the offence under Section 420 IPC. Therefore, the Supreme Court set aside the High Court’s Order and quashed the FIR and the criminal proceedings arising from it.
Parichaya Reddy
Associate
The Indian Lawyer & Allied Services
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