Case: Vesa Holdings P. Ltd. &amp; Another Vs. State of Kerala &amp; Others

The appellant in Criminal Appeal No.2341 of 2011 is a Limited company of which appellants Venkataraman in Criminal Appeal No.2344 of 2011 and appellant Mani Prasad in Criminal Appeal No.2343 of 2011 were Directors and the appellant Chandrasekhran in Criminal Appeal No.2342 of 2011 was the promoter. The Company availed a loan from the Industrial Investment Bank of India and respondent No.3 herein/complainant as the AGM of the said bank at the relevant time, dealt with their loan application and had sanctioned the same. The company defaulted in repayment and wanted to settle the loan amount. The 3rd respondent on retirement from the bank agreed to act as a Consultant of the company in settling the loan and the company issued a letter dated 6.8.2008 stating that the settlement of the Company dues should be at Rs.8.25 crores and the acceptance letter from the IIBI should be obtained on or before 30.10.2008 and it was also agreed that Rs.75 lakhs would be given towards consultancy fees for the above settlement, out of which Rs.5 lakhs was given in advance to the 3rd respondent and the balance amount to be paid on the completion of the assignment. The Company also issued a cheque dated 6.8.2008 for a sum of Rs.30 lakhs drawn on HDFC Bank Limited and the same was agreed to be presented to the bank after obtaining the acceptance letter from IIBI on or before 30.10.2008 or otherwise the cheque should be returned to the company. The 3rd respondent made an endorsement in writing in the said letter agreeing to the said terms and signed it. The 3rd respondent filed a private complaint dated 13.10.2010 against the company, its Directors and Promoter in the Court of Judicial First Class Magistrate Changanasserry and the same was forwarded to the police for investigation under Section 156(3) of the Code of Criminal Procedure and the Police registered a case in Crime No.1461 of 2010 for the alleged offences under Sections 417, 418, 420, 120B and 34 IPC. It is alleged in the complaint that the loan transaction of the company with IIBI was settled with the efforts of the complainant/respondent No.3 herein but the company, Directors and Promoter did not pay him the consultancy fee as promised and they conspired together to deceive the complainant and committed offences as alleged. The company and its Directors filed petitions under Section 482 Criminal Procedure Code in Criminal M.C.No.220 to 222 of 2011 on the file of the High Court of Kerala at Ernakulam contending that the understanding between the company and the complainant was that the settlement with the IIBI should be completed by 30.10.2008 and the complainant was not able to settle the loan before the said date and hence he could not present the cheque in the light of the condition imposed on him in the letter dated 6.8.2008 and the settlement was completed only on 5.1.2009 due to the efforts of the company itself and not at the instance of the complainant and at any rate it can only be breach of contract for which no criminal liability can be fastened against the company and its Directors. The High Court dismissed the petitions by holding that the truth of the allegations have to be ascertained by the investigating agency. Challenging the said order the present appeals have been preferred.

Court's reasoning:
8. From the decisions cited by the appellant, the settled proposition of law is that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In other words for the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making initial promise being absent, no offence under Section 420 of the Indian Penal Code can be said to have been made out9. It is true that a given set of facts may make out a civil wrong as also a criminal offence and only because a civil remedy may be available to the complainant that itself cannot be a ground to quash a criminal proceedingIn the present case there is nothing to show that at the very inception there was any intention on behalf of the accused persons to cheat which is a condition precedent for an offence under Section 420 IPC. In our view the complaint does not disclose any criminal offence at all. Criminal proceedings should not be encouraged when it is found to be malafide or otherwise an abuse of the process of the court. Superior courts while exercising this power should also strive to serve the ends of justice. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse of the process of court and the High Court committed an error in refusing to exercise the power under Section 482 Criminal Procedure Code to quash the proceedings.