The Supreme Court on Tuesday said there can be no doubt that a mere breach of contract is not, in itself, a criminal offence and gives rise to the civil liability of damages.
A bench of Justices S.A. Nazeer and Krishna Murari said: “There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages… the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one.”
“While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by the Respondent No 2 does not disclose dishonest or fraudulent intention of the appellants,” it added.
The bench was hearing an appeal filed by the Managing Director and the Directors of a company challenging a Calcutta High Court order, refusing to quash proceedings against them in a case of cheating and criminal breach of trust.
The bench noted that 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 the promise being absent, no offence under Section 420 IPC can be said to have been made out.
“In the instant case, there is no material to indicate that appellants had any malafide intention against the Respondent which is clearly deductible from the MOU dated August 20, 2009 arrived between the parties,” it said.
In the present matter, it was mutually decided between parties that respondent no 2, an authorised representative of SMC Global Securities Ltd, will invest an amount of Rs 2.5 crore with the company in lieu of which they will be issued 2,50,000 equity shares of Priknit Apparel Pvt Ltd.
An allotment letter was issued whereby 2,50,000 shares were issued in lieu of the investment made by him. The respondent no 2 issued a legal notice to the petitioners claiming they failed to bring the IPO, as per the MOU. Later, a criminal case was filed against them.
The top court said: “In view of the above facts and circumstances, the impugned order dated October 1, 2019 passed by the High Court is set aside. The impugned FIR No 168 dated March 28, 2013 and proceedings in the file of CMM, Kolkata, West Bengal in pursuance of charge sheet dated February 14, 2017 against the appellants for the offences under Section 406, 420, 120B IPC stands quashed.”