Summary
A supplier's complaint that the price of horse feed sold and delivered over the years had not been paid disclosed no criminal offence. In a sale of goods the property passes to the buyer on delivery, so there is no entrustment and no criminal breach of trust, and nothing showed dishonest intention at the start, as cheating requires. The Court quashed the summons under Section 406 IPC, held that office bearers of a company are not vicariously liable under the Penal Code without direct allegations against them, and stressed that criminal breach of trust and cheating cannot both arise on the same facts.
Issues
- Whether non-payment of the price of goods sold and delivered can amount to criminal breach of trust under Section 406 IPC or cheating under Section 420 IPC.
- What a Magistrate must consider before issuing process on a private complaint after an inquiry under Section 202 CrPC, and when a summoning order may be quashed under Section 482 CrPC.
- Whether the office bearers of a company can be summoned for offences alleged against the company without direct allegations against them.
Provisions considered
- Sections 405 and 406, Indian Penal Code, 1860Criminal breach of trust needs entrustment of property, or dominion over it, that remains another's, and its dishonest misappropriation or conversion. A mere sale is not an entrustment, so a buyer who fails to pay for delivered goods commits no criminal breach of trust; the summons under Section 406 could not stand. (¶¶ 24, 25, 28, 29, 30, 31, 33, 34, 35, 36)
- Sections 415 and 420, Indian Penal Code, 1860Cheating requires deception and a fraudulent or dishonest inducement to deliver property, with dishonest intention present from the start of the transaction. A later failure to pay is at most a civil wrong, and the complaint disclosed none of the ingredients, so process for cheating would also have been liable to be quashed. (¶¶ 24, 25, 26, 28, 29, 30, 31, 32)
- Sections 202 and 204, Code of Criminal Procedure, 1973At the inquiry stage the Magistrate decides only whether a prima facie case exists on the complainant's material, but must apply his mind to the allegations, the evidence and the law, and his summoning order must show satisfaction that there is sufficient ground for proceeding. Taking cognizance under Section 190 and issuing process under Section 204 are distinct. (¶¶ 6, 7, 13, 14, 20, 21, 22, 23)
- Section 482, Code of Criminal Procedure, 1973A petition under Section 482 to quash a summoning order is maintainable, and the court must examine whether the Magistrate applied his mind to the existence of sufficient grounds. The High Court failed to do so in declining to quash a summons on a complaint disclosing no offence. (¶¶ 11, 19, 22, 37, 40)
- Sections 20 and 24, Sale of Goods Act, 1930Relied on to show that in a sale of goods the property passes to the buyer, at the latest on delivery, even if payment is deferred. Once property has passed, the buyer cannot be said to have been entrusted with the seller's property. (¶¶ 35, 36)
Held
- Summoning an accused is a serious matter. The Magistrate is not a post office: he must scrutinise the complaint and the preliminary evidence, may question the complainant and witnesses, and his order must show satisfaction that the allegations constitute an offence; producing two supporting witnesses does not by itself justify process. (¶¶ 13, 18, 20, 21, 23)
- The Penal Code has no provision fixing vicarious liability on office bearers of a company for cheating or criminal breach of trust alleged against the company. They can be arrayed as accused only on direct allegations of their own acts, or where a statute provides for vicarious liability and the complaint contains the allegations needed to attract it. (¶ 14)
- Criminal breach of trust and cheating have distinct ingredients and are mutually exclusive on the same facts: in criminal breach of trust the offender is lawfully entrusted with property and dishonestly misappropriates it, while in cheating dishonest inducement must exist from the inception of the transaction. Mere breach of contract is not cheating unless dishonest intention is shown from the beginning. (¶¶ 25, 26, 27, 29, 30, 43)
- In a sale of goods the property passes to the buyer on delivery, so there is no entrustment; prosecution for criminal breach of trust for failure to pay the price is flawed, and the seller's remedy lies in a civil suit for recovery. (¶¶ 31, 33, 35, 36, 38)
- Taking the complaint at face value, it disclosed no offence and fell within the first category in Smt. Nagawwa v. Veeranna Shivalingappa Kanjalgi. As the complainant had filed no civil suit and appeared to have let limitation lapse, continuing the criminal proceeding would be an abuse of process. (¶¶ 12, 37, 39, 40)
- Magistrates dealing with private complaints, and police dealing with FIRs, must examine whether the allegations actually make out cheating or criminal breach of trust instead of mechanically invoking both; the Court called for police officers to be trained in the distinction. (¶¶ 41, 42, 43)
Result
Appeal allowed; High Court order and the Additional Chief Judicial Magistrate's order issuing process under Section 406 IPC set aside. Registry directed to send copies of the judgment to the Principal Secretaries of the Union Ministry of Law & Justice and the Union Home Department.