K.Sivaraj vs. The State Of Tamil Nadu

Facts

The petitioners, directors of Sivaraj Spinning Mills (P) Ltd., sought to quash an FIR registered for offences under the Bharatiya Nyaya Sanhita (BNS), corresponding to IPC sections for cheating and criminal breach of trust. The FIR alleged that the petitioners failed to pay a balance sum of Rs. 1,84,46,160/- for the erection of a 16MW solar power plant by F. Robin Power Solution Pvt. Ltd. The defacto complainant alleged that despite receiving a GST waiver of Rs. 12,36,95,160/-, the petitioners did not make the payment and subsequently filed false complaints. The FIR was registered on the direction of a learned Magistrate under Section 175(3) BNSS after the police initially did not register it. The petitioners argued that the dispute was civil in nature, a suit was pending, and the FIR was an abuse of process.

Held

The Court held that the impugned FIR was liable to be quashed. Firstly, it found that the offence of criminal breach of trust was not made out as there was no allegation of entrustment of property by the defacto complainant to the petitioners. Secondly, regarding the allegation of cheating, the Court observed that the dispute, at best, indicated a dispute with regard to payment of money or a breach of promise on the part of the petitioners, rather than deception from the inception of the contract. The Court noted that the outstanding amount was a fraction of the total contract value and that a civil suit was already pending. Furthermore, the Court found that the learned Magistrate had failed to apply judicial mind before directing the registration of the FIR, mechanically observing a prima facie case. The Court emphasized that FIR registration has serious consequences and magistrates must apply their mind, citing Priyanka Srivastava vs. State of Uttar Pradesh. The Court also directed the Director General of Police to issue instructions to Station House Officers to record only information disclosing cognizable offences in FIRs, not extraneous details like petitions and court orders. The Criminal Original Petition was allowed, and the FIR was quashed.

Key Issues

1. Whether the allegations in the FIR, concerning a dispute over payment of a balance sum for a contract, constitute the offences of cheating and criminal breach of trust under the BNS (corresponding to Sections 420 and 405 IPC)? Petitioner's arguments: The petitioners contended that the dispute was purely civil, arising from a contract. They argued that the outstanding amount was a mere Rs. 1,84,46,160/- out of a total consideration of Rs. 102 crores, and the issue of payment was already being adjudicated in a civil suit (COS No. 1 of 2024) where an attachment order was passed. They relied on Supreme Court judgments in Anukul Singh vs. State of Uttar Pradesh, Delhi Race Club (1940) Limited vs. State of Uttar Pradesh, and SC Garg vs. State of Uttar Pradesh to argue that such disputes should not be criminalized. Revenue/State's arguments: The respondents (State and defacto complainant) argued that the petitioners were harassing the defacto complainant with false complaints instead of paying the due amount. They submitted that the pendency of a civil suit would not absolve the petitioners of criminal liability and that quashing the FIR would condone the petitioners' conduct. The Additional Public Prosecutor argued that the investigation was at a nascent stage and the FIR should not be quashed.