The Gujarat High Court has strongly criticised police authorities for registering criminal cases in commercial disputes despite a circular issued by the Director General of Police (DGP) cautioning against giving civil disputes a criminal colour.
Justice J. C. Doshi, while quashing an FIR registered at Kamrej Police Station in Surat, observed that allegations concerning unpaid dues arising from the sale of goods should ordinarily be pursued through civil remedies when the essential ingredients of criminal offences are absent.
Background
The petitioner, Pratik Gulshanbhai Allawadi, approached the High Court seeking quashing of an FIR registered under Sections 409, 420, 504, 506(2) and 120B of the Indian Penal Code.
According to the complainant, who was engaged in the grey cloth manufacturing and trading business, he had supplied goods worth approximately ₹1.42 crore through three different firms between July 10, 2023, and January 16, 2024. The payments were allegedly not made.
The petitioner argued that his only involvement was introducing the complainant to the principal accused. He further pointed out that cheques issued towards the outstanding dues had been dishonoured and that proceedings under the Negotiable Instruments Act had already been initiated.
The petitioner maintained that the dispute arose from a commercial transaction and did not disclose the necessary ingredients of cheating or criminal breach of trust.
After examining the FIR, Justice Doshi observed that the allegations primarily concerned the non-payment of money for goods supplied. The Court found no sufficient basis to invoke criminal provisions merely to recover outstanding commercial dues.
The Court also expressed concern over the conduct of police authorities, particularly because the State DGP had already issued a circular advising police personnel against registering FIRs in disputes that were essentially civil in nature.
The judgment observed:
"This Court has time and again deprecated approach of police authorities for filing such kind of FIR whereby civil dispute has been converted into criminal proceedings."
The Court further noted that despite the DGP's circular, police officers continued registering such FIRs without following the instructions.
The Court relied on the Supreme Court's decision in Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh (2024), which explained the distinction between cheating and criminal breach of trust. It noted that cheating requires dishonest intention from the beginning of the transaction, while criminal breach of trust requires entrustment of property and its dishonest misappropriation.
The judgment further emphasised:
"The distinction between mere breach of contract and the offence of criminal breach of trust and cheating is a fine one. In case of cheating, the intention of the accused at the time of inducement should be looked into which may be judged by a subsequent conduct, but for this, the subsequent conduct is not the sole test."
The Court also referred to the Supreme Court's observations on non-payment for goods supplied, noting that a sale transaction cannot automatically be treated as criminal breach of trust merely because the buyer fails to pay the agreed consideration.
On the police authorities' approach, the Court made the following observation:
"What could be noticed that police authorities have misused powers and added section 409 and 420 of IPC for the purpose of recovery of outstanding amount which alleged to have been due in commercial transaction."
Considering the allegations and the legal principles laid down by the Supreme Court, the Gujarat High Court held that the FIR did not disclose the essential ingredients necessary to constitute the alleged offences against the petitioner.
Accordingly, the Court allowed the petition and quashed FIR No. C.R. No. I-11214020241297 of 2024, registered at Kamrej Police Station, Surat, along with all consequential proceedings against Pratik Gulshanbhai Allawadi.
