SC quashes Ranchi FIR, says commercial dispute cannot be turned into criminal case
THE JHARKHAND STORY NETWORK Ranchi, August 16: The Supreme Court has quashed an FIR registered at Ranchi Kotwali police station against senior…
THE JHARKHAND STORY NETWORK
Ranchi, August 16: The Supreme Court has quashed an FIR registered at Ranchi Kotwali police station against senior executives and an employee of Oriental Aromatics Limited, holding that a dispute arising from a written commercial contract cannot be converted into a criminal case when the essential ingredients of offences such as cheating and criminal breach of trust are absent.
A Bench comprising Justice Sanjay Karol and Justice Augustine George Masih allowed appeals filed by Parag Kishore Satoskar and others and set aside the February 19, 2025 order of the Jharkhand High Court, which had refused to quash the FIR. The Supreme Court ordered that Kotwali P.S. Case No. 323 of 2024 and all proceedings arising from it stand quashed.
Dispute Over Saraswati Camphor Distributorship
The case arose from a commercial dispute between M/s D.K. Enterprises, a Ranchi-based wholesale camphor trader, and Oriental Aromatics Limited, which manufactures specialty aroma chemicals and camphor.
According to the FIR, the complainant was offered the distributorship of ‘Saraswati’ camphor for Jharkhand for a three-year period from April 1, 2024, to April 1, 2027. He was required to pay ₹20 lakh over the three years and was promised various gifts and benefits.
The complainant initially paid ₹52,000 as token money in December 2023. An agreement was subsequently drawn up on March 29, 2024. He later made six payments totalling ₹73 lakh between April 4 and June 26, 2024, against which the company supplied goods worth ₹31.49 lakh under four bills.
The dispute escalated after the complainant questioned the price at which goods were being supplied to him compared with another party. According to the FIR, the company stopped further supplies, demanded additional money and did not return the alleged balance of ₹41.50 lakh.
Company Executives Challenged Criminal Proceedings
The FIR, registered on November 26, 2024, named five persons associated with Oriental Aromatics Limited, including its Chairman and Managing Director, Executive Director, Chief Executive Officer, Chief Operations Officer and a clerk.
The accused argued before the Supreme Court that the FIR, even if accepted at face value, disclosed nothing more than a dispute concerning price, supply and accounts under a written commercial contract. They contended that a criminal colour had been given to what was essentially a civil or commercial dispute.
The complainant, however, argued that the company’s conduct reflected an intention to deceive, particularly because the three-year distributorship agreement was terminated within about a month and a half. The State also opposed quashing the FIR, arguing that the investigation was at an early stage and should be allowed to proceed.
SC: Dishonest Intention Must Exist From the Beginning
The Supreme Court examined whether the allegations in the FIR, taken at face value, actually disclosed the offences alleged.
Referring to earlier judgments, the Court reiterated that mere breach of contract does not constitute cheating. For cheating to be established, fraudulent or dishonest intention must be shown to have existed at the very beginning of the transaction, when the inducement was allegedly made.
The Court found that the FIR contained no allegation that Oriental Aromatics had entered into the distributorship agreement without intending to honour it. Nor did it allege that the company knew at the time of receiving the payments that it would not supply the goods.
The Court also noted that the company had actually conferred the distributorship, executed the agreement, supplied goods and raised bills. Goods worth ₹31.49 lakh had admittedly been supplied. In these circumstances, the allegation of fraudulent intention at the inception was, according to the Court, a matter of speculation rather than an allegation supported by facts.
Contract Termination Does Not Automatically Become Cheating
The Supreme Court also rejected the argument that termination of the distributorship itself established criminal deception.
It observed that where a contracting party terminates an agreement in a manner permitted by the contract, any wrongful termination may give rise to a claim for damages. But to convert such termination into cheating, the FIR must contain facts showing that the termination was part of a fraudulent design formed at the beginning of the transaction.
The Court found no such allegation in the present case.
Earlier Communications Did Not Support the Criminal Allegation
The Court also examined the complainant’s communications after termination of the agreement.
The distributorship was terminated on July 8, 2024. A legal notice followed on July 23, while another communication was sent to the Managing Director on July 29. The Supreme Court noted that neither communication mentioned the alleged ₹73 lakh advance or the alleged wrongful retention of ₹41.50 lakh.
Instead, the complaints focused on the price at which goods had been supplied compared with another party. The FIR was registered more than two months later, with the allegation concerning the unreturned advance appearing for the first time. The Court considered this circumstance relevant while examining the allegations.
Criminal Breach of Trust Charge Also Fails
The Supreme Court separately examined the allegation of criminal breach of trust under Section 316(2) of the Bharatiya Nyaya Sanhita.
It held that criminal breach of trust requires entrustment of property. Money paid to a supplier as the price of goods, or as an advance for their supply, becomes the supplier’s money under the contract. It does not remain in the nature of property entrusted to the supplier for the benefit of the person making the payment.
Therefore, failure to supply goods after receiving advance payment may amount to a breach of contract, but without entrustment it does not constitute criminal breach of trust.
SC: Criminal Law Cannot Be Used to Recover Contractual Dues
The Court made an important distinction between a genuine criminal offence and a contractual claim.
It observed that if the complainant was indeed entitled to ₹41.50 lakh, the law provided him with an effective remedy. However, the criminal process could not be used as a means of compelling payment of a disputed contractual amount. The allegations, even if proved, would provide the foundation for a civil claim rather than a criminal prosecution.
The Supreme Court concluded that the FIR did not disclose the ingredients of cheating or criminal breach of trust. Continuing the criminal proceedings would amount to allowing a dispute arising from a written commercial contract to be pursued through criminal law and would constitute an abuse of the process of the court.
The Court accordingly set aside the Jharkhand High Court’s order and quashed the Ranchi Kotwali FIR and all proceedings arising from it. It clarified, however, that its judgment should not be treated as an opinion on the merits of any civil, arbitral or other proceedings that either party may pursue in accordance with law.
