Supreme Court Quashes FIR Holding That Purely Civil Property Dispute Cannot Be Given a Criminal Colour

In State of Arunachal Pradesh v. Kamal Agarwal & Ors. and Chandra Mohan Badaya v. State of Arunachal Pradesh & Ors. (2024 Latest Caselaw 252 SC), the Supreme Court reiterated that criminal proceedings cannot be used to settle civil or commercial disputes. Holding that the allegations arose from a property transaction and disclosed no criminal offence, the Court quashed the FIR and all consequential proceedings. 

The complainant alleged that ₹1 crore had been paid to the accused as consideration for the purchase of immovable property situated in Jaipur, Rajasthan. According to the complainant, the accused failed to execute the sale deed and thereby cheated him. The accused, however, contended that the amount was a loan and further asserted that a substantial portion of the money had already been repaid through bank transfers. They also relied upon subsequent property transfers made in favour of the complainant's family members. An FIR was registered in Arunachal Pradesh for offences under Sections 420, 120B and 34 of the Indian Penal Code. While the Gauhati High Court refused to quash the FIR, the Rajasthan High Court quashed the proceedings in respect of certain accused on the ground that the dispute was civil in nature and that no part of the cause of action had arisen in Arunachal Pradesh. The matter eventually reached the Supreme Court. 

The principal issue was whether the allegations disclosed any criminal offence warranting investigation or whether the dispute was purely civil in nature, justifying the exercise of the Court's power to quash the FIR. 

The Supreme Court held that the dispute was essentially civil and contractual in nature. The Court observed that:

•There was no written agreement establishing whether the amount paid was a loan or an advance for the purchase of property. 

•The dispute regarding the nature of the transaction could only be resolved through evidence before a competent civil court. 

•There was no allegation that the property did not exist or had been fraudulently sold to someone else.

•Mere failure to transfer the property did not, by itself, constitute the offence of cheating. 

•The complainant's remedy, if any, lay in filing appropriate civil proceedings for enforcement of contractual rights. The Court also noted that almost every relevant aspect of the transaction, including the property, the accused persons and the alleged acts, was connected with Rajasthan. It questioned why the State of Arunachal Pradesh had pursued the matter before the Supreme Court when the complainant himself had not challenged the Rajasthan High Court's decision. The Court concluded that the FIR itself failed to disclose the commission of any cognisable offence and amounted to an abuse of the criminal justice process. 

The Supreme Court:

•Allowed the appeal filed by Chandra Mohan Badaya.

•Set aside the judgment of the Gauhati High Court. 

•Quashed the entire FIR and all consequential criminal proceedings. 

•Dismissed the appeals filed by the State of Arunachal Pradesh challenging the Rajasthan High Court's order. 

The judgment reinforces the settled principle that criminal law cannot be invoked to resolve contractual or commercial disputes unless the essential ingredients of a criminal offence are clearly established. It reiterates that a mere breach of contractual obligations or disagreement over a property transaction does not amount to cheating. The decision also underscores the High Courts' inherent power to quash criminal proceedings where they constitute an abuse of the process of law and confirms that civil disputes should not be given a criminal colour merely to exert pressure on the opposite party.