Parag Kishore Satoskar v. State of Jharkhand
“A Commercial Dispute Is Not a Crime: FIR for Cheating and Breach of Trust Over a Distributorship Advance Quashed”
TL;DR
The Supreme Court quashed Kotwali P.S. Case No. 323 of 2024 (Ranchi, Jharkhand), registered under Sections 316(2), 318(4) and 3(5) of the Bharatiya Nyaya Sanhita, 2023 against five officials of Oriental Aromatics Limited by a camphor distributor who had paid Rs. 73,00,000 as advance under a three-year distributorship agreement. Accepting the FIR allegations at face value, the Court held that no fact was alleged from which a dishonest intention at the inception could be inferred, so cheating under Section 318(4) BNS was not made out, and that entrustment was not alleged, so criminal breach of trust under Section 316(2) BNS was not made out either. The Court set aside the Jharkhand High Court's refusal to quash and said the dispute, if any money is due, is a matter for civil or other proceedings, on whose merits it expressed no opinion.
The Bottom Line
Not paying back an advance or stopping supplies under a written commercial contract is not, by itself, cheating or criminal breach of trust. For cheating, the FIR must allege facts showing a dishonest intention at the very beginning of the transaction; for criminal breach of trust, it must allege entrustment of property. Where the FIR pleads neither, the Supreme Court will quash it as an abuse of the process of court, while leaving the complainant free to pursue civil, arbitral or other remedies.
Case Timeline
The journey from FIR to Supreme Court verdict
Distributorship Agreement Drawn Up
An agreement was drawn up for a three-year distributorship term from 01.04.2024 to 01.04.2027. The informant signed and returned it on 04.05.2024.
Distributorship Agreement Drawn Up
An agreement was drawn up for a three-year distributorship term from 01.04.2024 to 01.04.2027. The informant signed and returned it on 04.05.2024.
Advance Remittances Begin
The informant paid Rs. 73,00,000 as advance in six remittances between 04.04.2024 and 26.06.2024; goods worth Rs. 31,49,167 were supplied under four bills.
Advance Remittances Begin
The informant paid Rs. 73,00,000 as advance in six remittances between 04.04.2024 and 26.06.2024; goods worth Rs. 31,49,167 were supplied under four bills.
Agreement Terminated
The distributorship agreement was terminated on 08.07.2024.
Agreement Terminated
The distributorship agreement was terminated on 08.07.2024.
Legal Notice Issued by Informant
The informant issued a legal notice, followed by a further communication to the Managing Director on 29.07.2024. The Court noted that neither mentioned the Rs. 73,00,000 advance or Rs. 41,50,833 as wrongfully retained.
Legal Notice Issued by Informant
The informant issued a legal notice, followed by a further communication to the Managing Director on 29.07.2024. The Court noted that neither mentioned the Rs. 73,00,000 advance or Rs. 41,50,833 as wrongfully retained.
Company Replies to the Notice
The Company rejected the complaint and demanded Rs. 5,79,239.
Company Replies to the Notice
The Company rejected the complaint and demanded Rs. 5,79,239.
FIR Registered
Kotwali P.S. Case No. 323 of 2024 was registered at Ranchi on the written information of the informant under Sections 316(2), 318(4) and 3(5) BNS against the five appellants.
FIR Registered
Kotwali P.S. Case No. 323 of 2024 was registered at Ranchi on the written information of the informant under Sections 316(2), 318(4) and 3(5) BNS against the five appellants.
High Court Declines to Quash FIR
The High Court of Jharkhand at Ranchi dismissed W.P. (Cr.) Nos. 1041 and 1042 of 2024, declining to quash the FIR.
High Court Declines to Quash FIR
The High Court of Jharkhand at Ranchi dismissed W.P. (Cr.) Nos. 1041 and 1042 of 2024, declining to quash the FIR.
Supreme Court Quashes FIR
The Supreme Court allowed both appeals, set aside the High Court judgment, and quashed the FIR and all proceedings arising from it.
Supreme Court Quashes FIR
The Supreme Court allowed both appeals, set aside the High Court judgment, and quashed the FIR and all proceedings arising from it.
The Story
The respondent No. 2, the original informant, is the sole proprietor of M/s D.K. Enterprises, a firm carrying on wholesale trade in camphor at Ranchi. M/s Oriental Aromatics Limited manufactures specialty aroma chemicals and camphor. The appellants in the appeal arising out of SLP (Crl.) No. 3996 of 2025 are its Chairman and Managing Director and its Executive Director, and those in the appeal arising out of SLP (Crl.) No. 3933 of 2025 are its Chief Executive Officer, Chief Operations Officer and a clerk. On 26.11.2024, on the written information of the respondent No. 2, Kotwali P.S. Case No. 323 of 2024 was registered at Police Station Ranchi Kotwali, District Ranchi, naming the five appellants as accused for offences under Sections 316(2), 318(4) and 3(5) of the Bharatiya Nyaya Sanhita, 2023.
The FIR alleged that the respondent No. 2 was offered the distributorship of 'Saraswati' camphor for the State of Jharkhand by the Company from 01.04.2024 to 01.04.2027, for which over three years he would have to pay Rs. 20,00,000 and in return receive many kinds of gifts and benefits. He transferred Rs. 52,000 as token money in December 2023. An agreement was drawn up on 29.03.2024 for the term 01.04.2024 to 01.04.2027, which he signed and returned on 04.05.2024. He paid Rs. 73,00,000 as advance in six remittances between 04.04.2024 and 26.06.2024, against which goods worth Rs. 31,49,167 were supplied under four bills. When he raised the question of the lower rate at which goods were supplied to others, the Company allegedly stopped supplies, demanded more money, and neither sent the goods nor returned the balance of Rs. 41,50,833.
The Court noted that the agreement was terminated on 08.07.2024. On 23.07.2024 the informant sent a legal notice, and on 29.07.2024 a further communication to the Managing Director. Neither mentioned the advance of Rs. 73,00,000 or Rs. 41,50,833 retained; the grievance was that goods were supplied to him at a higher price than to another, and in the second he said that he continued to hold the Company's goods worth about Rs. 6,00,000. The Company replied on 11.09.2024 rejecting the complaint and demanding Rs. 5,79,239. The FIR followed more than two months later.
The appellants approached the High Court of Jharkhand at Ranchi through W.P. (Cr.) Nos. 1041 and 1042 of 2024 seeking to quash the FIR. By a common judgment and order dated 19.02.2025 the High Court declined to quash the FIR and dismissed both writ petitions. The appellants then came to the Supreme Court.
Legal Issues
Click each question to reveal the Supreme Court's answer
Arguments
The battle of arguments before the Supreme Court
Petitioner
Vihaan Kumar
FIR discloses only a commercial dispute given a criminal colour
The appellants submitted that the FIR, read as a whole and accepted at face value, discloses no more than a dispute over price, supply and accounts arising out of a written commercial contract, to which a criminal overtone had been imparted.
Respondent
State of Haryana
Deliberate conduct is being portrayed as a mere contractual dispute
Counsel for the informant argued that the appellants were portraying a course of deliberate conduct as a mere contractual dispute, and that the intention to deceive was writ large in terminating, without forewarning, within about a month and a half an agreement meant to run for three years, on dues said to be fictitious. Reliance was placed on C.S. Prasad v. C. Satyakumar and Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra for the propositions that civil and criminal liability may arise from the same facts, that an FIR need not be an encyclopaedia, and that a legitimate investigation into a cognizable offence should not be thwarted.
Investigation is at a seminal stage (State of Jharkhand)
The learned Standing Counsel for the State adopted these submissions and added that the investigation was at a seminal stage and should be permitted to run its course.
Court's Analysis
How the Court reasoned its decision
The Court first noted that Section 318(4) BNS (cheating) corresponds to Section 420 IPC and Section 316(2) BNS (criminal breach of trust) to Section 406 IPC. It recalled from Delhi Race Club (1940) Ltd. v. State of U.P. that in cheating the intention of the accused at the time of inducement is the gist of the offence and that mere breach of contract cannot give rise to a prosecution for cheating unless fraudulent or dishonest intention is shown from the beginning of the transaction, and from Hridaya Ranjan Prasad Verma v. State of Bihar that culpable intention at the time of the promise cannot be presumed from failure to keep it. Applying the first category of Bhajan Lal, which requires no weighing of evidence but only reading the allegations against the ingredients of the offence, the Court found the FIR wanting. It contained no averment that the offer of distributorship was made without intention of conferring it, no allegation that the accused knew they would not or could not supply goods, no false representation of existing fact, and no particulars of who made the alleged deceitful representation. The closest averment, that gifts and benefits would be received for Rs. 20,00,000 over three years, was a promise as to the future. The FIR itself recorded that the distributorship was conferred, the agreement executed for the full term, goods supplied worth Rs. 31,49,167 and bills raised, making initial fraudulent intent speculation rather than allegation. Termination under the contract was not itself deception; the remedy for wrongful termination is damages. Using its power to look at attending circumstances (Mohammad Wajid v. State of U.P.), the Court weighed that the legal notice and later communication did not mention the Rs. 73,00,000 advance and that the case of an unreturned advance appeared for the first time in the FIR more than two months after the Company's reply. On criminal breach of trust, money paid to a supplier as the price of goods or in advance passes to the supplier as his own, so there was no entrustment; and cheating and breach of trust upon the same facts are antithetical. Neeharika Infrastructure did not help the informant because the Court applied the very test it lays down.
no investigation can supply an averment that the informant has not made.
Para 12
Explains why a deficient FIR cannot be saved by letting the investigation run its course where the defect is one of law.
A promise of future advantage becomes a deception only if it was made without any intention of performing it
Para 14
Distinguishes a mere future promise from a false representation of existing fact, and ties deception to the intention at the time of the promise.
a contract lawfully entered into and acted upon is not a deception.
Para 14
Payments made under a written contract do not become cheating merely because the contract later breaks down.
If he takes the money and does not deliver, he is in breach of his contract but has not committed a breach of trust, because there was no trust.
Para 18
Clarifies that advance payments to a supplier are consideration under a contract and not entrusted property for the purpose of criminal breach of trust.
Each of those assertions, if established, will be the foundation of a claim and not of a crime.
Para 22
Summarises the Court's view that the grievance is civil in nature and cannot be pursued through criminal process.
The Verdict
Relief Granted
The five appellants are relieved of the criminal proceedings arising from the FIR. The informant remains free to pursue any remedy available in law, such as a civil or arbitral proceeding, for the money he claims is due.
Directions Issued
- The FIR registered as Kotwali P.S. Case No. 323 of 2024 at Police Station Ranchi Kotwali, District Ranchi, for offences under Sections 316(2), 318(4) and 3(5) of the Bharatiya Nyaya Sanhita, 2023, and all proceedings arising therefrom, stand quashed
- Nothing in the judgment is to be construed as an expression of opinion on the merits of any civil, arbitral or other proceeding between the parties, whether pending or instituted later in accordance with law
- Pending applications, if any, stand disposed of
Key Legal Principles Established
In cheating, the intention of the accused at the time of inducement is the gist of the offence; mere breach of contract does not give rise to prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the transaction.
Under the first category of State of Haryana v. Bhajan Lal, where the allegations in the FIR, taken at face value and accepted in their entirety, do not prima facie constitute any offence, the High Court may quash the FIR without weighing evidence, but the power is to be exercised sparingly and with circumspection.
A promise as to the future becomes deception only if it was made without any intention of performing it; the FIR must contain facts from which such absence of intention can be gathered.
Conclusory words such as "cheated" or "I got deceived" are not enough without facts from which those conclusions can be drawn.
Part performance is not a conclusive answer to cheating, but where the FIR pleads nothing pointing to dishonesty at inception and its own facts are consistent with an intention to perform, initial fraudulent intent is speculation rather than allegation.
Exercising a power of termination in the manner the contract permits is not by itself deception; the remedy for wrongful termination is damages.
Criminal breach of trust requires entrustment, meaning the beneficial interest remains with the person handing over the property; money paid to a supplier as price or advance passes to the supplier as his own.
Cheating and criminal breach of trust are antithetical, and an FIR alleging both on the same indivisible facts suggests the allegations were not measured against the ingredients of either offence.
Key Takeaways
What different people should know from this case
- If a business partner fails to deliver goods or return an advance under a written contract, that is ordinarily a civil dispute, and the courts may not allow it to be pursued as a criminal case.
- To make out cheating, a complaint must say what false statement was made, by whom, when and how, and show that the dishonest intention existed from the start.
- Saying that you were "cheated" is not enough; the FIR should state the facts that lead to that conclusion.
- Paying an advance to a supplier does not make the supplier a trustee of that money, so failure to deliver is not criminal breach of trust.
- If you have a money claim from a contract, remedies such as a civil suit, damages or arbitration are available, and the Supreme Court said these remain open to the informant.
- Raising a criminal complaint only after a long gap, and after earlier notices did not mention the alleged advance, can count against the complainant.
Legal Framework
Applicable laws and provisions
Constitutional Provisions
Article 226
Constitution of India
“Power of High Courts to issue directions, orders or writs for the enforcement of fundamental rights and for any other purpose.”
Relevance: The appellants invoked the High Court's writ jurisdiction through W.P. (Cr.) Nos. 1041 and 1042 of 2024 to seek quashing of the FIR; the Court referred to the principles in Bhajan Lal on exercise of powers under Article 226 and Section 482 CrPC.
Statutory Provisions
Section 318(4)
Bharatiya Nyaya Sanhita, 2023
“Punishment for cheating, corresponding to Section 420 of the Indian Penal Code, 1860.”
Relevance: The Court held the ingredients of cheating were not made out because no fact was alleged from which a dishonest or fraudulent intention at the inception could be inferred.
Section 316(2)
Bharatiya Nyaya Sanhita, 2023
“Punishment for criminal breach of trust, corresponding to Section 406 of the Indian Penal Code, 1860.”
Relevance: The Court held the offence was not disclosed because entrustment was not alleged; money paid as price or advance to a supplier is not held in trust.
Section 3(5)
Bharatiya Nyaya Sanhita, 2023
“Provision dealing with acts done by several persons in furtherance of common intention.”
Relevance: Invoked in the FIR together with Sections 316(2) and 318(4); it fell with the substantive offences once those were not made out.
Section 482
Code of Criminal Procedure, 1973
“Inherent powers of the High Court to prevent abuse of the process of any court or otherwise to secure the ends of justice.”
Relevance: The Court referred to the principles governing exercise of this power as laid down in State of Haryana v. Bhajan Lal.
Related Cases & Precedents
State of Haryana & Ors. v. Bhajan Lal & Ors.
followed1992 Supp (1) SCC 335
Paragraph 102 sets out illustrative categories where the power to quash may be exercised; the Court applied the first category, where the FIR allegations, taken at face value, do not constitute any offence.
Delhi Race Club (1940) Ltd. & Ors. v. State of U.P. & Anr.
followed(2024) 10 SCC 690
Explained that the intention at the time of inducement is the gist of cheating and that cheating and criminal breach of trust are antithetical.
Hridaya Ranjan Prasad Verma & Ors. v. State of Bihar & Anr.
followed(2000) 4 SCC 168
Held that culpable intention at the time of making a promise cannot be presumed from the mere failure to keep it.
Mohammad Wajid & Anr. v. State of U.P. & Ors.
followed2023 SCC OnLine SC 951
Held that the averments of the FIR are not the sole material and that in frivolous or vexatious proceedings the Court should look into attending circumstances emerging from the record.
Neeharika Infrastructure Pvt. Ltd. v. State of Maharashtra & Ors.
distinguished(2021) 4 SCR 1044
Relied upon by the informant; the Court held that the test it lays down, whether the allegations at face value disclose a cognizable offence, was the very test it had applied.
C.S. Prasad v. C. Satyakumar & Ors.
distinguished2026 INSC 39
Relied upon by the informant for the proposition that civil and criminal liability may arise from the same facts; the Court held that it did not carry the informant's case further.
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