With passage of time the concept of civil and criminal cases has proliferated, with introduction of different acts for different situations, the basic idea of dealing with cases has changed. There have been instances where a person has been convicted by another person on grounds that are not even relevant, or does not involve the substantial question of law. In recent years, we have seen many media spokesperson, politicians, protestors, etc., being booked under the acts or laws that are not even related to offences they committed. Nonetheless, there have also been instances where the victim has accused another person in criminal case when the matter of dispute aroused due to civil dispute.

For the past few years, we have seen a sharp rise in such cases. A proceedings of a civil dispute, that aroused due to breach of contract was made into criminal nature. However, that does not mean that civil cases cannot involve the substantial criminal nature, if the breach involves fraud, corruption, money laundering, deceit, theft, misrepresentation, concealment of facts, etc., a person can be booked under criminal sanction.

Breach of contract simple means the violation of the rules laid down in the contract and agreed upon by the parties. And this violation can be challenged in the civil court, and to a criminal court if it has some elements of fraud and cheating. The parties are obliged to follow the rules laid down in the contract, unless there are exceptional provisions in Indian Contract Act.(1) And when any one of the parties fails to remain obliged to the terms and conditions of the contract, the other party can sue them for the breach of contract under the Indian Contract Act.

(2) In the case of Indian Oil Corporation Vs NEPC India Ltd. Ors., (3) the apex court stated that any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure though criminal prosecution should be deprecated and discouraged. The judiciary is very particular while exercising its jurisdiction. When a particular case of different nature has been wrongly filed under the wrong section or procedure, the court needs to step-in in order to prevent the abuse of power and protect the liberty of an individual. And since the criminal Courts are not meant to be used for settling scores or pressurize parties to settle civil disputes.

Sarabjit Kaur v/s State Of Punjab

To understand the basis of "Mere breach of contract does not amount to Criminal proceeding," we need to reference of the case of Sarabjit Kaur Vs State of Punjab & Ors. (4)

Facts of the Case:

• The appellant entered into an agreement to purchase a plot measuring 1 (Kanal) on 27.05.2013 with Malkit Kaur on 27.05.2013. On the basis thereof appellant entered into an Agreement to Sell the same to Sarabjit Kaur wife of Darshan Singh (respondent No.2) on 18.11.2013.
   
• The date for execution of sale deed was fixed as 25.06.2014. It was categorically mentioned in the Agreement to Sell that at present the vendor was not the owner of the property. The appellant received a sum of ₹5,00,000/- as earnest money and the date of registration of sale deed was fixed as 25.06.2014. The date for execution of sale deed was extended to 24.12.2014 on receipt of additional sum of ₹75,000/-.
   
• First Complaint:
  A complaint was filed by Darshan Singh (complainant/ respondent No.2), on 30.09.2015 with reference to the same alleged Agreement to Sell however against property dealers Manmohan Singh and Ranjit Singh The aforesaid complaint was investigated and finally on 18.05.2016, it was opined that the dispute being civil in nature, no police action was required.
   
• Second Complaint:
  Darshan Singh made another complaint on 05.10.2016 with the same allegations without disclosing the fate of his earlier complaint. Referring to the earlier enquiry made, the aforesaid complaint was consigned to record on 23.01.2017.
   
• Third Complaint:
  Thereafter, another complaint was made by Darshan Singh against the appellant, Ranjit Singh and Manmohan Singh. It is on the basis thereof that F.I.R. in question was registered under Sections 420, 120-B and 506 IPC against the appellant, Manmohan Singh and Ranjit Singh.
• The appellant then approached the Supreme Court seeking quashing of the FIR.

Judgment:
After examining the facts of the case the apex court stated that it is evident that the efforts made by the respondent were merely meant to put pressure on appellant to get his money back by willing a criminal case against her. There was no effort made by the respondent or his wife, the appellant, in the Agreement to Sell to initiate any civil proceeding to get the sale deed executed on the basis of the Agreement to Sell.

A breach of contract does not give rise to criminal prosecution unless fraudulent or dishonest intention is show right at the beginning of the transaction. The criminal court is not meant to be used for settling scores or pressurize partiesto settle civil disputes. Thus the Supreme Court allowed the appeal for quashing of the FIR, and passed the order to quash all the subsequent proceedings.

Analysis:
From the above mentioned case, it is evident that in civil cases there can be scenarios where the person who has suffered losses due any kind of breach, may, in order to get speedy compensation, go to file a criminal case. The apex court, in the case Indian Oil Corporation (supra), noticed the prevalent impression that civil law remedies are time consuming and do not adequately protect the interest of lenders/creditors. And multiple complaints, shows how the respondent in the above case is trying to convert a civil case into a criminal case to put pressure on the appellant to return the amount allegedly paid.

Talking about the sections that have been imposed in the above case and sections that are usually used in such scenarios.

• Section 405 of Indian Penal Code, 1860- defines Criminal Breach of Trust (5)- This section Interalia means using or disposing of the property by a person who is entrusted with or has otherwise dominion thereover. Such an act must not only be done dishonestly but also in violation of any direction of law or any contract express or implied relating to carrying out the trust. (6)
   
• Section 415 of IPC, 1860 defines Cheating (7)- A fraudulent or dishonest inducement is an essential ingredient of the offence. A person who dishonestly induces another person to deliver any property is liable for the offence of cheating
   
• Section 420 of IPC, 1860- the ingredients to constitute an offence under this section are as follows (8):
  
  1. A person must commit the offence of cheating under Section 415; and
  2. The person cheated must be dishonestly induced to:
     
     • deliver property to any person; or
     • make, alter or destroy valuable security or anything signed or

The Supreme Court in many of its cases has made it very clear that a mere breach of contract cannot result in criminal proceedings in any given matter. The criminal proceedings will not be applicable unless and until there was an intention of the defendant right from the inception. In the case of Vesa Holdings Pvt. Ltd. & Anr. Vs. State of Kerala & Ors., (9) the apex court stated made the following observation,

13. It is true that a given set of facts may make out a civil wrong as also a criminal offence and only because a civil remedy may be available to the complainant that itself cannot be ground to quash a criminal proceeding. The real test is whether the allegations in the complaint disclose the criminal offence of cheating or not. In the present case, there is nothing to show that at the very inception there was any inception on behalf of an accused person to cheat which is a condition precedent for an offence u/s 420 IPC.

The above cases and references have made it very clear the motive of seeking faster compensation and remedy is leading people to file criminal cases in place of civil case, to instil fear among the other party, which should be discouraged, and only results in exploitation of the judiciary.

Conclusion
When we talk about breach of contract and cheating, the latter supposedly according to the Indian Judicial framework contains fraudulent intentions, and that's what constitutes an offence of cheating. here are several reasons why criminal prosecution may be sought for breach of contract. In some cases, the breach may involve fraud or deceit, such as false representations, concealment of material facts, or misappropriation of funds.

Such conduct may be considered a crime, such as fraud, embezzlement, or theft, and may result in criminal charges being brought against the offender. Similarly, breaches of contract that involve violations of public policy, such as bribery, corruption, or antitrust violations, may also be subject to criminal sanctions. Another reason for criminal prosecution may be the severity of the harm caused by the breach.

For example, if a contractor fails to comply with safety regulations and causes an accident that results in injuries or fatalities, the contractor may be charged with criminal negligence or manslaughter. Similarly, breaches of contract that involve environmental or health hazards, such as pollution, contamination, or unsafe products, may also be subject to criminal penalties.

End-Notes:

• Section 37 of the ICA, 1872
• Section 73, 74 and 75 of ICA, 1872
• (2006) 6 SCC 736
• Criminal Appeal no. 581 of 2023
• 405. Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust".
• Sudhir Shantilal Mehta Vs. CBI (2009) 8 SCC 1
• Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat".
• Prof. R.K. Vijayasarathy & Anr. Vs. Sudha Seetharam & Anr. (2019) 16 SCC 739
• (2015) 8 SCC 293

Written By:

1. Krishnanshu Sharma - A DY Patil University, Pune and
2. Saif Pathan - A DY Patil University, Pune