Andhra Pradesh HC Quashes Cheating Case Against CEO Over Substandard Oxygen Plant, Holds Dispute is Civil in Nature

Justice K. Sreenivasa Reddy quashed criminal proceedings under Sections 406 and 420 IPC against a company CEO, finding that installing a substandard oxygen plant cannot, without more, constitute cheating or criminal breach of trust.

The High Court of Andhra Pradesh, sitting at Amaravati, has quashed a criminal complaint charging the Chief Executive Officer of an oxygen plant supply company with cheating and criminal breach of trust, ruling that an allegation of substandard equipment delivery — where the work was in fact carried out pursuant to an agreement — discloses no dishonest intention from the inception of the transaction. Justice K. Sreenivasa Reddy, sitting singly, allowed Criminal Petition No. 5209 of 2023 on 8 May 2026, bringing to an end proceedings in C.C. No. 508 of 2023 before the I Additional Metropolitan Magistrate, Vijayawada. The order draws a clear line between a supplier's alleged deficiency in service and the criminal mens rea required for Sections 406 and 420 of the Indian Penal Code, 1860.

The Complaint and the Criminal Proceedings

The second respondent, Dr. Rachaprolu Suresh Kumar, runs Dr. Suresh Super Specialty & Critical Care Centre in Vijayawada. During the COVID-19 pandemic, the Government of Andhra Pradesh issued directions requiring hospitals to install oxygen plants. Acting on those directions, Dr. Suresh Kumar decided to equip his hospital with such a plant.

The petitioner, Kum. C. Rohini Roy, aged about 25 years and the CEO of M/s. Roy Opportune Private Limited, allegedly approached Dr. Suresh Kumar and represented that her company would supply a ZHONGRUI brand oxygen plant of the best quality. Believing those representations, Dr. Suresh Kumar finalized the quotation, availed a loan of Rs. 1.96 crores under the “Star Sanjeevani COVID Scheme” from Bank of India, Vijayawada Branch, and transferred a total of Rs. 2.10 crores to the petitioner through RTGS for supply and installation of the plant.

The petitioner was said to have assured completion within 40 days. The plant was eventually installed, but the complainant alleged it was of substandard quality, lacking the promised brand specifications, company labels, and container system. A police report was lodged, leading to registration of Crime No. 390 of 2021 at Suryaraopet police station for offences under Sections 406 and 420 IPC. After investigation, a charge sheet was filed, and the case was numbered C.C. No. 508 of 2023 before the I Additional Metropolitan Magistrate, Vijayawada.

Rohini Roy approached the High Court under Section 482 of the Code of Criminal Procedure, 1973 read with Section 528 of the Bharatiya Nagarik Suraksha Sanhita, seeking to quash the charge sheet. An interim stay of the trial proceedings, first granted on 25 July 2023, was extended through multiple applications and remained in force through to the final hearing.

Arguments on Either Side

Counsel for the petitioner, Sri S. Nageswara Reddy, urged that even accepting all accusations as true, no prima facie case under Sections 406 or 420 IPC was made out. He argued that the petitioner had in fact erected the shed and installed the oxygen plant in terms of the order placed by the complainant. If the plant was of substandard quality, that would at best constitute deficiency in service, not criminal cheating. Crucially, he submitted that an offence under Section 420 IPC requires proof of dishonest intention existing at the very beginning of the transaction, not one that supposedly developed later. He also argued that Sections 406 and 420 IPC ordinarily cannot coexist because their essential ingredients are distinct.

The learned Assistant Public Prosecutor, appearing for the State, countered that the petitioner was fully aware the oxygen plant was substandard yet proceeded to install it, indicating dishonest intention from the inception. The prosecution contended that whether the allegations were true or false could only be tested at trial, and a Section 482 proceeding was not the forum to examine the reliability or genuineness of the charge sheet.

There was no representation on behalf of Dr. Suresh Kumar either at the final hearing or at an earlier stage when the matter was listed for orders.

The Court's Legal Analysis

Justice Sreenivasa Reddy opened the legal analysis by restating the settled position on Section 482 Cr.P.C.: the inherent power exists to prevent abuse of the process of court or to secure the ends of justice, but it must be exercised sparingly, with circumspection, and only in the rarest of cases. The court is not to embark on an inquiry into the reliability or genuineness of the allegations at the quashing stage.

The court then applied the well-known categories laid down by the Supreme Court in State of Haryana v. Ch. Bhajanlal and Ors., AIR 1992 SC 604. Under Clause (3) of those categories, quashing is permissible where the uncontroverted allegations in the charge sheet and the material collected in support thereof do not disclose the commission of any offence against the accused, even when accepted in their entirety.

The court then examined the ingredients of the offences charged. Section 420 IPC, which deals with cheating and dishonestly inducing delivery of property, requires three conjunctive elements: dishonest or fraudulent intention in the accused's mind at the very time the inducement was made (not one that developed later); intentional deception of the victim by false representation; and inducement of the victim to deliver property as a result of that deception. Section 406 IPC, which punishes criminal breach of trust, requires that a person entrusted with property dishonestly misappropriates it or uses it in violation of law or of a legal contract governing the trust.

Applying those ingredients to the facts, Justice Sreenivasa Reddy found that the petitioner had in fact erected the shed and installed the oxygen plant pursuant to the agreement. An invoice was raised for the total consideration of Rs. 2.10 crores, and the work was admittedly carried out, though with some delay. The allegation that the plant was of substandard quality did not, in the court's view, support an inference of dishonest intention from the very inception of the transaction. Where a supplier performs the contract but delivers equipment of allegedly inferior quality, the grievance is one of deficiency in service, not criminal cheating or misappropriation.

The court specifically noted that Dr. Suresh Kumar had already instituted O.S. No. 50 of 2023 before the II Additional District Judge, Vijayawada against the petitioner, and that suit was pending adjudication. The existence of ongoing civil litigation, taken together with the fact that the petitioner had actually supplied and installed the plant, reinforced the conclusion that the dispute was essentially civil in nature.

The court concluded: “even if the allegations are accepted as true in their entirety, the offences punishable under Sections 406 and 420 of the IPC would not attract, for the reason that the Petitioner had, in fact, supplied and installed the Oxygen plant.” The case was held to fall squarely within Clause (3) of the Bhajanlal categories, and continuation of the proceedings was characterised as an abuse of the process of court.

Significance of the Dishonest Intention Requirement

The judgment turns entirely on the temporal requirement of mens rea for Section 420 IPC. The court's reasoning is that dishonest intention must exist at the moment of inducement, not arise later from a subsequent failure or from the quality of what was delivered. Where a party enters an agreement, performs it — even imperfectly — and raises invoices in the ordinary course, the criminal law inference of pre-existing fraudulent intent is not available merely because the counterparty is dissatisfied with the result.

This distinction matters because, as the court observed, a contrary position would convert every commercial dispute over quality or specification into a potential criminal case. The court did not rule on the merits of the civil suit in O.S. No. 50 of 2023; it confined itself to finding that the criminal charge sheet disclosed no criminal offence on the face of it.

Order

Justice K. Sreenivasa Reddy allowed Criminal Petition No. 5209 of 2023. The proceedings in C.C. No. 508 of 2023 on the file of the I Additional Metropolitan Magistrate, Vijayawada, arising out of Crime No. 390 of 2021 of Suryaraopet police station, are quashed. All miscellaneous applications pending in the criminal petition stand closed as a consequence.