A deposit left behind by a previous owner, a set-off, and fourteen years of criminal process

Justices Ujjal Bhuyan and Atul S. Chandurkar quash a cheating prosecution against two steel traders, holding that the complainant's own police statement shows the dispute is pre-eminently civil — and that he never filed the suit he should have.

Two directors of a steel trading company bought 293 metric tonnes of TMT bars worth about Rs 1.19 crore, gave ten post-dated cheques, and let the cheques bounce. On the face of it that is a straightforward case of cheating, and a Gujarat court has been trying to frame a charge on it since 2012. But the complainant's own statement to the police explained why the money had been withheld: the buyers had Rs 2 crore of their own lying with the seller's company from an earlier era, nobody would return it, and they had set one against the other. On 23 September 2026 the Supreme Court quashed the case, holding that a grievance about money owed belongs in a civil suit the complainant never filed.

Twenty years of steel

The appellants are directors of a private limited company engaged in the steel business. Since 2006 the company had been purchasing steel bars from Hans Ispat Ltd. and selling them on to third parties; on the appellants' case it had paid about Rs 3.5 crore to Hans Ispat over the course of those dealings. The informant is an employee of Hans Ispat.

The first information, lodged at Police Station Anjar in Kutch East district, alleged that the appellants had approached him to purchase TMT bars and had in fact purchased 293 metric tonnes worth Rs 1.19 crore on purchase orders dated 14 and 21 November 2011; that after supply, bills were raised; that the appellants issued ten post-dated cheques; and that the cheques were dishonoured and the bills remained unpaid.

FIR No. I-8/2012 was registered under Sections 406, 420 and 114 of the Penal Code. On completion of investigation a charge sheet followed on all three, producing Criminal Case No. 584 of 2012 before the Additional Chief Judicial Magistrate, Anjar.

Fourteen years to reach a charge

The procedural history is its own argument.

The appellants applied to be discharged. The Magistrate rejected the application on 8 February 2016. Their criminal revision application to the High Court was dismissed on 24 March 2021 — five years later — on the ground that it was not maintainable. That ruling was itself taken to the Supreme Court, which held on 18 December 2024 that the revision was maintainable, set the High Court's order aside and directed it to consider the revision on merit.

The High Court then heard it and, by judgment of 17 March 2026, partly allowed it: the appellants were discharged from the offence under Section 406, but the refusal of discharge for the offence under Section 420 read with Section 114 was confirmed, and the Magistrate was directed to alter the charges and frame a modified charge accordingly. That order was challenged in the present proceedings, in which notice was issued on 24 April 2026 and further proceedings in the criminal case stayed.

So after fourteen years, two trips to the Supreme Court and a five-year detour on a point of maintainability, the case stood at the stage of framing a charge.

The ingredients, and the sine qua non

The Bench set out the provisions with some care before coming to the facts. Section 405 is the substantive provision on criminal breach of trust and Section 406 its punishment: it requires entrustment with property or dominion over property, followed by dishonest misappropriation or conversion, or dishonest use or disposal in violation of a direction of law or of a legal contract touching the discharge of the trust. Section 420 deals with cheating and dishonestly inducing the delivery of property, and Section 415 defines cheating. Under Section 114 a person present when the abetted offence is committed is deemed to have committed it.

On the content of Section 415 the Bench quoted its own recent decision in G. Saminathan v. The State, 2026 INSC 772, which explains that to invoke Section 420 the ingredients of Section 415 must be established: a fraudulent or dishonest inducement by which the person deceived was made to deliver property. The provision lays down two classes of act — inducement fraudulently or dishonestly to deliver property or consent that a person retain it, and intentional inducement of doing or omitting to do something the deceived person would not have done but for the deception.

Then the test, in one line: “The sine qua non for attracting Section 415 IPC is ‘fraudulence’, ‘dishonesty’ or ‘intentional inducement’. Absence of the aforesaid elements would debase the offence of cheating.”

What the complainant himself said

The facts that decided the case came from the informant's statement under Section 161 of the Code, and the Bench simply read it back to him.

He stated that Hans Ispat Ltd. had earlier been owned by the Barnala Group, with its head office at Muzaffarnagar in Uttar Pradesh; that Electrotherm India Pvt. Ltd. purchased the company with effect from 1 June 2010; and that Hans Ispat then took over the ownership. He admitted that Rs 2 crore had been paid by the appellants to that company between 1 December 2006 and 15 February 2007, when the Barnala Group owned it. And he explained that the amount so deposited “were required to be taken care of by Barnala Group and not by the new owners of the company”.

The Bench drew out the consequence. The money was paid when the Barnala Group owned the company. The appellants insist on repayment and, failing it, have adjusted the dues. The informant's position is that the deposit should be repaid by the Barnala Group and not by the present owners — and that therefore the amount due to him should still be paid by the appellants. “Thus, the dispute raised by Respondent No.2 is pre-eminently a civil one. However, no civil suit has been instituted by Respondent No.2 against the appellants.”

That last sentence is the whole case. This is not a dispute about whether money is owed; it is a dispute about who owes it, between parties who have traded with each other for two decades. Senior counsel for the appellants put it as an abuse: the object of the criminal case is to recover an amount, and that cannot be the purport of the criminal process. The State's answer — that the genesis may have a civil flavour but the subsequent conduct of withholding payment “certainly has got criminal overtones”, and that the police had investigated and found the case prima facie fit for trial — did not meet it. The de facto complainant, though served, did not appear.

The authorities relied on by the appellants were Delhi Race Club v. State of Uttar Pradesh, (2024) 10 SCC 690, Lalit Chaturvedi v. State of Uttar Pradesh, (2024) 12 SCC 483, Shailesh Kumar Singh v. State of Uttar Pradesh, 2025 SCC OnLine SC 1462, and G. Saminathan. Delhi Race Club is quoted for the proposition that a complainant claiming an amount due and payable “should have filed a civil suit for recovery of the amount” and “could not have gone to the Court of the Additional Chief Judicial Magistrate by filing a complaint of cheating and criminal breach of trust”.

“Not twins”: two offences that cannot coexist

The passages the Bench drew from Delhi Race Club carry a point that applies to this FIR with some force, because the FIR here charged criminal breach of trust and cheating together on the same facts.

In concluding, that Court had explained that the two offences “are independent and distinct” and “cannot coexist simultaneously in the same set of facts”. Its language was blunt: “It is high time that the police officers across the country are imparted proper training in law so as to understand the fine distinction between the offence of cheating vis-à-vis criminal breach of trust … They are antithetical to each other. The two provisions of IPC (now BNS, 2023) are not twins that they cannot survive without each other.”

The reason they are antithetical is structural. Criminal breach of trust presupposes that property was lawfully entrusted and then dishonestly misappropriated; cheating presupposes that the delivery of property was procured by deception in the first place. Property cannot both have been honestly entrusted and dishonestly obtained. Charging Sections 406 and 420 together, as this FIR did, is therefore not belt-and-braces drafting but a contradiction — and the High Court, in discharging under Section 406 while sustaining Section 420, had in effect already conceded half of it.

Lalit Chaturvedi supplied the other half of the answer. There, in similar circumstances, the Court held that even if the assertions in the complaint are taken as correct, an offence under Section 420 read with Section 415 is not established in the absence of deception by a false and misleading representation, dishonest concealment, or any other such act or omission. Here nobody suggested the appellants misrepresented anything when they placed the purchase orders; the dispute arose later, over whether they were entitled to withhold payment against their own deposit.

One further detail from Delhi Race Club echoes uncomfortably in this case. There the Court noted that the complainant had still not filed a civil suit and “seems to have prima facie lost the period of limitation for filing such a civil suit”. The purchase orders here date from November 2011.

Order

The conclusion was reached “without hesitation”: the grievance is essentially civil in nature, and instead of availing his civil remedy the informant resorted to criminal proceedings to recover amounts said to have been withheld. “This certainly cannot be the object of a criminal proceeding.” Allowing the proceedings to continue “would be nothing but an abuse of the process of the Court”.

Both orders below were set aside — the High Court's judgment of 17 March 2026 and the Additional Chief Judicial Magistrate's order of 8 February 2016 — and Criminal Case No. 584 of 2012, pending on the file of the Magistrate at Anjar, was quashed. The criminal appeal was allowed and pending applications disposed of.

Worth noting is what the order does not do. It leaves the money where it was. The appellants are not held to have been entitled to withhold Rs 1.19 crore, and Hans Ispat is not held to have been wrong to ask for it. All of that remains for a civil court, if anyone still wants to go there after fourteen years.