Supreme Court Quashes Cheating FIR in Business Dispute, Citing Civil Nature of Transactions

The Supreme Court of India has quashed an FIR registered against businessman A.M. Mohan under Section 420 read with Section 34 of the Indian Penal Code (IPC), stating that the allegations in the complaint did not constitute a criminal offense and should be pursued through civil remedies. The case, A.M. Mohan vs. The State Represented by SHO & Another, involved a business transaction in which the complainant alleged financial fraud in a real estate investment.

The Supreme Court found that the matter was essentially a civil dispute disguised as a criminal case to exert pressure on the accused. The Court emphasized that criminal law should not be misused to settle business disputes and reaffirmed the principle that commercial disagreements should be resolved through civil litigation.

Background of the Case

The case arose from a financial transaction that took place in 2016 when the complainant, Karthick Krishnamurthy, entered into an agreement with accused persons to invest in real estate projects in Oragadam and Kancheepuram District, Tamil Nadu. The business deal involved:

An investment of ₹1.6 crores with a promised return of 100% profit within 20 months.
Execution of a registered mortgage deed as security for the investment.
Further agreements including an unregistered memorandum of understanding (MoU) and financial transactions totaling an additional ₹2 crores.

The complainant alleged that the accused persons, including the appellant A.M. Mohan, induced him into investing in a fraudulent business scheme, failed to return the promised returns, and engaged in misappropriation of funds.

Filing of the FIR and Legal Proceedings

1. FIR and Charges

On November 7, 2020, the District Crime Branch, Kancheepuram, registered an FIR against A.M. Mohan and others under Section 420 IPC (cheating) and Section 34 IPC (common intention).
The complainant alleged that the accused had dishonestly induced him to transfer money and later denied repayment.

2. High Court Dismisses Petition to Quash FIR

A.M. Mohan approached the Madras High Court under Section 482 CrPC seeking to quash the FIR.
The High Court dismissed the petition on July 15, 2022, stating that the allegations needed to be investigated further.
The Court directed the investigating agency to complete the probe within 12 weeks.

3. Appeal to the Supreme Court

A.M. Mohan filed an appeal before the Supreme Court, arguing that:

The dispute was purely civil in nature and did not involve any criminal wrongdoing.
The FIR was being used as a pressure tactic to settle a business dispute.
The ingredients of Section 420 IPC were not satisfied.

Supreme Court’s Key Observations

1. No Criminal Offense Made Out

“The FIR does not disclose the necessary ingredients to constitute an offense under Section 420 IPC. The matter appears to be a purely commercial transaction, which should be resolved through civil litigation.”

2. Business Disputes Should Not Be Criminalized

“There is a growing tendency in business circles to convert purely civil disputes into criminal cases as a shortcut to pressure the accused. Such misuse of criminal law must be discouraged.”

3. Civil Remedy Available to the Complainant

“The complainant has the option to seek legal remedies through civil suits for recovery of money. The criminal justice system cannot be used as a means to settle business disagreements.”

4. Criteria for Quashing an FIR

The Court reiterated the legal principles for quashing an FIR under Section 482 CrPC:

The FIR should be quashed if the allegations, even if taken at face value, do not constitute an offense.
If the dispute is civil in nature and does not involve criminal intent, the criminal case should be dismissed.
Filing a criminal case to pressurize the other party in a business transaction amounts to abuse of legal process.

Final Verdict

The Supreme Court quashed the FIR against A.M. Mohan and ruled:

“The continuation of criminal proceedings in this case would amount to an abuse of the process of law. The FIR in Crime No. 21 of 2020 and the consequential charge-sheet are quashed and set aside.”

Conclusion

The Supreme Court’s ruling reinforces crucial legal principles:

Criminal law should not be misused for business disputes – Commercial disagreements must be resolved through civil suits.
Quashing of FIRs in civil cases – The Court clarified that FIRs lacking criminal intent should be dismissed.
Protection of businesspersons from false criminal cases – Entrepreneurs should not be subjected to criminal proceedings for failed investments.

This judgment serves as a precedent for preventing wrongful criminal cases in commercial disputes and ensuring fair legal proceedings.

Petitioner Name: A.M. Mohan.
Respondent Name: The State Represented by SHO & Another.
Judgment By: Justice B.R. Gavai, Justice Rajesh Bindal, Justice Sandeep Mehta.
Place Of Incident: Kancheepuram, Tamil Nadu.
Judgment Date: 20-03-2024.

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Supreme Court Quashes Cheating FIR in Business Dispute, Citing Civil Nature of Transactions

Background of the Case