Civil dispute cannot be given criminal colour: Supreme Court quashes FIR over failed JV Agreement

The Supreme Court on Wednesday quashed a first information report (FIR) arising from a joint venture agreement (JVA) that did not materialise, holding that such a purely civil dispute did not warrant the filing of a criminal case [Vandana Jain & Ors v State of UP].

The first information report (FIR) in the case accused some parties to the JVA of having committed the offences of cheating and forgery. However, on a close examination of the allegations, the Court found that these allegations were baseless and that what remained was only a dispute over an alleged failure to fulfill contractual terms.

A Bench of Justices PS Narasimha and Manoj Misra held that recourse to criminal proceedings in such a contractual dispute was nothing but an abuse of the process of law.

“As far as non-fulfillment of contractual obligations are concerned, recourse can be had to civil remedies. On facts, recourse to criminal proceedings, in our view, is nothing but abuse of the process of law/ court. More so, when there is nothing to show that the accused had harbored a dishonest intention from inception," the Court said in its judgment dated February 25.

The Court thus allowed the appeal filed by the accused and set aside an Allahabad High Court order which had refused to quash the FIR.

The FIR had been registered under Sections 406 (criminal breach of trust), 420 (cheating), 467 (forgery), 468 (forgery for cheating) and 471 (using forged document) of the Indian Penal Code (IPC).

The case stemmed from a JVA dated August 16, 2010, between the appellants, who were landowners, and Motor General Sales Ltd for the development of residential apartments in Kanpur.

Under the agreement, the landowners contributed land valued at ₹2.5 crore, while the developer was to construct the project at its own cost. The parties were to share the project equally.

The developer paid ₹1 crore as security money under the agreement. The project did not materialise.

In March 2021, more than a decade after the agreement, the developer lodged the FIR alleging misrepresentation of title, suppression of pending litigation and failure to refund the security amount.

The accused landowners challenged the registration of the FIR. However, the Allahabad High Court rejected their plea, prompting them to approach the Supreme Court.

The Bench noted that in such cases, courts must examine the surrounding circumstances and assess whether a civil dispute has been given the cloak of a criminal offence and whether proceeding further on the FIR would amount to the abuse of the process of the law.

In the present case, the top court found that the dispute arose out of contractual obligations under the JVA, meaning that it was a civil dispute.

“If there was something stark about the dishonest intention on part of one of the parties to the agreement, it would have been reported promptly and not after 10 years. This clearly indicates that the dispute between the parties was purely of a civil nature,” the Court added.

It found that the allegations that the landowners had cheated the complainant or forged documents or misrepresented that their land was not involved in legal disputes were baseless. The remaining disputes were of civil nature and did not warrant a criminal case, the Court pointed out.

"We are of the considered view that dispute between the parties is essentially of a civil nature arising from the JVA. Further, a complete reading of the FIR along with admitted documents, does not disclose commission of offence of either cheating or criminal breach of trust much less creation or using of a false document," it said.

Therefore, the Court allowed the appeal and quashed the FIR.

“We are therefore of the considered view that the impugned first information report only discloses a civil cause of action. The High Court, unfortunately, did no take pains to carefully read the FIR and consider the admitted documents including the JVA to find out whether, prima facie, cognizable offence was made out or not,” the top court said.

[Read Judgment]