A) Abstract / Headnote

The Supreme Court in Naresh Kumar & Anr. v. State of Karnataka & Anr. addressed the refusal of the Karnataka High Court to quash criminal proceedings under Section 482 of the Code of Criminal Procedure (CrPC). The issue arose from a contractual dispute between the appellants, who were employees of a bicycle manufacturing company, and Respondent No. 2, who provided services for assembling, transporting, and delivering bicycles. Despite a settlement between the parties involving payment of INR 26 lakhs, the High Court declined to quash criminal proceedings initiated under Sections 406, 420, and 506 of the Indian Penal Code (IPC), holding that a prima facie case of cheating existed. The Supreme Court reversed this decision, emphasizing that disputes predominantly civil in nature and resolved via settlement should not be prosecuted as criminal cases.

Keywords: Quashing of FIR, Inherent powers of High Court, Breach of contract, Settlement, Abuse of process of law.

B) Case Details

• Judgment Cause Title: Naresh Kumar & Anr. v. State of Karnataka & Anr.
• Case Number: Criminal Appeal No. 1510 of 2024
• Judgment Date: 12 March 2024
• Court: Supreme Court of India
• Quorum: Sudhanshu Dhulia, J., and Prasanna B. Varale, J.
• Author: Sudhanshu Dhulia, J.
• Citation: [2024] 3 S.C.R. 740; 2024 INSC 196
• Legal Provisions Involved:
  • Code of Criminal Procedure, 1973: Section 482
  • Indian Penal Code, 1860: Sections 406, 420, 506
• Judgments Overruled by the Case: None
• Case is Related to which Law Subjects: Criminal Law, Contract Law, Procedural Law

C) Introduction and Background of Judgment

The appellants, employees of a bicycle manufacturing company, entered a contract with Respondent No. 2 for assembling and delivering bicycles. The dispute arose when the respondent alleged non-payment of the agreed amount, leading to a First Information Report (FIR) under Sections 406, 420, and 506 of IPC. Subsequently, a settlement occurred, with an additional amount of INR 26 lakhs paid as full and final compensation. Despite this, the High Court dismissed the appellants’ plea under Section 482 CrPC to quash the FIR, holding that a prima facie case of cheating existed. The appellants challenged this ruling before the Supreme Court.

D) Facts of the Case

1. Contractual Relationship: The appellants engaged Respondent No. 2 to assemble 83,267 bicycles for INR 122 per bicycle.
2. Dispute: The respondent claimed a total of INR 1,01,58,574 but alleged receiving only INR 35,37,390.
3. FIR and Chargesheet: The respondent filed FIR No. 113 of 2017 under Sections 406, 420, and 506 IPC, leading to a chargesheet.
4. Settlement: A compromise deed dated 27 December 2017 resulted in the appellants paying an additional INR 26 lakhs.
5. High Court Proceedings: The High Court refused to quash the FIR, finding a prima facie case of cheating.

E) Legal Issues Raised

1. Whether the High Court erred in refusing to quash the FIR under Section 482 CrPC, considering the civil nature of the dispute.
2. Whether the settlement reached between the parties negated any criminal intent on the part of the appellants.

F) Petitioner/Appellant’s Arguments

1. The dispute is civil in nature, relating to contract performance and payment discrepancies.
2. The settlement between the parties resolves the matter, negating the need for criminal proceedings.
3. Allegations of coercion in the settlement lack merit as the respondent voluntarily accepted the payment.
4. Continuation of proceedings amounts to abuse of process under Section 482 CrPC, as held in Paramjeet Batra v. State of Uttarakhand (2013) 11 SCC 673.

G) Respondent’s Arguments

1. The appellants acted dishonestly, intending to cheat from the beginning, as evident from the payment discrepancies.
2. The settlement was coerced and thus does not absolve the appellants of criminal liability.
3. The High Court was correct in finding a prima facie case of cheating under Section 420 IPC.

H) Judgment

a. Ratio Decidendi

1. Civil disputes disguised as criminal cases can be quashed under Section 482 CrPC to prevent abuse of process (Paramjeet Batra v. State of Uttarakhand).
2. Mere breach of contract does not constitute cheating unless a fraudulent intention exists from the outset (Vesa Holdings (P) Ltd. v. State of Kerala, (2015) 8 SCC 293).
3. Acceptance of a settlement negates allegations of coercion and reinforces the civil nature of the dispute.

b. Obiter Dicta

1. The inherent powers of the High Court under Section 482 CrPC must be exercised sparingly but effectively to secure justice.
2. The over-criminalization of civil disputes must be curtailed to uphold the sanctity of the judicial process.

c. Guidelines

1. Criminal proceedings must not be initiated for disputes essentially civil in nature.
2. Settlements voluntarily accepted should be given legal sanctity unless fraud or coercion is established.

I) Conclusion & Comments

The Supreme Court’s decision underscores the necessity of distinguishing between civil disputes and criminal offenses. It reinforces the principle that the judicial process must not be misused for harassment under the guise of criminal law. By quashing the proceedings, the Court emphasized the importance of judicial prudence and the sanctity of settlements.

J) References

Important Cases Referred:

1. Paramjeet Batra v. State of Uttarakhand, (2013) 11 SCC 673
2. Vesa Holdings (P) Ltd. v. State of Kerala, (2015) 8 SCC 293
3. Sarabjit Kaur v. State of Punjab, (2023) 5 SCC 360
4. Randheer Singh v. State of U.P., (2021) 14 SCC 626
5. Usha Chakraborty & Anr. v. State of West Bengal & Anr., 2023 SCC OnLine SC 90

Important Statutes Referred:

1. Code of Criminal Procedure, 1973, Section 482
2. Indian Penal Code, 1860, Sections 406, 420, 506