The two appellants before this Court are the Assistant Manager (Marketing) and the Manging Director of a company, which is a manufacturer of bicycles. Respondent no.2 was given a contract, as it has been stated before this Court, for the assembly of bicycles, their transport and their delivery, at the rate of Rs.122/- for each bicycle, and since they had assembled 83,267 bicycles, they raised invoices amounting to Rs. 1,01,58,574/- and were liable to be paid the same. However, respondent no.2 contends that instead, a payment of only Rs.35,37,390/- was given by the appellants. Hence, it was a case of criminal breach of trust and cheating and the First Information Report No. 113 of 2017 against the appellant no. 1 was filed on 24.05.2017 under Sections 406, 420 and 506 of the Indian Penal Code at P.S. Doddaballapura, Bangalore Rural District.

ISSUE- The case of the appellants before the High Court of Karnataka was that the FIR which was instituted by the complainant i.e. respondent no. 2 is primarily a civil dispute and has no criminal element and the entire criminal proceedings initiated against the appellants is nothing but an abuse of the process and consequently, they had invoked the extraordinary powers of the High Court under Section 482 of the Criminal Procedure Code.

OBSERVATION-The gist of the dispute was that the complaint under Sections 406, 420, and 506 of the Indian Penal Code was registered against the accused/appellant for only paying Rs.62 lakhs as against the full amount of Rs. 1,01,58,574/- to the complainant for assembling the bicycle. The allegation levied against the appellant/accused was that he committed cheating by intentionally deceiving the complainant to assemble more bicycles without paying the assembling fees for more bicycles assembled by the complainant.

After finding that the dispute between the parties is purely civil dispute emanating from a civil transaction where settlement was also being arrived between the parties to which the complainant admitted that he had received the additional amount from the accused/appellant, the Supreme Court found that “this is a case where the inherent powers should have been exercised by the High Court under Section 482 of the Criminal Procedure Code as the powers are there to stop the abuse of the process and to secure the ends of justice.” Further, the Court clarified that every breach of contract wouldn't essentially give rise to an offence of cheating unless the fraudulent or dishonest intention on the part of the accused is shown by the complainant since the making of the contract.

The Supreme Court reiterated that the High Court by exercising their inherent power must quash the prosecution based on the criminal complaint arising out of a civil transaction.