Contractual Foreclosure Disputes Cannot Be Prosecuted As Cheating Or Criminal Breach Of Trust Without Fraudulent Intent Or Entrustment: Calcutta High Court
Sanchayita Lahkar
The High Court of Calcutta Single Bench of Justice Chaitali Chatterjee Das has quashed the criminal proceedings initiated against Tata Capital Finance Ltd. and its officials over foreclosure-related charges under a loan arrangement, holding that the allegations disclose a contractual dispute rather than a cognisable criminal offence. The complaint centred on an assertion that, upon foreclosure and takeover of the loan by another finance entity, the borrower was made to pay amounts claimed to be in excess of what was contractually due, allegedly contrary to applicable regulatory directions. The Court held that even if a regulatory guideline was said to have been breached, criminal liability for cheating or criminal breach of trust would not arise without allegations indicating fraudulent intention at inception or entrustment of property.
The petitioners, a finance company and its officials, filed an application seeking quashing of criminal proceedings pending before the Judicial Magistrate, 6th Court, Alipore, arising from allegations under Sections 420/406/34 of the Indian Penal Code. The dispute originated from two loan agreements executed in November 2013 and November 2014, under which loans were advanced against residential property. The borrower later foreclosed the loans after takeover by another financial service provider. Subsequently, a complaint was lodged alleging that a sum of ₹16.45 lakhs had been wrongfully realised as foreclosure charges.
The complainant alleged false representation that no foreclosure charges would be levied and contended that such recovery amounted to cheating and criminal breach of trust. The Magistrate, upon receiving a police report referring to alleged violation of Reserve Bank of India guidelines, took cognizance and issued summons. The petitioners contended that the dispute arose from contractual terms, that the agreement contained an arbitration clause, and that the complaint did not disclose ingredients of the alleged offences.
The Court observed that “Foreclosure shall be permitted within a year from the date of disbursement of loan with a charge of 4% and 2% thereafter. This amount if charged on Future principal outstanding at the time of closure and all the partial pre-payments made during the last 12 months prior to loan closure.” It further recorded that “the Borrower may repay the whole or any part of the loan amount payable by the Borrower to TCHFL provided the Borrower gives TCHFL at least 10 prior notice written notice of such intention to prepays such charges as serial no.8 € of schedule 1.”
Referring to the distinction between offences, the Court reproduced the Supreme Court’s observation: “if it is a case of the complainant that offence of criminal breach of trust as defined under Section 405 IPC, punishable under Section 406 IPC, is committed by the accused, then in the same breath it cannot be said that the accused has also committed the offence of cheating as defined and explained in Section 415 IPC, punishable under Section 420 IPC.”
The Court stated, “The distinction between mere breach of contract and the offence of criminal breach of trust and cheating is a fine one.” It further observed, “In criminal breach of trust, mere proof of entrustment is sufficient.” and recorded that “Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver any property. In such a situation, both the offences cannot co-exist simultaneously.”
The Court also noted, “There was otherwise settlement of loan account pursuant to the terms of the agreement entered into.” It observed that “there was no entrustment of money upon the petitioners who are mere loan sanctioning authority.” It further stated, “It is no longer res integral that a contractual dispute or breach of contract per se should not lead to initiate a criminal proceeding.”
The Court held that “the order issuing process is liable to be set aside. This Criminal Revisional Application is allowed. The proceedings pending before the Learned Court is hereby quashed. No order as to costs.”
Advocates Representing the Parties
For the Petitioners: Mr. Shabir Ahmed, Advocate; Mr. Sayak Ranjan Ganguly, Advocate; Ms. Srijani Ghosh, Advocate
Case Title: M/S. Tata Capital Finance Ltd. & Ors. vs The State of West Bengal & Anr.
Neutral Citation: 2026: CHC-AS:267
Case Number: CRR 2354 of 2023
Bench: Justice Chaitali Chatterjee Das
