Isabella Mariam

The High Court of Delhi Single Bench of Justice Neena Bansal Krishna quashed the criminal proceedings and discharged a managing director from a cheating charge under Section 420 IPC arising out of a credit-supply dispute. The complaint alleged that a supplier had delivered goods to the purchaser company on the managing director’s assurance that payment would be made, but the dues were later not cleared. The Court held that an assurance to pay given in the ordinary course of a commercial transaction, without more, cannot by itself be treated as fraudulent inducement so as to constitute cheating. Consequently, the orders framing charge and sustaining it against the managing director were set aside.

The proceedings arose from a commercial dispute between a supplier of master batches and compounds and a purchasing company engaged in business dealings over several years. Goods were supplied on credit during the period between 1999 and 2001, and payments were allegedly not cleared in full. A civil suit for recovery of outstanding dues was instituted by the supplier in 2002.

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During the pendency of the civil proceedings, the purchasing company approached the Board for Industrial and Financial Reconstruction and was subsequently declared a sick industrial company. Several years later, a criminal complaint was filed alleging that goods had been supplied on the basis of assurances of payment, while concealing the company’s financial condition and its reference to the BIFR.

The Metropolitan Magistrate dismissed the complaint against the company after it was struck off from the register but proceeded to frame charges for cheating against the Managing Director alone. A criminal revision challenging the framing of charge was dismissed, leading to the filing of the writ petition seeking quashing of the criminal proceedings.

The Court examined the statutory ingredients of the offence of cheating and noted that “it is essential to prove that the accused had a fraudulent or dishonest intention at the time of making the promise.” It recorded that the materials placed on record reflected an ongoing commercial relationship between the parties rather than inducement by deception.

Referring to the cross-examination of the complainant’s witness, the Court observed that “the complainant company used to supply the material from time to time… not on account of any fraudulent representation or false promise.” This admission was found to negate the element of inducement required under Section 420 of the Penal Code.

On the issue of non-payment, the Court stated that “a mere breach of contract or failure to pay cannot give rise to criminal prosecution,” particularly when partial payments had been made during the course of business. It further recorded that subsequent financial difficulties could not retrospectively establish dishonest intention at the inception of the transaction.

Addressing the prosecution of the Managing Director, the Court observed that “there is no vicarious liability in the IPC unless the statute specifically provides for it.” It noted that the allegations only reflected acts carried out on behalf of the company in the ordinary course of business and that “specific acts of personal fraudulent intention” had not been attributed to the director.

The Court also recorded that continuation of proceedings against the director, after the company had ceased to be an accused, would amount to “an abuse of the process of law.”

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The Court directed that “the Petition is allowed. The impugned Order on Charge dated 04.09.2018 passed by the Ld. MM and the Order dated 30.04.2019 passed by the Ld. ASJ are hereby quashed. The Petitioner… stands discharged from the offense under Section 420 IPC in the subject Complaint Case. Pending applications, if any, stand disposed of accordingly.”

Advocates Representing the Parties

For the Petitioner: Mr. Rohit Priya Ranjan, Advocate; Ms. Aayushi, Advocate
For the Respondent: Ms. Smita Maan, Advocate

Case Title: Arun Kumar Bagla v. M/s SCJ Plastics Ltd.
Neutral Citation: 2026: DHC:86
Case Number: W.P.(CRL) 2165/2019
Bench: Justice Neena Bansal Krishna