Introduction:

In a significant ruling, the Jharkhand High Court clarified that a mere breach of contract does not amount to criminal breach of trust under Section 405 of the Indian Penal Code (IPC) without the element of ‘entrustment’. Justice Sanjay Dwivedi’s judgment highlighted the essential requirement of entrustment for an offense under Section 405 IPC. The case involved Rohit Chaudhary, who challenged criminal proceedings initiated against him for allegedly failing to settle outstanding bills amounting to Rs. 28 lakhs.

Background:

The dispute arose from an agreement between the complainant and the petitioner-accused’s company. According to the complainant, the petitioner failed to pay the due amount for work completed as per the agreement. The complainant alleged that the petitioner’s failure to make payment indicated dishonest intent, leading to the filing of a criminal complaint.

The petitioner argued that the matter should be resolved through civil litigation rather than criminal proceedings. He claimed that the complainant had not fulfilled their contractual obligations, which caused financial loss to the company. The petitioner asserted that the complaint was unfounded and that the issue pertained to a breach of contract, not a criminal offense.

Arguments from Both Sides:

For the Petitioner (Rohit Chaudhary): The petitioner’s counsel contended that the dispute was purely commercial and related to a breach of contract. They argued that Section 405 IPC, which deals with criminal breach of trust, requires the presence of entrustment of property or money, which was not established in this case. The petitioner claimed that the recovery of the amount should be pursued through civil means. They emphasized that the complainant’s failure to complete the work and subsequent actions did not constitute a criminal offense under Section 405 IPC.

For the Complainant: The complainant’s counsel argued that the unpaid sum of Rs. 28 lakhs indicated an intention to cheat, thus constituting a criminal breach of trust. They maintained that the petitioner’s actions were not only a breach of contract but also reflected dishonesty, warranting criminal proceedings. The complainant sought to establish that the petitioner’s non-payment was a criminal act rather than a mere civil dispute.

Court’s Judgment:

Justice Sanjay Dwivedi, while delivering the judgment, emphasized the necessity of ‘entrustment’ for an offense under Section 405 IPC. The court observed that criminal breach of trust is defined as the violation of a trust in relation to property or money that has been entrusted to the accused. This essential element of entrustment was missing in the present case.

Referencing the Supreme Court’s ruling in Satishchandra Ratanlal Shah v. State of Gujarat and Others (AIR 2019 SCC 1538), the court noted that a criminal charge under Section 405 IPC cannot be sustained if the alleged breach is merely a contractual matter. The court clarified that the transaction in question was a business agreement, and the complainant’s allegations pertained to a contractual dispute rather than criminal intent.

The court stated, “From the very beginning, there is no intention of cheating and that is why the learned court has not taken cognizance under section 420 I.P.C. Admittedly, the transaction was with regard to business terms. Mere breach of contract does not constitute an offense under section 405 I.P.C. without there being an element of entrustment.”

Consequently, the High Court quashed the criminal proceedings against the petitioner, affirming that the dispute should be addressed through civil litigation rather than criminal prosecution.

Conclusion:

The Jharkhand High Court’s ruling reinforces the distinction between civil disputes and criminal offenses. By emphasizing the need for ‘entrustment’ for a charge under Section 405 IPC, the court clarified that a breach of contract, even if significant, does not automatically constitute criminal breach of trust. This decision underscores the importance of differentiating between criminal and civil matters, ensuring that criminal law is not misapplied to contractual disputes.