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Priti Saraf & Anr. v. State of NCT of Delhi & Anr.

Criminal Appeal · 2021 INSC 177Decided 10 Mar 2021
Criminal Appeal No. 296 of 2021
Justice Indu Malhotra · Justice Ajay Rastogi

Background

The appellants were complainants in an FIR alleging that the second respondent, owner of a mortgaged property in Friends Colony, New Delhi, conspired with a broker to cheat and defraud them: he allegedly induced them to pay money under an agreement to sell by falsely representing liability terms, then breached that trust by failing to honour the deal. A chargesheet was filed against the second respondent, but the Delhi High Court, exercising its inherent powers under Section 482 CrPC, quashed the FIR and criminal proceedings, holding the dispute was purely commercial/civil in nature and did not disclose a criminal offence. The complainants appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that a transaction being commercial in nature does not automatically exclude it from being an offence of cheating, cheating is frequently committed in the course of commercial dealings, and the existence of an arbitration clause in the agreement is no substitute for criminal prosecution where the underlying act amounts to an offence. It found the High Court had failed to even examine the chargesheet and material already on record, which the Supreme Court itself reviewed and found sufficient to connect the second respondent to the alleged offence at the prima facie stage. The defence that this was merely a civil breach-of-contract dispute was something to be tested at trial, not a ground for the High Court to quash proceedings pre-emptively under its inherent powers (which should be used only in extreme cases per the Bhajan Lal guidelines). The Court also dismissed, as filed for "ulterior reasons," an application by the respondent seeking perjury action against the appellant, set aside the High Court's quashing order, and directed the trial to proceed expeditiously, clarifying its observations should not influence the trial court.

Lesson Learnt

The existence of a commercial contract or an arbitration clause does not shield a person from criminal prosecution if the underlying conduct amounts to cheating or breach of trust: courts should not quash a chargesheet at the threshold merely because the dispute arises from a business transaction; genuine criminal allegations backed by prima facie material deserve a full trial.

Official source (sci.gov.in)View Judgment (PDF)

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