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Sunil Sharma v. M/S Hero Fincorp Limited

Criminal Appeal · 2025 INSC 1001Decided 12 Aug 2025
Crl.A. No.-003467-003467-2025 (arising out of SLP (Crl.) No. 1577 of 2022)
Justice Dipankar Datta · Justice Augustine George Masih

Background

Sunil Sharma, a director of M/s Benlon India Ltd., had taken three loans totalling Rs. 37.25 crore from Hero Fincorp to purchase machinery. A fire destroyed the machinery shortly after the last disbursement, and the loan was later converted into an unsecured facility with Hero's knowledge. When Benlon later went into insolvency and defaulted after paying most of the loan back, Hero filed a criminal complaint alleging criminal breach of trust against Sharma. A magistrate and sessions court declined to order registration of an FIR, but the Delhi High Court reversed that and directed the Economic Offences Wing to register one.

Decision Breakdown

The Supreme Court held that a loan transaction ordinarily creates only a debtor-creditor relationship, not a "trust" in the criminal sense, because beneficial ownership of the money passes to the borrower. Criminal breach of trust under Section 405 IPC requires dishonest misappropriation with intent to cause wrongful gain or loss, not merely a failure to use funds as originally directed, especially where that failure was forced by circumstances beyond the borrower's control (here, the fire). The Court noted Hero itself did not object to the changed use of funds for years while receiving repayments, and only turned to criminal remedies after a third party's insolvency petition triggered default. It found the High Court had misapplied the Lalita Kumari precedent on FIR registration and set aside the direction to register an FIR, allowing the appeal.

Lesson Learnt

A loan default or breach of a loan's stated purpose, particularly one caused by circumstances beyond the borrower's control, is ordinarily a civil dispute, not a crime; criminal law should not be used as a substitute for debt recovery absent proof of dishonest intent.

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

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