23 June 2025 Criminal Trial >> Criminal Law  

In a significant ruling of Rasiklal Mohanlal Gangani v/s State & Another, the High Court has set aside a 2013 trial court order that summoned a senior citizen for an alleged offense under Section 420 of the Indian Penal Code (IPC) for cheating. The High Court concluded that the dispute between the parties was primarily civil in nature and that the complainant failed to establish the essential elements of cheating, particularly the dishonest intention at the inception of the agreement.

The case originated from a complaint filed by Indiabulls Securities Ltd. (now Respondent No. 2), a stockbroking company, against the petitioner, a client who had entered into a "Member Client Agreement" with them in January 2007. The core allegation was that the petitioner, after availing a margin trading facility, accumulated a debit balance of over Rs. 98 lakhs by November 2008, which he allegedly failed to repay despite legal notice. The complainant asserted that the petitioner had a dishonest intention from the very beginning, inducing the company to advance margin money with no intent to repay.

The trial court, after examining two complainant witnesses, found a prima facie case and issued summons against the petitioner. Aggrieved by this, the petitioner approached the High Court.

Petitioner's Defense: A Civil Dispute with a Criminal Hue

The petitioner's senior counsel argued that even if the allegations were taken at face value, they did not constitute a criminal offense. He highlighted the extensive trading volume (Rs. 368 crores over a year) executed on the petitioner's behalf, suggesting a genuine business relationship. Crucially, the petitioner contended that the complainant company illegally sold his shares worth over Rs. 7 crores in January 2008 without proper margin calls or instructions, leading to significant losses. He further pointed out that he had already initiated civil proceedings in Panaji, Goa, in 2008 to recover over Rs. 4.76 crores from the complainant company due to these unauthorized transactions. The petitioner alleged that the criminal complaint was a retaliatory move to "arm twist" him into settling the civil dispute.

He also emphasized that the complainant witnesses had suppressed material facts regarding the ongoing civil litigation, which, if disclosed, would have influenced the trial court's decision to issue summons.

Court's Scrutiny of Jurisdiction and Merits:

The High Court first addressed the preliminary objection from the complainant regarding the belated filing of the petition and the availability of an alternative remedy of criminal revision. Citing the Supreme Court's ruling in Prabhu Chawla v. State of Rajasthan, the High Court reiterated that the mere availability of an alternative remedy does not bar it from exercising its inherent powers under Section 482 of the Criminal Procedure Code (CrPC) to prevent abuse of the process of law or to secure the ends of justice. Given the seven years the case had already been pending, the court deemed it appropriate to consider the matter on its merits.

Referring to landmark judgments like State of Haryana v. Bhajan Lal and Indian Oil Corporation v. NEPC India Limited and Others, the High Court outlined the principles for quashing criminal proceedings. It noted that proceedings can be quashed if the allegations, even when taken at face value, do not prima facie constitute an offense, or if they are absurd and inherently improbable, or if the proceedings are initiated with mala fide intentions to harass.

Absence of Criminal Intent and Mechanical Summoning Order:

Applying these principles, the High Court found significant flaws in the trial court's summoning order. It observed that while the trial court acknowledged the alleged inducement, it failed to properly scrutinize the evidence presented by the complainant witnesses. The High Court highlighted that the trial court's reliance on R. Kalyani v. Janak C Mehta & Ors. was "clearly distinguishable on facts," as that case involved clear criminal intent, unlike the present one.

The court reiterated that issuing summons is a serious matter requiring due application of mind and a thorough examination of facts and evidence. It criticized the trial court for making an "overarching reference to the evidence" without actual scrutiny or providing reasons for its prima facie satisfaction, deeming the summoning order "unreasoned and arbitrarily issued."

Crucially, the High Court emphasized that mere breach of contract does not amount to cheating. Citing Vesa Holdings (P) Ltd. v. State of Kerala, it stated that for cheating to be established, "the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation." The court found that despite repeated assertions, the complainant failed to prove that the petitioner harbored a dishonest intention from the very beginning. The fact that the petitioner had previously paid substantial margin money and maintained a smooth business relationship for over a year contradicted the claim of initial dishonest intent.

The court also noted that the complaint lacked specifics regarding when margin calls were made, and the legal notice was sent nearly ten months after the alleged non-payment, raising questions about the complainant's own actions.

Conclusion: A Purely Civil Dispute:

Ultimately, the High Court concluded that the "fulcrum of the dispute is essentially in relation to payment of margin money wherein the petitioner is alleging that his shares had been illegally sold by the complainant company." It strongly suggested that the complainant company had attempted to "give a criminal cloak to civil proceedings to recover the dues allegedly payable to it," which constitutes an abuse of the process of law.

Given that the allegations, taken at face value, did not disclose a clear element of criminality, the court ruled that the continuation of proceedings against the petitioner, a senior citizen, would be an abuse of the legal process.

The High Court allowed the petition, setting aside the impugned summoning order and all consequential proceedings.

Indian Penal Code, 1860