1. The petitioner is the accused in C.C.No.72 of 2022 on the file of the Court of the Chief Judicial Magistrate, Palakkad ('Trial Court', for brevity), which has originated from Crime No.1327/2021 registered by the Palakkad Town North Police Station, at the instance of the 2nd respondent alleging the commission of the offence punishable under Section 420 of the Indian Penal Code.

2. The Criminal Miscellaneous Case (“Crl. M.C”) is filed to quash the final report and all further proceedings in the above case on the assertion that the allegations in the final report, even if taken on its entirety, do not attract the offence.

3. The factual matrix, shorn of unnecessary details, in the final report is that, the 2nd respondent is engaged in a business of sourcing medical supplies for a company named Dhejung Pharmaceutical and Medical Supplies. In March-April 2020, during the COVID-19 pandemic, the Government of Bhutan requested the 2nd respondent's employer company to supply twelve lakh latex medical gloves. Accordingly, the 2nd respondent contacted the petitioner, the Managing Director of the company, named Synergy, who agreed to import the gloves from Malaysia and supply them to the 2nd respondent for Rs.26,37,178/. Consequently, on 14.05.2020, the 2nd respondent transferred Rs.5/- lakh from his brother-in-law’s bank account to the petitioner’s bank account. Again, on 10.06.2020, the 2nd respondent's employer transferred Rs.15,48,000/- to the petitioner’s bank account. However, the petitioner failed to supply the gloves. Thereafter, on 16.01.2021, the petitioner refunded Rs. 4,47,000/- to the 2nd respondent by transferring the amount to the 2nd respondent’s brother-in-law’s bank account, after selling the gloves to another company. On enquiry, the petitioner informed the 2nd respondent that he had despatched the gloves from Tamil Nadu. But the 2nd respondent did not receive the consignment. Later, the 2nd respondent learnt that the invoice was fabricated. Before the above transaction, the petitioner had fulfilled the orders by supplying goods to Bhutan and West Bengal, thereby giving the 2nd respondent confidence to pay the advance amount. However, the petitioner failed to return the balance amount of Rs.16,01,000/- to the 2nd respondent, and has thus committed the offence.

4. I have heard the learned Counsel for the petitioner, the learned Public Prosecutor, and the learned Counsel for the 2nd respondent.

5. The learned counsel for the petitioner vehemently contended that the prosecution is an attempt to convert a commercial dispute into a criminal prosecution. According to the learned counsel, the allegations contained in the FIR and the Final Report, even if accepted in their entirety, do not disclose the offence of cheating. The parties have had longstanding commercial transactions without any dispute. The present transaction also arises out of a commercial contract. The non-supply of the gloves was due to circumstances wholly beyond the petitioner’s control. Owing to the unprecedented pandemic, the Government of Malaysia imposed restrictions on the export of medical equipment, thereby rendering performance of the contract impossible. The learned counsel contends that the situation is a classic case of force majeure. The learned counsel further submitted that the petitioner had refunded the amount legitimately payable to the 2nd respondent. Significantly, the 2nd respondent had admitted in his statement recorded under Section 161 CrPC that Rs.4,47,000/- had been repaid by the petitioner. However, this material fact was deliberately suppressed in the FIR with the objective of projecting the dispute as one involving criminality. It was also argued that the alleged transaction took place in May, 2020, whereas the FIR was registered only on 10.11.2021, after an unexplained delay of nearly one and a half years. Such inordinate delay undermines the prosecution case and fortifies the contention that the criminal proceeding is instituted only as an afterthought to recover the alleged balance amount. Placing reliance on the decisions of the Hon’ble Supreme Court in Vijay Kumar Ghai and Others v. State of West Bengal and Others [(2022) 7 SCC 124] and Anukul Singh v. State of Uttar Pradesh and Another [2025 SCC OnLine SC 2060], the learned counsel submitted that every breach of contract or failure to fulfil a commercial obligation does not amount to the offence of cheating. Unless the prosecution demonstrates that the accused possessed a fraudulent or dishonest intention at the very inception of the transaction, the criminal law cannot be used as an instrument to enforce contractual liabilities. Therefore, the proceedings may be quashed.

6. The learned counsel for the 2nd respondent, supported by the learned Public Prosecutor, stoutly opposed the Crl.M.C. They contended that the allegations contained in the Final Report, read along with the statements of the witnesses and the accompanying materials collected during the investigation, prima facie disclose the commission of the alleged offence. According to them, the petitioner induced the 2nd respondent to part with a substantial amount by making false representations regarding the availability and supply of the medical gloves and thereafter failed to perform his promise or to refund the entire advance amount received. They further contended that the question whether the petitioner entertained a dishonest intention at the inception of the transaction is essentially a matter of evidence to be decided upon during trial. At the stage of considering a petition under Section 482 CrPC, this Court may not embark upon an appreciation of the evidence or conduct a mini trial. Since the allegations disclose the commission of an offence, the Crl.M.C may be dismissed.

7. The factual foundation of the prosecution is not in serious dispute. It is alleged that the 2nd respondent had entrusted ₹20,48,000/- to the petitioner towards advance consideration for the supply of twelve lakh latex medical gloves. The petitioner admittedly did not supply the goods. Equally undisputed is that the petitioner refunded ₹4,47,000/- to the 2nd respondent. The gravamen of the accusation is that the petitioner neither supplied the goods nor refunded the balance amount of ₹16,01,000/-, thereby committing the offence of cheating. The pivotal issue is whether, at the inception of the transaction, the petitioner possessed the fraudulent or dishonest intention necessary to constitute the offence of cheating.

8. The materials on record reveal that the transaction between the parties did not arise in isolation. Admittedly, there were previous commercial dealings between them, which the petitioner had completed without any allegation of deception or dishonesty.

9. The records indicate that the petitioner communicated to the 2nd respondent's employer that the proposed supply of the medical gloves could not be effected owing to export restrictions imposed by the Malaysian Government. Correspondence exchanged between the parties also reflects continued communication regarding the transaction. The circumstances, when viewed cumulatively, prima facie indicate a failed commercial transaction rather than a transaction with fraudulent intent.

10. The distinction between a mere breach of contract and the offence of cheating is well settled. The criminal law cannot be invoked merely because a contractual promise remains unperformed. Not every breach of contract amounts to a criminal offence. A failure to honour a commercial obligation may furnish a cause of action for damages or other civil remedies; it does not, by itself, attract criminal liability. To attract the offence punishable under Section 420 IPC, the prosecution must prima facie establish that the accused entertained a fraudulent or dishonest intention at the very inception of the transaction. The deception must precede the inducement. If the dishonest intention develops only subsequently, or the failure to perform arises out of supervening circumstances, financial difficulties, or unforeseen contingencies, the dispute ordinarily remains within the domain of civil law.

11. In Vesa Holdings (P) Ltd. and Another v. State of Kerala and Others [(2015) 8 SCC 293], the Hon’ble Supreme Court has authoritatively held that a mere breach of contract cannot give rise to criminal prosecution for cheating unless it is demonstrated that the accused possessed a fraudulent intention at the time when the promise was made. The Court emphasised that the intention existing at the inception of the transaction constitutes the true dividing line between a civil wrong and a criminal offence.

12. In Delhi Race Club (1940) Ltd. and Others v. State of Uttar Pradesh and Another [2024 INSC 626], the Hon'ble Supreme Court has emphasised that criminal law cannot be permitted to operate as a coercive mechanism for settling commercial disputes. Courts are required to carefully examine the substance of the allegations rather than their form to ascertain whether the essential ingredients of the alleged criminal offence are genuinely disclosed.

13. More recently, in Shailesh Kumar Singh @ Shailesh R. Singh v. State of Uttar Pradesh and Others [2025 SCC OnLine SC 1462], the Hon’ble Supreme Court has reminded that the High Courts, while exercising their inherent jurisdiction, must ascertain whether the materials on record disclose more than a mere breach of contractual obligations and whether there exists prima facie material indicating fraudulent intention at the inception of the transaction.

14. Likewise, in Anukul Singh v. State of Uttar Pradesh (supra), the Hon'ble Supreme Court reiterated that where a dispute is essentially civil in character and criminal proceedings are instituted only to exert pressure upon the opposite party, the continuation of such proceedings would amount to an abuse of the process of the Court. The inherent powers of the High Court are intended precisely to prevent such misuse of the criminal justice system.

15. The above line of authorities lays down a consistent jurisprudential principle that criminal process shall not be used as an alternative means of enforcing contractual obligations or recovering money. Courts must remain vigilant against attempts to weaponise criminal law for settling private commercial disputes.

16. A scrutiny of the materials on record reveals that the genesis of the dispute lies in a commercial transaction between parties, who had admittedly enjoyed a pre-existing business relationship. It is not the case of the 2nd respondent that the petitioner was a stranger who, for the first time, induced the 2nd respondent by making false representations. On the contrary, the materials disclose that the parties had successfully concluded earlier business transactions, thereby generating confidence and commercial goodwill. The existence of prior transactions is of considerable significance when examining whether the petitioner had a dishonest intention at the inception of the impugned transaction.

17. The petitioner has a specific case that the failure to supply the goods was occasioned due to export restrictions imposed by the Malaysian Government. Whether such explanation would ultimately absolve the petitioner of his contractual obligations is not a matter falling for determination in these proceedings. Nevertheless, the explanation finds support from the contemporaneous correspondence exchanged between the parties and cannot be brushed aside as improbable. The admitted refund of part of the advance amount is also relevant. Although a partial refund may not exonerate the petitioner from any civil liability, it constitutes a circumstance militating against the allegation that the petitioner had conceived a fraudulent design from the very inception. A person acting pursuant to a preconceived intention to cheat would ordinarily not embark upon partial restitution of the consideration received. Such conduct is more consistent with a failed commercial transaction than with a scheme of deception.

18. In the case at hand, the allegations, even if accepted in their entirety, establish no more than the petitioner’s failure to perform his contractual obligations and his failure to refund the entire advance amount. These allegations may furnish the 2nd respondent with an enforceable civil claim for recovery of money or damages. However, they fall conspicuously short of establishing the foundational ingredients necessary to constitute the offence of cheating. Likewise, the considerable delay in bringing the criminal law into motion cannot be ignored. The transaction admittedly relates to the year 2020, whereas the criminal proceedings were initiated only in November, 2021. Though delay by itself may not always be decisive, the absence of any convincing explanation, when viewed in conjunction with the surrounding circumstances, lends additional support to the petitioner’s contention that the criminal proceedings were resorted to only after the commercial relationship had irretrievably broken down.

19. Having bestowed my anxious consideration to the pleadings, the materials placed on record, the rival submissions addressed at the Bar, and the authoritative pronouncements governing the field, I am satisfied that the allegations contained in the FIR and the Final Report, even if accepted in their entirety, do not disclose the commission of the offence punishable under Section 420 IPC. The dispute between the parties is essentially contractual and commercial in character. Permitting the prosecution to continue in such circumstances would amount to an abuse of the process of the law; therefore, this is a fit case for this Court to exercise its inherent jurisdiction.

In the result, this Crl.M.C. is allowed. Accordingly, the FIR, the Final Report, and all further proceedings in C.C.No.72 of 2022 on the files of the Trial Court, as against the petitioner, are hereby quashed.