The Supreme Court has slammed the Criminal Proceedings in Purely Civil Dispute and has pulled up Allahabad High Court for ‘Mockery of Justice’.
In an extraordinary judicial intervention, the Supreme Court of India has sharply criticized the Allahabad High Court and one of its judges for passing what it called “one of the worst and most erroneous orders” in recent memory. The apex court made these scathing remarks while dealing with a Special Leave Petition (SLP) filed by M/s Shikhar Chemicals, seeking to quash criminal proceedings initiated by a business rival over an unpaid invoice.
The bench of Justice J.B. Pardiwala and Justice R. Mahadevan, was hearing SLPchallenging the High Court’s order dated May 5, 2025, in a case concerning a long-standing commercial dispute between two business entities—M/s Shikhar Chemicals and M/s Lalita Textile Concern.
The case traces back to a complaint filed by M/s Lalita Textile Concern, alleging that Shikhar Chemicals defaulted on a ₹4.59 lakh payment for yarn supplied between April and July 2019, out of a total bill of ₹52.34 lakhs. Although ₹47.75 lakhs was paid through RTGS, the balance, including ₹7.23 lakhs in claimed interest, allegedly remained unpaid.
The complainant claimed to have exhausted civil and departmental remedies—filing complaints with the GST department and local police—and finally initiated criminal proceedings under Section 406 IPC (criminal breach of trust). The trial court, after an inquiry under Section 202 CrPC, took cognizance and summoned the accused.
The Supreme Court expressed deep concern over the Magistrate’s failure to distinguish a commercial debt recovery from a criminal offence. Citing long-standing jurisprudence, including the landmark case State of Gujarat v. Jaswantlal Nathalal (1968), the court reiterated that mere non-payment in a sale of goods transaction does not constitute “entrustment” under Section 406 IPC.
“It was expected of the Additional CJM to know that in a case of sale transaction where is the question of any entrustment of goods so as to bring the case within the ambit of criminal breach of trust… A mere transaction of sale cannot amount to an entrustment,” the bench stated.
The Supreme Court held that the High Court shockingly failed to quash the case and instead justified the criminal proceeding, saying the complainant was a small businessman who could not afford a civil suit and that waiting for a civil remedy would cause him “irreparable loss.”
Calling this line of reasoning “shocking” and “a travesty of justice,” the Court observed:
“Is it the understanding of the High Court that ultimately if the accused is convicted, the trial court would award him the balance amount?”
In an unprecedented move, the Supreme Court not only set aside the High Court’s order but also issued administrative directions aimed at judicial accountability:
- The matter is to be reheard by a different judge of the Allahabad High Court.
- The concerned judge’s criminal determination is to be withdrawn immediately.
- The judge will only be allowed to sit in a Division Bench with a seasoned senior judge.
- The judge will no longer be assigned criminal matters till retirement.
“The impugned order is not the only erroneous order of the concerned Judge that we have looked into for the first time. Many such erroneous orders have been looked into by us over a period of time,” the order noted.
Case Details
Case Title: M/S. Shikhar Chemicals Versus State of UP
Case No.: Special Leave To Appeal (Crl.) No.11445 Of 2025
Date: 04-08-2025
