The Supreme Court has quashed criminal proceedings arising from a disputed land sale, holding that a subsequent sale of property to another buyer does not establish cheating when the original payment was not induced by deception.

The bench of Justice Satish Chandra Sharma and Justice Nongmeikapam Kotiswar Singh observed that the dispute was civil in nature and that the Karnataka High Court had erred in allowing criminal proceedings to continue against the power-of-attorney holder after quashing the same FIR against the landowners.

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The dispute concerned land measuring 4 acres and 19 guntas in Channasandra Village, Karnataka. Following the death of its owner, Ganesh, the property was inherited by his wife and other legal heirs.

On October 5, 2012, the landowners entered into an agreement to sell the property to Sudha Rakesh and executed a general power of attorney in the petitioner’s favour. Subsequently, on November 19, 2012, the landowners, acting through the petitioner as their power-of-attorney holder, entered into another sale agreement with the complainant and Kalpana Sure.

Under this agreement, the prospective buyers were required to pay the balance consideration and come forward for execution of the sale deed within seven months. According to the judgment, they did not do so, either within the stipulated period or subsequently before the property was sold.

The landowners eventually executed a sale deed in favour of Gaffar Baig on February 11, 2016. The petitioner joined the transaction as a confirming party.

Thereafter, the prospective buyers instituted a civil suit seeking specific performance of the November 2012 agreement. A criminal complaint followed on May 13, 2016, resulting in FIR No. 121/2016 for offences under Sections 420, 423 and 120-B, read with Section 34 of the Indian Penal Code. The Magistrate took cognizance on September 28, 2017.

The landowners approached the Karnataka High Court seeking quashing of the criminal proceedings. On November 22, 2017, the High Court granted relief, finding that the transaction was purely civil and had been given a criminal colour.

However, a different bench dismissed the petitioner’s quashing petition on September 19, 2022.

While distinguishing the petitioner’s position, that bench relied on the receipt of money by the petitioner, execution of the earlier agreement as power-of-attorney holder, participation as a confirming party in the subsequent sale deed, and sale of the property at a lower price.

It also treated the question of whether the petitioner had passed the consideration to the landowners as a triable issue.

Before the Supreme Court, the petitioner argued that the allegations arose from the same transaction and that there was no justification for continuing the prosecution after the landowners had obtained relief.

The complainant, however, maintained that the petitioner was a principal actor who had received the money and that the subsequent sale involved concealment of the earlier agreement.

Rejecting the distinction drawn by the High Court, the Supreme Court noted that the landowners themselves had executed the subsequent sale deed, while the petitioner was only a confirming party.

The Court reasoned that if execution of that sale deed did not establish criminality against the landowners, the same transaction could not sustain the prosecution against the petitioner without material showing an aggravated role.

It further held that the consideration had been received collectively by the landowners and the petitioner. Physical receipt of the money by the petitioner on their behalf did not place the petitioner in a different position.

Although the November 2012 agreement had been signed by the petitioner, it was executed on behalf of the landowners. There was no allegation that the petitioner had exceeded the authority granted or acted without their knowledge.

The Supreme Court also rejected reliance on the property having subsequently been sold at a lower price.

It described this reasoning as speculative and held that the circumstance could not be treated as incriminating against the petitioner. Even if it had any incriminating value, the Court observed, it would equally concern the landowners who had executed the sale.

The bench further criticised the High Court for raising the hypothetical question of whether the petitioner had transmitted the consideration to the landowners.

The landowners had made no allegation that the petitioner had misappropriated money belonging to them. By treating that question as a ground for trial, the High Court had travelled beyond the allegations in the case.

The Supreme Court explained that the offence requires a deceptive act that induces the delivery of property or money.

The payment under the November 2012 agreement had not been made on the basis of deception. At that stage, the property could legitimately have been transferred to the prospective buyers.

The subsequent sale occurred in 2016, almost four years after the payment. In these circumstances, the Court held that the foundational ingredient of cheating was missing.

The bench also found that Section 423 IPC had been wrongly invoked. That provision requires a false statement concerning consideration in an instrument of transfer, whereas no such false statement was identified in either the earlier agreement or the subsequent sale deed.

The Court characterised the proceedings as an attempt to impose criminality upon a purely civil dispute.

The Supreme Court expressly refrained from deciding the merits of the pending specific-performance suit, including questions concerning the prospective buyers’ readiness and willingness to complete the transaction.

Those issues, it held, must be determined by the concerned civil court.

Allowing the petition, the Supreme Court set aside the Karnataka High Court’s September 19, 2022 order and quashed the proceedings in FIR/Crime No. 121/2016 at Kadugodi Police Station, together with all consequential proceedings.

The bench held that, in the particular facts, judicial consistency and propriety required the petitioner to receive the same relief as the landowners. 

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