This article is written by Kavana Rao, studying at Symbiosis Law School, Noida. This article gives an overview of the criminalisation of disputes which are primarily commercial matters.
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It is not unheard of that parties to a commercial dispute resort to initiating criminal action against the other party. The primary aim for doing this is that proceeding with a criminal action will lead to speedier remedies from a criminal court and a criminal proceeding is always more intimidating and damaging to the company’s reputation than a civil suit. This can then be used as a bargaining chip, which will be used to intimidate the opposite party, expedite the recovery of dues and also delay legitimate proceedings.
It is essential that such frivolous proceedings are stopped before they can waste more of the court’s precious time. This also harshly impacts the ease of doing business as there is nothing that the business can do to stop these proceedings at their inception. Hence, there is a strong need for judicial intervention to ensure that their proceedings are dismissed in the beginning and the companies are able to proceed with their business without any fear.
First Information Report (FIR)
The FIR is neither defined in the Criminal Code nor mentioned in any other document. It refers to the information relating to the commission of a cognisable offence. When this information is given orally to an officer-in-charge of the police station, then it must be reduced in writing. An FIR is an important document as it sets the process of criminal justice in motion. It is only after the FIR is registered that the police take up the investigation of the case.
An FIR is registered only if there is a commission of a cognisable offence. However, courts have, over time, realized that there are loopholes in the statutory framework, which are frequently misused to harass and intimidate the accused. In certain situations including in frivolous cases arising from commercial disputes, a police officer can conduct a preliminary enquiry prior to the registration of a criminal case if the information does not disclose a cognizable offence and indicates the necessity for an enquiry. Despite conducting a preliminary enquiry, if no cognizable offence can be determined, then the criminal case ought not to be registered. The scope of a preliminary enquiry in such cases is not to verify the genuineness of the information received but only to ascertain whether the information reveals a cognizable offence.
The criminalisation of commercial disputes
In recent times, there have been multiple examples where the commercial conflicts have seen the contracting parties filing criminal cases under offences of cheating, criminal breach of trust, forgery or conspiracy under the Indian Penal Code, 1860 instead of taking the regular remedies under the contract. There is such practice even when there is a mere breach of contract. There are chances that such cases are overlooked by the police while filing the reports as there is no effective screening to decipher between criminal cases and commercial transactions in cases where contractual provisions are also involved. This leaves the business at risk as such criminal complaints will not only affect their goodwill but also risks the liberty of the senior executives who are often arrayed as offenders in these complaints.
The criminalisation of commercial disputes also arises when one party fails to understand the opposite party’s viewpoint. Hence, when there are conflicts or disputes among the parties, and they are unable to understand the others’ perspectives and motives, they often proceed to impute criminally.
Criminal actions are also taken to pressurise and intimidate the opposite party and compel them to reach a favourable settlement. They could also be motivated to pursue criminal action for speedier remedies. In addition to this, in a country like that of India, where there is a huge backlog of cases, unwarranted criminal proceedings will add to this backlog and also the fear of cases continuing for many years, coerces the party to cut out a deal and make settlements.
The courts have never hidden their contempt towards frivolous actions and abuse of court processes. The Supreme Court time and again expressed its concerns through judgments. One such judgement was the Mohammed Ibrahim and others v. State of Bihar and another, (2009), in this judgement the Court said “ This Court has time and again drawn attention to the growing tendency of the complainants attempting to give the cloak of a criminal offence to matters which are essentially and purely civil in nature, obviously either to apply pressure on the accused, or out of enmity towards the accused, or to subject the accused to harassment. Criminal courts should ensure that proceedings before it are not used for settling scores or to pressurize parties to settle civil disputes. But at the same time, it should be noted that several disputes of a civil nature may also contain the ingredients of criminal offences and if so, will have to be tried as criminal offences, even if they also amount to civil disputes.”
The courts also exerted the importance of proving the element of mens rea for a criminal offence. This was in the case of Hridya Rajan Pd. Verma & others v. State of Bihar and another (2014). The Court said the following, “In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be judged by his subsequent conduct but for this subsequent conduct is not the sole test. A mere breach of contract cannot give rise to criminal prosecution for cheating unless the fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore, it is the intention that is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intentions at the time of making the promise. From his mere failure to keep up a promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.”
These judgements show that, although the parties bring such frivolous claims to the courts, the wise judges have mostly looked into these cases and given satisfactory orders. Their words in the orbiter dicta are so prudently framed that such judgments can be referred to and applied by both the prosecutor and the defence.
In the case of Ramesh Boghabhai Bhut v State & Anr (2020), the respondent filed an FIR when the due amount of 37 lakhs was not paid by the petitioner. The payment could not be made because there was a delay in the shipment which was out of their control which led to the petitioner incurring losses. The Supreme Court relied on the case of V.Y. Jose and Anr. v. State of Gujarat and Anr (2009) where the Court held that “A matter which essentially involves dispute of a civil nature should not be allowed to be the subject matter of a criminal offence, the latter being not a shortcut of executing a decree which is non-existent. The Superior Courts, with a view to maintaining purity in the administration of justice, should not allow abuse of the process of the court.” It had also held that for the purpose of constituting any offence under the criminal law, the representation of dishonest intention is necessary.
In the present case, the Court observed that the registration of the FIR was an abuse of the process of law. It held that the recovery of money which was purely a commercial matter and hence the petition was allowed and the FIR filed by the respondent was quashed.
Remedies available against such frivolous criminal complaints
A party disputing the registration of criminal charges may argue before an appropriate high court that a purely business dispute has been given the colour of a criminal matter and that the criminal proceedings brought against it should be quashed as a result.
Section 482 of the Code of Criminal Procedure 1973 talks about the inherent powers of the high court to prevent abuse of the process of any court or otherwise secure the ends of justice. In this case, the high courts have the inherent power to quash any offences where the ingredients of the offence alleged are not made out. This remedy would entail preparing for legal battles in courts.
The affected party can also approach the High Court to seek an interim order to restrain the police authorities from conducting further investigation including taking any coercive steps of summons, raids, arrests, etc.
To conclude, it is an understood fact that criminalisation of commercial disputes is a practice evident in most countries, but an accused in India has to wait countless days to be let off the hook because of the slow rate of disposal of cases by the Indian judiciary. The Rule of Law allows people with genuine cause or grievance to avail remedies available in criminal law, but people who file frivolous complaints and also initiate prosecution with the knowledge that remedies can be sought in civil law should stand accountable for their actions. Therefore, there need to be strong and efficient solutions to ensure robust and speedy justice to the wrongly accused. Frivolous criminal cases for commercial matters can be avoided by sensitizing the police authorities about the importance of conducting preliminary enquiry effectively before the registration of the case. Strengthening the criminal investigation machinery is also the need of the hour to avoid unnecessary criminal claims which can be solved through civil procedures.
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