- 1 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 21ST DAY OF AUGUST, 2025 BEFORE THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM CRIMINAL PETITION NO. 2138 OF 2025 BETWEEN: 1. PADMAJYOTHI SHREESHA W/O SHREESHA S P NOW AGED ABOUT 42 YEARS NO 31, F-1 SBI 1ST MAIN ROAD VINAYAKA LAYOUT, VIJAYANAGAR BENGALURU - 560 040. 2. MANJUNATH HEGDE S/O GANESH HEGDE NO 04, SWAGATH KUTIR VINAYAKA LAYOUT VIJAYANAGARA II STAGE BENGALURU - 560 040. …PETITIONERS (BY SRI. CHANDRASHEKARA K.A, ADVOCATE) AND: 1. THE STATE OF KARNATAKA BY THE POLICE OF VIJAYANAGARA POLICE STATION, BENGALURU - 560 040, REPRESENTED BY SPP HIGH COURT OF KARNATAKA BENGALURU - 560 001. 2. VARUN BERRY Digitally signed by SHARADAVANI B Location: High Court of Karnataka - 2 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 S/O R.K. BERRY NOW AGED ABOUT 42 YEARS C 11, NO 370/3, YEMMALUR MAIN ROAD OFF OLD AIR PORT ROAD NEXT TO CGI PARK, VARTUR HOBLI, BENGALURU - 560 003. …RESPONDENTS (BY SRI. M.R. PATIL, HCGP FOR R1; SRI. MAHESH Y.L, ADVOCATE FOR R2) THIS CRL.P IS FILED U/S 482 OF CR.PC (FILED U/S 528 BNSS) PRAYING TO QUASH THE ENTIRE PROCEEDINGS IN C.C.NO.14327/2023 PENDING ON THE FILE OF THE LEARNED IV A.C.J.M BENGALURU FOR THE OFFENCE P/U/S 120B, 406, 409, 418 AND 420 R/W 34 OF IPC IN SO FAR AS THE PETITIONERS HEREIN ARE CONCERNED. THIS PETITION, COMING ON FOR ADMISSION, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM ORAL ORDER The petitioners, who are director and manager, respectively, of Sunness Capital India Private Limited, are seeking quashing of the proceedings pending in C.C.No.14327/2023 arising out of Crime No.307/2021 for - 3 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 the offence punishable under sections 120B, 406, 409, 418 and 420 r/w 34 of IPC. 2. The gist of the complaint lodged by respondent No.2 is that one Shreesha Sashithota Prabhakaran introduced him to the director of Sunness Capital India Private Limited. It is alleged that the said director, along with the manager, namely the present petitioners, induced respondent No.2/complainant to invest in the company, assuring him that they would personally handle his investment account. Believing their representations, the complainant invested substantial sums with the assurance of lucrative returns subject to market risk. 3. It is further alleged that though trading commenced in the name of the complainant in 2021 and initially appeared profitable, on 31.07.2021 his closing balance, which stood at Rs.1,13,40,844/-, had declined to Rs.1,01,05,320/-. On the very same day, the complainant addressed an email to the petitioners seeking - 4 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 clarification. Despite repeated requests calling upon them to refund the invested amount with accrued profit, the petitioners neither responded nor repaid. Alleging a blatant breach of trust and cheating, the complainant lodged a written complaint before the jurisdictional police, pursuant to which a case was registered and, after investigation, a charge sheet has been filed against the petitioners. 4. The petitioners have approached this Court seeking quashing of the proceedings on the ground that the transaction between respondent No.2 and the company is purely commercial in nature, and the dispute is essentially civil. It is further contended that the company itself has not been arraigned as an accused, and only one of its directors and the manager are being prosecuted, rendering the proceedings unsustainable. 5. Learned counsel for the petitioners, reiterating the grounds urged in the petition, submits that respondent - 5 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 No.2 has attempted to give criminal colour to what is essentially a civil dispute. Lodging of a criminal case in such circumstances amounts to abuse of process of law, and therefore, the proceedings deserve to be quashed. 6. Per contra, learned counsel for respondent No.2, relying upon the averments in the complaint, would contend that the allegations disclose commission of cognizable offences. It is urged that the petitioners, having received huge sums of money from respondent No.2, have refused to repay the same despite repeated demands, thereby constituting offences of criminal breach of trust and cheating. 7. Learned High Court Government Pleader would seek to justify the filing of the charge sheet, contending that the material collected during investigation discloses a prima facie case against the petitioners. He would further submit that this is not a fit case to exercise inherent powers to quash the proceedings at this stage. - 6 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 8. This Court has heard the learned counsel for the petitioners, the learned counsel for respondent No.2, and the learned High Court Government Pleader. I have also carefully perused the written complaint lodged by respondent No.2 as well as the charge sheet material. 9. This Court deems it fit to extract the relevant paragraphs of the complaint, which reads as under: "1. He induced me to part with my funds and invest with this company thereby promising me lucrative returns on my investment subjected to market risks. 3. The said persons initiated trading under my name in January 2021. Their trading under my name was sailing smoothly until 26/07/2021. when I checked my ledger account after that, I came to realize that they had discontinued trading since there were no transactions recorded in my ledger account and I had not received any contract notes either. 4. On checking my ledger balance, I saw that there was a fraudulent entry in the ledger which resulted in discrepancies in closing balance. On 31/07/2021, the closing balance in my account was ₹1,13,40,844/-, which on 13/09/2021 sharply reduced by 12,35,524/- thereby making my closing balance ₹1,01,05,320/-. On the same day, I wrote an email enquiring about this fraudulent entry. Again, there was no response to any messages from their end and all our calls remained unanswered. On constantly keeping track of my ledger, I came to see that by 18/09/2021, my ledger balance came to be restored to its original value. Currently, my - 7 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 total capital with added accrued profit stands at ₹1,13,40,844/-. The Ledger account showing fraudulent transaction is produced as Annexure - D. 5. When I saw this discrepancy in my ledger balance, I once again tried to reach out to them in order to figure out the reason behind such unexplained discrepancy. Much to my dismay, they evaded my calls, messages and emails, and it was almost as if.. they had absconded. I was taken aback by such irresponsible conduct of the representatives of the company and felt that I was being cheated and hoodwinked by the said persons. 6. Thereafter, i.e., on 13/09/2021, I wrote an email to the said persons asking them to refund total amount including my capital and accrued profit. The said Email is produced as Annexure - E.As usual, they chose not to reply to my queries. I was flabbergasted by this blatant breach of trust by the said persons and hence decided to file a formal complaint with BSE against Sunness Capital on 23/09/2021 along with all credentials and documents supporting my claim. Copy of the Complaint is attached herewith as Annexure-F." 10. The extracted portion of the complaint itself, in the opinion of this Court, clinches the issue at hand. It is a settled principle of law, reiterated in numerous judgments of this Court as well as the Hon’ble Apex Court, that for the offence punishable under Section 420 of IPC to be made out, there must be fraudulent or dishonest intention - 8 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 at the inception of the transaction. A mere breach of promise, or failure to keep up with the terms of a contract, would not by itself constitute the offence of cheating unless it is shown that the intention to deceive existed from the very beginning. 11. On a close examination of the complaint allegations, particularly the extracted portion at paragraph No.1, it becomes evident that the company had duly informed respondent No.2/complainant that the investment would be subject to market risks. In fact, the complainant himself admits that his investment account was operating smoothly until 26.07.2021. This admission, in the considered view of this Court, runs contrary to the complainant’s allegation that he was induced into investing under false pretences. The fact that returns were being generated for some time, and that the account was sailing smoothly until July 2021, demonstrates that there was no dishonest inducement at the inception. - 9 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 12. As regards the allegations in paragraphs 4 to 6 of the complaint, a meticulous reading would show that the grievance of the complainant essentially revolves around his entitlement to seek refund of the money invested. Such a dispute, by its very nature, is civil and contractual, and cannot be given the colour of a criminal prosecution. It is well settled that where a party, instead of resorting to the civil remedies available in law for recovery of money, chooses to set the criminal law in motion, the same amounts to abuse of process. This Court is of the opinion that respondent No.2/complainant could not have adopted a shortcut method by lodging a police complaint and having a crime registered against the petitioners in respect of what is, in substance, a commercial dispute. 13. The contention of respondent No.2 that once he demanded refund of his investment on 13.09.2021, when his closing balance stood at Rs.1,01,05,320/-, and despite the company having sufficient funds, the petitioners - 10 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 deliberately failed to repay the amount, thereby committing an offence under Section 420 IPC, is not acceptable. The mere failure to refund the amount or absence of a response to such demand, without anything more, cannot be elevated to the level of a criminal offence. At best, it may give rise to a civil cause of action for recovery of money, but it does not constitute the ingredients of “cheating” as defined under law. 14. Furthermore, the Hon’ble Apex Court in Delhi Race Club (1940) Ltd. and Others vs. State of Uttar Pradesh and Another, (2024) 10 SCC 690, has clearly enunciated that the offences punishable under Sections 406 and 420 IPC cannot co-exist in respect of the same transaction, since the two provisions operate in different legal spheres. In the present complaint, the allegations made by respondent No.2 are simultaneously directed under Sections 406 and 420 IPC, which itself indicates a fundamental legal infirmity. On this ground also, the crime registered against the petitioners cannot be sustained. - 11 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 15. Though this Court is conscious that the quashing of criminal proceedings would not preclude respondent No.2 from initiating appropriate proceedings for recovery of his investment before a competent civil forum, the continuation of the present prosecution would amount to a sheer abuse of the process of law. A dispute which is essentially civil in character is being given a cloak of criminality in order to exert pressure on the petitioners. This Court has consistently held that commercial transactions, investments, and financial agreements between parties fall within the realm of civil law, and the criminal process cannot be invoked to settle such disputes. Allowing the present proceedings to continue would therefore be nothing but misuse of criminal machinery. 16. For the foregoing reasons, this Court passes the following: ORDER i. The criminal petition is hereby allowed; - 12 - HC-KAR NC: 2025:KHC:32695 CRL.P No. 2138 of 2025 ii. The proceedings pending in C.C.No.14327/2023 pending on the file of IV Addl. Chief Judicial Magistrate, Bengaluru, are hereby quashed and set aside. Pending interlocutory applications, if any, stands disposed of. Sd/- (SACHIN SHANKAR MAGADUM) JUDGE HDK List No.: 1 Sl No.: 17 CT: BHK