- 1 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 3RD DAY OF SEPTEMBER, 2025 BEFORE THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM CRIMINAL PETITION NO. 7755 OF 2024 BETWEEN: SRI. MADHU AVALUR S/O SRI VENKATESAM, AGED ABOUT 52 YEARS, CEO OF M/S ANGAROS GROUP, NO.35, NAVODAYA COLONY, ROAD NO.2, BANJARA HILLS, HYDERABAD - 500 034. TELANGANA. …PETITIONER (BY SRI. VENKATESHA T S., ADVOCATE) AND: 1. STATE BY BELLANDURU POLICE MARATHAHALLI SUB DIVISION, BANGALORE CITY, REPRESENTED BY SPP HIGH COURT OF KARNATAKA, HIGH COURT BUILDING, BANGALORE - 560 001. 2. SMT. PAVITRA JAYARAMAN W/O SRI. RAJEEV KRISHANAN, AGED ABOUT 49 YEARS, RESIDING AT V-004, TOWER-5, JASMINE ADARSH PALM RETREAT, DEVARABISANAHALL, BANGALORE - 560 103. …RESPONDENTS (BY SRI. RAHUL RAI, HCGP FOR R1; SRI. SIVARAMAKRISHNAN M.S., ADVOCATE FOR 2) Digitally signed by CHAITHRA A Location: HIGH COURT OF KARNATAKA - 2 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 THIS CRL.P IS FILED U/S.482 OF CR.P.C. PRAYING TO QUASH THE FIR IN CR.NO.0555/2023 REGISTERED IN BELLANDURU POLICE STATION, BENGALURU CITY AND PENDING BEFORE THE HON'BLE 3rd ACMM COURT, AT BENGALURU FOR OFFENCE P/US/ 406, 420 OF IPC, AGAINST THE PETITIONER. THIS PETITION, COMING ON FOR DICTATING ORDERS, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM ORAL ORDER The captioned is filed by the accused seeking quashing of the proceedings pending in FIR/Crime No.0555/2023 for the offences punishable under Sections 406 and 420 of Indian Penal Code. 2. The facts leading to the case are as under: The respondent No.2/defacto complainant lodged a complaint before the jurisdictional Police Station alleging that she had entered into a loan agreement with the - 3 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 petitioner on 08.09.2017. Under the said agreement, respondent No.2 claims to have advanced a loan of USD 50,000/- for a period of one year, carrying interest at the rate of 15% per annum. It is further alleged that the loan amount was disbursed on 12.09.2017 through a cheque issued on the same date. 3. According to respondent No.2, the petitioner initially paid the monthly interest as agreed. However, of late, the petitioner stopped making the interest payments and also failed to furnish the monthly statements, thereby arousing suspicion in the mind of respondent No.2. Consequently, respondent No.2 approached the jurisdictional police and lodged a complaint alleging commission of offences punishable under Sections 406 and 420 of the IPC. Based on this complaint, a crime came to be registered for the said offences. 4. I have heard the learned counsel appearing for the petitioner, the learned counsel representing - 4 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 respondent No.2, and the learned High Court Government Pleader. 5. The short question that arises for consideration is whether the complaint lodged by respondent No.2, which on the face of it discloses a dispute of purely civil nature, could form the basis for registration of an FIR under Sections 406 and 420 of the IPC, and consequently, whether the proceedings in Crime No.0555/2023 are liable to be quashed. 6. Before adverting to the merits of the rival contentions, it is necessary to extract the relevant portions of the complaint lodged by respondent No.2. Paragraphs 3 to 7 and 10 to 12 of the written complaint are pertinent and are accordingly reproduced hereunder: "3. I state that in 2016 I joined as a Partner in Angaros Group at which time Mr. Madhu was the Chief Executive Officer of Angaros Group and approached me to make an investment in some trade finance deals in Dubai. - 5 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 4. Initially I was reluctant in giving the loan, however after the assurances and guarantee given by Mr. Madhu in his personal capacity, I agreed to grant him a personal loan of USD 50,000. 5. Accordingly, I entered into a Loan Agreement dated 08 September 2017 ('said Agreement') with Mr. Madhu. As per the said Agreement, the loan of USD 50,000 was given for a period of one year at an annual interest rate of 15% ('said loan'). 6. On September 12, 2017, I disbursed the loan amount of USD 50,000 vide cheque dated 12 September 2017 bearing No.174, in favour of Angaros Inc. drawn on Chase Bank USA. It is further stated that the said cheque was signed and dispatched from my residential address in Bangalore viz., V-004, Tower 5, Jasmine, Adarsh Palm Retreat, Devarabessanahalli, Bangalore - 560103 and sent by courier to Mr. Madhu's office situated at, Plot No.35, Navodaya Colony, Road No.2, Banjara Hills, Hyderabad - 560 034, Telangana. 7. I further state that, I would regularly receive monthly interest accrual statements for the loan given by me to Angaros. However, I became suspicious when I stopped receiving the monthly statements. The last statement received by me was dated 31 January 2020. XXXXXXXXXXXXX - 6 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 10. To my utter shock and surprise, instead of repaying the said loan, Mr. Madhu began avoiding my messages and calls, and instructed his employees Mr. Dipankar Ghosh and Mr. SeshumadhavKuppa to deflect the requests by giving excuses and false assurances to me. 11. On 23 August 2022, I addressed an email to Mr. Madhu on madhu@angaros.com, asking for an update on the repayment of the borrowed principal along with interest because I was in dire need of funds to support my daughter's education. However, till date I have not received any reply from Mr. Madhu. 12. On 24 August 2022, I sent a follow up email to Mr. Madhu on his email address; madhu@ angaros.com, expressing my disappointment towards the unprofessional conduct and lack of communication from Mr. Madhu's end. I further state that I have, time and again, given a reasonable opportunity to Mr. Madhu to make the repayment however, he is avoiding conversation by having Mr. Dipankar talk to me instead of addressing the issue directly with me." 7. This Court also deems it fit to extract the relevant portion of the loan facility agreement, which finds place at Clause 15 of the loan facility agreement would be relevant and the same is extracted which reads as under: - 7 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 "15. Disputes 15.1 Any dispute, difference or disagreement arising out of or in connection with this Agreement may be referred by either party to the arbitration of a single arbitrator appointed by agreement between the parties or, in default of agreement between the parties within 30 days of a request in writing for a reference to arbitration, appointed by Singapore International Arbitration Center on the application of either party. 15.2 Any reference to arbitration pursuant to clause 15.1 shall be governed by the terms of the Arbitration Act of Singapore." (Emphasis Supplied by me) 8. On a careful reading of the extracted portion of the written complaint, coupled with the admitted fact that the loan facility agreement executed between respondent No.2/complainant and the petitioner/accused contains an arbitration clause, this Court is of the considered view that the dispute is purely commercial in nature. The record clearly reveals that two private individuals, of their own volition, entered into a formal loan facility agreement dated 08.09.2017 under which respondent No.2 advanced - 8 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 to the petitioner a loan of USD 50,000, subject to the specific terms and conditions stipulated therein. One of the crucial clauses in the said agreement provides for reference of any dispute arising between the parties to arbitration. The very existence of this clause clinches the controversy in the present case and demonstrates beyond doubt that the appropriate forum for resolution of the dispute is arbitration and not criminal prosecution. 9. In the present case, the jurisdictional Police Station committed a serious error in entertaining the complaint lodged by respondent No.2. The dispute between the parties being contractual and commercial in character, the jurisdictional Police Officer ought to have relegated the complainant to work out her remedies under the loan facility agreement by invoking the arbitration clause. Instead, respondent No.2, bypassing the agreed contractual mechanism, has chosen to initiate criminal proceedings, which prima facie appear to be intended only to exert undue pressure on the petitioner. Such conduct - 9 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 amounts to adopting arm-twisting tactics in what is otherwise a civil dispute. Even assuming that there has been default in payment of interest or repayment of the loan amount by the petitioner, the remedy of respondent No.2 is to seek enforcement of her contractual rights before the arbitral forum or civil court and not to invoke criminal law. Therefore, the very registration of FIR in Crime No.0555/2023 is not maintainable. 10. Furthermore, the allegations in the written complaint, even if taken at their face value and accepted in their entirety, do not prima facie constitute the offences alleged. It is an admitted position, as disclosed in the complaint itself, that the petitioner was paying the agreed monthly interest up to a particular point of time. This circumstance itself demolishes the very foundation of the allegation of cheating, inasmuch as it rules out any dishonest intention on the part of the petitioner at the inception of the transaction. The essential ingredients of the offence under Section 420 IPC are, therefore, not - 10 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 made out. Likewise, the offence under Section 406 IPC is also not attracted, as there is no material to indicate dishonest misappropriation or criminal breach of trust. 11. The legal position is also well settled by a catena of decisions of the Hon’ble Supreme Court and this Court that every breach of contract or non-fulfilment of contractual obligations cannot be construed as a criminal offence. Only in cases where deception or fraudulent intention is established at the very inception of the transaction, a criminal charge of cheating may arise. In the present case, as already noted, the payment of periodical interest to respondent No.2 itself is demonstrative of the fact that there was no fraudulent intention at the inception. Hence, the very registration of the case under Sections 406 and 420 IPC is legally untenable. 12. This view also finds support from the judgment of the Hon’ble Apex Court in Delhi Race Club (1940) - 11 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 Limited & Others vs. State of Uttar Pradesh & Another1, wherein it has been categorically held that offences under Sections 406 and 420 IPC cannot co-exist on the same set of facts and that breach of contractual terms by itself does not attract the penal provisions. In light of the said authoritative pronouncement, the present proceedings initiated against the petitioner cannot be sustained. 13. Accordingly, for the foregoing reasons, this Court proceeds to pass the following: ORDER (i) The petition is hereby allowed; (ii) The proceedings in FIR/Crime No.0555/2023 registered by the respondent No.1 – Police, pending on the file of the III Additional CMM Court, Bengaluru, for the offences punishable under Sections 406 and 1 (2024) 10 SCC 690 - 12 - HC-KAR NC: 2025:KHC:34491 CRL.P No. 7755 of 2024 420 IPC, insofar as the petitioner is concerned, are hereby quashed. Sd/- (SACHIN SHANKAR MAGADUM) JUDGE CA List No.: 1 Sl No.: 1