- 1 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 11TH DAY OF FEBRUARY, 2026 BEFORE THE HON'BLE MRS. JUSTICE M G UMA CRIMINAL PETITION NO. 9485 OF 2022 BETWEEN: 1. M/S YASH WORLD HABITAT AND PROJECTS PVT. LTD., A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956, HAVING ITS REGISTERED OFFICE AT SHRI GORAKSHANATHA JNANAMANDIR, NEAR KADRI PARK MANGALORE - 575 004 REPRESENTED BY ITS CHAIRMAN SRI. A. SURESH RAI 2. SRI. A. SURESH RAI S/O MR. NARAYANA RAI AGED ABOUT 49 YEARS R/AT FLAT NO.003 MAHARAJ EXCELLENCY 5TH CROSS, HATHIL MANGALURU CITY-575006. …PETITIONERS (BY SRI. ANANDARAMA K., ADVOCATE) AND: 1. STATE OF KARNATAKA, BY CEN CRIME POLICE STATION, MANGALURU CITY, MANGALORE COP, REPRESENTED BY SPP-560001 HIGH COURT OF KARNATAKA 2. SRI. SADANANDA RAI SRI LINGAPPA RAI AGED ABOUT 48 YEARS R/AT: 23-3-282/12, NEAR KASHI HIGH SCHOOL, MARNAMIKATTE, Digitally signed by PRASHANTH N V Location: High Court of Karnataka - 2 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 MANGALURU - 575001. …RESPONDENTS (BY SRI. RANGASWAMY R., HCGP FOR R1 SRI. S. RAJASHEKAR, ADVOCATE FOR R2) THIS CRL.P IS FILED U/S.482 CR.P.C PRAYING TO QUASH THE FIR DATED 24.07.2022 IN CR.NO.59/2022 REGISTERED BY THE CEN CRIME POLICE STATION FOR THE OFFENCE P/U/S 406, 409, 417, 418, 420, 149 OF IPC PENDING ON THE FILE OF II ADDITIONAL SENIOR CIVIL JUDGE AND C.J.M. MANGALURU AND THE ENTIRE PROCEEDINGS PURSUANT THERETO. THIS CRL.P, COMING ON FOR ADMISSION, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MRS. JUSTICE M G UMA ORAL ORDER Petitioners being accused Nos.1 and 2 in Cr.No.59/2022 of CEN Crime police station, Mangalore city, registered for the offences punishable under Sections 406, 409, 417, 418, 420 R/w Section 149 of the Indian Penal Code (for short 'the IPC') pending on the file of the learned II Additional Senior Civil Judge and JMFC, Mangalore are seeking to quash the criminal proceedings initiated against the petitioners. 2. Brief facts of the case are that respondent No.2 as Developer, petitioner No.1 being the Company, accused No.2- petiitoner No.2 being the Managing Director of petitioner No.1 - 3 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 have entered into a Joint Development Agreement (hereinafter referred to as 'JDA') on 04.06.2015, whereunder petitioners have agreed to give 98.55 cents owned by them to permit respondent No.2 to put up residential apartment complex. As per the terms of 'JDA', respondent No.2 was required to complete the construction and get the completion certificate on or before 13.06.2019 and should have obtained occupancy certificate on or before 13.12.2019. 3. It is the contention of the petitioners that respondent No.2 had not put up any construction worth mentioning and therefore, the petitioners issued a legal notice dated 11.03.2022 demanding for rental compensation for violation of conditions mentioned in 'JDA'. Subsequently, petitioners filed the suit OS.No.255/2022 on 23.05.2022 against respondent No.2 claiming Rs.2.10 crores as compensation for the delay in completion of the project. 4. In the meantime, respondent No.2 filed the information with Urwastore Police Station on 01.03.2022 against the petitioners alleging commission of breach of trust and cheating. However, no FIR came to be registered - 4 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 immediately. An endorsement dated 24.07.2022 as per Annexure-D was issued by CEN crime police station, Mangalore stating that on the basis of the first information dated 01.03.2022 an enquiry was held and they found prima-facie materials for having committed cheating and called upon to file a complaint in that regard. 5. Pursuant to the same, respondent No.2 filed the complaint on 24.07.2022. Upon which, the FIR in Cr.No.59/2022 for the above said offences came to be registered by CEN crime police station, Mangalore city and investigation was undertaken. In the meantime, petitioners have approached this Court seeking to stay the criminal proceedings and an interim order staying the further proceedings was passed. Thus, practically no investigation was undertaken by the police after registration of the FIR. 6. Heard Sri.Anandarama K, learned counsel for the petitioners and Sri. Rangaswamy R, learned High Court Government Pleader for the respondent No.1 and Sri. S.Rajashekar, learned counsel for respondent No.2. Perused the materials on record. - 5 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 7. In view of the rival contentions urged by learned counsel for both the parties, the point that would arise for my consideration is: "Whether the petitioners have made out any grounds to allow the petition and to quash the criminal proceedings initiated against them?" My answer to the above point is in the 'Negative' for the following: REASONS 8. It is the contention of the petitioners that as per the terms of 'JDA' dated 04.06.2015, respondent No.2 undertook to complete the residential apartment complex on or before 13.06.2019 and get the occupancy certificate on or before 13.12.2019. Respondent No.2 has not carried on any construction work on site. Therefore, he is liable to pay compensation of over Rs.2 crores. Suit OS.No.255/2022 was filed in that regard on 23.05.2022 preceded by legal notice dated 11.03.2022. 9. It is pertinent to note that the first complaint by respondent No.2 was filed on 01.03.2022 even though no FIR - 6 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 registered by Urwa Police, an enquiry appears to have been conducted by CEN crime police, Mangalore as could be made out from the endorsement dated 24.07.2022 produced as per Annexure-D. Upon which, respondent No.2 was called upon to file another complaint and accordingly, one more complaint was filed on the very same day. 10. According to learned counsel for the petitioners, there is improvement in making allegation against the petitioners by respondent No.2, while filing the second complaint dated 24.07.2022. 11. It is an undisputed fact that even though the 'JDA' dated 04.06.2015 was entered into between the petitioners and respondent No.2, the petitioners have admittedly mortgaged the very same property with a Society under the registered mortgage deed dated 24.07.2015 produced as per Annexure-F. Admittedly, respondent No.2 is not a party to the said mortgage. It was never brought to the notice of respondent No.2. Moreover, in the complaint there is reference to registered sale deed dated 30.12.2015 executed by the petitioners in favour of respondent No.2 selling over 3% of land - 7 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 for a consideration of Rs.4.50,000/-. Even in this registered sale deed there is no reference to registered mortgage deed Annexure-F. There is no explanation as to why a registered mortgage deed was executed behind the back of respondent No.2 after JDA dated 04.06.2015. There is also no explanation as to why there is no reference to registered mortgage deed in the registered sale deed dated 30.12.2015 executed in favour of respondent No.2. It is also stated that there is a deed of declaration registered with competent authority on 16.09.2016. Obviously it must be under Karnataka Apartment Ownership Act. Unless the building is completed and the sale deeds are executed in favour of the allottees, no deed of declaration could have been registered ordinarily. However, the fact remains that such a deed of declaration was registered even though it is contended that no construction worth mentioning was put up by respondent No.2. 12. It is also pertinent to note that the first complaint is dated 01.03.2022, which was preceded by the legal notice issued by the petitioners on 11.03.2022, and filing of suit OS.No.255/2022 on 23.05.2022 seeking compensation. These dates and events in chronological order may not be a mere - 8 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 coincidence. When respondent No.2 filed the complaint on 01.03.2022, petitioners might have thought of issuing the notice and issued the same on 11.03.2022, preceded by filing of the suit OS.No.255/2022 seeking compensation. When there are multiple registered documents, which cannot be reconciled with JDA. It cannot be said at this stage, that the petitioners are entitled for any relief in the present case. 13. On going through the materials on record in the light of the admitted facts and submissions made by the learned counsel for both the parties, I am of the opinion that there are prima facie material which are sufficient for the investigating officer to go on with investigation. 14. Learned counsel for the petitioners has placed reliance on the decision of the Hon'ble Apex Court in Delhi Race Club (1940) Limited and others Vs. State of Uttar Pradesh and another1 to contend that the allegations regarding breach of trust under Section 406 of IPC can not go hand in hand with the allegation of cheating under Section 420 1 (2024) 10 SCC 690 - 9 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 of IPC. The Apex Court has considered the requirement of law to invoke Section 406 or 420 of IPC held as under: "38. In our view, the plain reading of the complaint fails to spell out any of the aforesaid ingredients noted above. We may only say, with a view to clear a serious misconception of law in the mind of the police as well as the courts below, that if it is a case of the complainant that offence of criminal breach of trust as defined under Section 405 IPC, punishable under Section 406 IPC, is committed by the accused, then in the same breath it cannot be said that the accused has also committed the offence of cheating as defined and explained in Section 415 IPC, punishable under Section 420 IPC. 39. Every act of breach of trust may not result in a penal offence of criminal breach of trust unless there is evidence of manipulating act of fraudulent misappropriation. An act of breach of trust involves a civil wrong in respect of which the person may seek his remedy for damages in civil courts but, any breach of trust with a mens rea, gives rise to a criminal prosecution as well. It has been held in Hari Prasad Chamaria v. Bishun Kumar Surekha “4. We have heard Mr Maheshwari on behalf of the appellant and are of the opinion that no case has been made out against the respondents under Section 420 of the Penal Code, 1860. For the purpose of the present appeal, we would assume that the various allegations of fact which have been made in the complaint by the appellant are correct. Even after making that allowance, we find that the complaint does not disclose the commission of any offence on the part of the respondents under Section 420 of the Penal Code, 1860. There is nothing in the complaint to show that the respondent had dishonest or fraudulent intention at the time the appellant parted with Rs 35,000. There is also nothing to indicate that the respondents induced the appellant to pay them Rs 35,000 by deceiving him. It is further not the case - 10 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 of the appellant that a representation was made by the respondents to him at or before the time he paid the money to them and that at the time the representation was made, the respondents knew the same to be false. The fact that the respondents subsequently did not abide by their commitment that they would show the appellant to be the proprietor of Drang Transport Corporation and would also render accounts to him in the month of December might create civil liability for them, but this fact would not be sufficient to fasten criminal liability on the respondents for the offence of cheating.” 40. To put it in other words, the case of cheating and dishonest intention starts with the very inception of the transaction. But in the case of criminal breach of trust, a person who comes into possession of the movable property and receives it legally, but illegally retains it or converts it to his own use against the terms of the contract, then the question is, in a case like this, whether the retention is with dishonest intention or not, whether the retention involves criminal breach of trust or only a civil liability would depend upon the facts of each case. 41. The distinction between mere breach of contract and the offence of criminal breach of trust and cheating is a fine one. In case of cheating, the intention of the accused at the time of inducement should be looked into which may be judged by a subsequent conduct, but for this, the subsequent conduct is not the sole test. Mere breach of contract cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the transaction i.e. the time when the offence is said to have been committed. Therefore, it is this intention, which is the gist of the offence. 42. Whereas, for the criminal breach of trust, the property must have been entrusted to the accused or he must have dominion over it. The property in respect of which the offence of breach of trust has been committed must be either the property of some person other than the accused or the beneficial interest in or ownership of - 11 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 it must be of some other person. The accused must hold that property on trust of such other person. Although the offence i.e. the offence of breach of trust and cheating involve dishonest intention, yet they are mutually exclusive and different in basic concept. 43. There is a distinction between criminal breach of trust and cheating. For cheating, criminal intention is necessary at the time of making a false or misleading representation i.e. since inception. In criminal breach of trust, mere proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriated the same. Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver any property. In such a situation, both the offences cannot co-exist simultaneously." 15. Thus the Hon'ble Apex Court after considering its earlier decisions recorded a finding that act of breach of trust involves civil wrong and if complainant claims offence of criminal breach of trust as defined under Section 405, punishable under Section 406 is committed, at the same time, he cannot contend that accused committed the offence of cheating punishable under Section 420 of IPC, in other words both these offences can not co-exist simultaneously. 16. In the present case, we are still at the stage of registration of the FIR. After investigation, the Investigating Officer will be in a position to form an opinion as to whether offences punishable under Sections 406, 409 or under Section - 12 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 417, 418, 420 are made out. At this stage, this Court cannot form an opinion by holding mini-trial as to which is the offence which was committed by the petitioners. Tomorrow it may so happen, that the Investigating Officer may not find any material to constitute any of the offence as alleged. On facts, it is seen that the case before the Hon'ble Apex Court was for challenging the order summoning the accused to face the trial after full-fledged investigation. Under such circumstances, I am of the opinion that the decisions relied on by the learned counsel for the petitioners has no application in the present case at this stage. 17. Learned counsel for the petitioners has also placed reliance on the decisions of the Hon'ble Apex Court in Vijay Kumar Ghai and others Vs. State of West Bengal and others2 wherein, the Court has held at paragraph Nos.24, 25 and 38 as under: "24. This Court in G. Sagar Suri v. State of U.P. observed that it is the duty and obligation of the criminal court to exercise a great deal of caution in issuing the process, particularly when matters are essentially of civil nature. 2 (2022) 7 SCC 124 - 13 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 25. This Court has time and again cautioned about converting purely civil disputes into criminal cases. This Court in Indian Oil Corpn noticed the prevalent impression that civil law remedies are time consuming and do not adequately protect the interests of lenders/creditors. The Court further observed that : “13. … Any effort to settle civil disputes and claims, which do not involve any criminal offence, by applying pressure through criminal prosecution should be deprecated and discouraged.” 38. There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. However, as held by this Court in Hridaya Ranjan Prasad Verma v. State of Bihar, the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one. While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by Respondent 2 does not disclose dishonest or fraudulent intention of the appellants." 18. Placing reliance on the decision, learned counsel for the petitioners contended that even if the contention of respondent No.2 is to be accepted, it only amounts to breach of conditions in 'JDA' dated 04.06.2015 and it will not constitute any criminal offence. 19. On facts, the Hon'ble Apex Court has recorded its finding that mere breach of contract will not give raise to registration of the criminal case. There cannot be any dispute with regard to this position of law but on facts as discussed - 14 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 above, there are prima-facie materials where the petitioners after entering into JDA dated 04.06.2015, mortgaged the property in favour of third party by executing a registered mortgage deed dated 07.08.2015 for which, respondent No.2 was not a party. Moreover, the registered sale deed dated 30.12.2015 was executed by the petitioner in favour of respondent No.2. 20. Admittedly, in the sale deed there is no reference to registered mortgage deed dated 07.08.2015. When such admitted facts are available on record, which give rise to serious doubt regarding conduct of the petitioners, it cannot be concluded by saying that there may be only breach of contract by the petitioners. Therefore, these decisions relied on by the learned counsel for the petitioners is also not applicable to the facts of the case at present. 21. The Investigating Officer is required to investigate into the matter and file the final report. Therefore, I do not find any reason to entertain the petition, as the petitioners are not entitled for grant of relief by quashing the criminal proceedings. - 15 - HC-KAR NC: 2026:KHC:8259 CRL.P No. 9485 of 2022 22. Accordingly, I answer the above point in the negative and proceed to pass the following: ORDER (i) The criminal petition is dismissed. The investigation officer shall conduct investigation independently without being influenced by any of the observation made in the body of the order. SD/- (M G UMA) JUDGE BH CT:VS List No.: 1 Sl No.: 6