Aaditya Khaitan and Others v. State of Jharkhand and Others · 2025 INSC 575

The accusation the High Court had left in place

A company held a project contract from a public-sector building corporation and engaged the complainant to perform part of the work, after which bills, part payments and an unpaid balance became the centre of the dispute. The complainant alleged that the company and its officers had concealed a restriction on subletting in the principal contract, asking police to pursue breach of trust, cheating, forgery-related offences and common intention under the Indian Penal Code, 1860.

The High Court had quashed the FIR against an officer of the public-sector corporation but declined to do the same for the contractor and its officers. Their appeal required the Supreme Court to decide whether, even if the complaint's narrative was accepted, that narrative disclosed a criminal offence rather than a claim for money arising from the subcontract.

The complaint named Sections 406, 420, 467, 468 and 471 of the Indian Penal Code with Section 34, combining allegations about entrusted property, deception and documents. The Supreme Court did not test each document in a mini trial, since the preliminary question was whether the complainant's description of contracting, interrupted performance and unpaid bills supplied factual content capable of supporting those offences at all.

The face-value test was not an invitation to try the dispute

The Court restated the Section 482 Code of Criminal Procedure, 1973 approach to a complaint whose allegations fail to make out an offence on their face. It required the report to be read as a whole while avoiding a detailed inquiry into whether witnesses were reliable or whether every document would ultimately support one side.

The High Court had relied heavily on the restrictive covenant in the original project contract and inferred dishonest suppression from its existence. The Supreme Court found that this shortcut failed to examine the actual course of transactions alleged in the FIR, including what the subcontractor already knew, what happened after the restriction came to light and why payment was still claimed.

That distinction is central to the ground for quashing. The Court did not decide that the contractor had complied with every term of its own agreement, but found that a possible breach of a separate restriction did not by itself satisfy the criminal allegations made by this complainant.

The complainant's knowledge and continued performance

According to the report, the complainant had known from the start that its work formed part of a project awarded by the public-sector corporation to the accused company. It sought to intervene in litigation between those two contracting parties, but the High Court refused intervention because the complainant had no back-to-back contract with the corporation, at which point it said it learned that subletting required the corporation's consent.

The complaint also recorded that work later resumed pursuant to directions in the earlier litigation, with the complainant again performing under its own subcontract after learning of the restriction. Bills were submitted and some amounts were paid during that renewed period, leaving a further balance which the complainant continued to seek.

The first interruption was attributed in the report to the corporation's direction to stop work after the project was not completed within the stipulated period. Because the complainant's account itself described resumption after the court's intervention, the Court could examine both phases rather than treat the earlier discovery of the subletting restriction as a decisive explanation of every later unpaid invoice.

The Supreme Court did not treat continued performance as a complete answer to every possible claim about nondisclosure. It used the complainant's own account to show why the alleged concealment could not simply be transformed into cheating or forgery when the dispute that remained concerned what the contractor owed for work already performed.

Why the principal contract did not create this complainant's offence

Even assuming that the contractor had failed to disclose the consent requirement and had sublet work without consent, the restriction belonged to the contract between the corporation and the main contractor. The Court reasoned that a remedy for that breach would lie with the corporation against its contracting party, not with the complainant as a party to a different agreement.

The corporation had no contractual privity with the complainant, a point which had already informed the refusal to let the complainant enter the corporation's litigation. Conversely, the restriction in the principal contract did not erase the main contractor's possible duty to pay valid bills under its separate subcontract with the complainant.

That remaining duty explains why the Court directed attention to a money-recovery route. If the bills complied with the subcontract, their payment might still be due, but the presence of an unpaid contractual balance did not supply facts establishing criminal liability under the sections named in the FIR.

The effect of arbitration and insolvency on the result

The complainant had taken steps concerning recovery and invoked an arbitration clause, while the arbitration had been stayed because of a moratorium ordered in insolvency proceedings involving the accused company. The Court acknowledged that this obstacle made recovery difficult, yet it did not allow the delay or suspension of a civil remedy to become a reason for using criminal prosecution to collect the disputed sum.

Reading the FIR in its entirety, the Supreme Court found no prima facie offence against the appellants, set aside the High Court's refusal to act and quashed the FIR with no further proceedings to follow upon it. The judgment does not extinguish a valid bill claim, since its quashing ground is the absence of criminal ingredients in the complainant's own account, leaving lawful recovery remedies to be pursued through their proper forums.

Source: Aaditya Khaitan and Others v. State of Jharkhand and Others · 2025 INSC 575