Rupesh Kumar and Another Vs. State of Chhattisgarh

Rupesh Kumar and Vedank Kumar, who ran an educational institute, granted a three-year franchise agreement in 2017 to an entity named Fashion Interior Institute of India. After the agreement expired automatically in 2020 without renewal, a representative associated with the franchise filed a criminal complaint against them, alleging that they failed to grant him a new franchise and refused to issue mark-sheets to six students. The local magistrate ordered the police to register a criminal case for cheating, criminal breach of trust, and criminal conspiracy. Following an investigation, the police filed a final charge-sheet, and the trial court took cognizance of the offences. The institute's owners approached the High Court seeking to quash the criminal proceedings, arguing that they had already issued mark-sheets to students who completed formalities, had no contractual relationship with the individual complainant, and were being targeted maliciously because they had previously sued the complainant for trademark infringement when he started a rival institute. The High Court observed that the core dispute regarding franchise terms and mark-sheet issuance was purely contractual and civil in nature. The court noted that there was no evidence of fraudulent intent at the beginning of the transaction nor any entrustment of property, which are essential elements to prove cheating or criminal breach of trust. Observing that criminal proceedings cannot be used as a tool to settle civil disputes or pursue pre-existing business rivalries, the High Court quashed the criminal complaint, charge-sheet, and trial court proceedings against the petitioners.

Rupesh Kumar and Another v. State of Chhattisgarh and Another, August 6, 2026, CRMP No. 950 of 2026, Neutral Citation: 2026:CGHC:34462-DB, High Court of Chhattisgarh at Bilaspur, Hon'ble Shri Ramesh Sinha C.J. and Hon'ble Shri Ravindra Kumar Agrawal J.

[Disclaimer: Donot treat this as substitute for legal advise as it may contain subjective errors.] Tags: Section 528 BNSS, Quashing of FIR, Section 420 IPC, Section 405 IPC, Civil vs Criminal Dispute, Franchise Dispute, Abuse of Process of Law

Introduction

The boundary between civil breach of contract and criminal liability remains one of the most frequently litigated areas in Indian criminal jurisprudence. Litigants often attempt to cloak civil, commercial, or contractual disagreements under the garb of criminal offences to leverage coercive state power against business rivals or former contractual partners.

The judgment addresses the inherent jurisdiction of the High Court to quash criminal proceedings when a matter is fundamentally civil in character. The High Court reasserted that failure to perform contractual promises or administrative disputes over educational certifications cannot automatically trigger criminal prosecution for cheating or criminal breach of trust unless fraudulent intent is demonstrated at the inception.

Factual and Procedural Background

The Petitioners, Rupesh Kumar and Vedank Kumar, operate from Nagpur, Maharashtra. On May 5, 2017, they entered into a Franchise Agreement with a partnership firm operating under the name and style of "Fashion Interior Institute of India" for a fixed duration of three years. Under the terms of the agreement, the franchise automatically expired on May 4, 2020, and was never renewed.

Respondent No. 2, Mukesh Kumar Sahu, was associated with the franchisee firm. Following the expiry of the franchise, Respondent No. 2 attempted to establish another institute under the name "Cadence Institute of Design and Management". Believing this to be an infringement on their intellectual property, the Petitioners issued a cease-and-desist notice, filed complaints with the police and the Ministry of Corporate Affairs (MCA), and instituted a trademark suit against Respondent No. 2. The MCA subsequently directed Respondent No. 2 to alter his company's infringing name.

Thereafter, Respondent No. 2 submitted a criminal complaint at Police Station City Kotwali, Rajnandgaon, alleging that the Petitioners had dishonestly refused to issue mark-sheets to six students and failed to grant him an independent franchise. While the police initially treated the matter as a non-cognizable complaint on October 9, 2023, Respondent No. 2 approached the Judicial Magistrate First Class (JMFC), Rajnandgaon.

By an order dated July 26, 2025, the learned JMFC directed the registration of an FIR under Section 156(3) of the Cr.P.C.. FIR No. 388/2025 was registered on July 26, 2025, against the Petitioners for offences under Sections 420 (Cheating), 405 (Criminal Breach of Trust), 120-B (Criminal Conspiracy) read with Section 34 of the Indian Penal Code, 1860 (IPC).

Following an investigation where the Petitioners cooperated pursuant to notices under Section 41-A Cr.P.C. (corresponding to Section 35 of the Bharatiya Nagarik Suraksha Sanhita, 2023 [BNSS]), the police submitted Final Report No. 544/2025 on December 4, 2025. On December 15, 2025, the Chief Judicial Magistrate, Rajnandgaon, took cognizance of the charge-sheet and registered Criminal Case No. 11306/2025. The Petitioners then invoked the High Court's extraordinary powers under Section 528 of the BNSS, 2023 (formerly Section 482 Cr.P.C.) to quash the FIR, Final Report, and cognizance order.

Dispute Before the Court

The core legal and factual questions presented before the High Court involved:

• Whether the non-issuance of mark-sheets following the expiry of a commercial franchise agreement constitutes criminal offences of cheating and breach of trust or merely amounts to a civil/contractual dispute.
• Whether the criminal proceedings initiated by Respondent No. 2 were bona fide or constituted a malicious, retaliatory measure stemming from ongoing trademark litigation.
• Whether the uncontroverted allegations in the FIR and Final Report contained the foundational legal ingredients required under Sections 405, 420, and 120-B of the IPC.

Contentions of the Parties:

• Petitioners: The dispute stems entirely from the expiration of a franchise agreement. Respondent No. 2 lacked independent contractual standing. Mark-sheets were issued to students who cleared university dues, whereas others had pending administrative requirements. The criminal complaint was filed maliciously as a counter-blast to the Petitioners' successful trademark actions against Respondent No. 2.
• Respondent No. 2 & State: The police investigated the matter under court directions and found that students' mark-sheets were withheld despite fee payments. Disputed factual questions regarding fee completion, contractual responsibilities, and mark-sheet delivery must be resolved through a full trial, not at the pre-trial quashing stage.

Reasoning and Analysis of the Court

The High Court conducted a rigorous examination of the record, the charge-sheet, and established criminal jurisprudence regarding the distinction between civil breaches and criminal offences.

Absence of Essential Ingredients for IPC Offences

The Court scrutinized the statutory definitions governing the alleged crimes:

1. Section 420 IPC (Cheating): The Court reiterated that a key element of cheating is dishonest or fraudulent intention existing at the very inception of the transaction, which induces a victim to deliver property. A simple subsequent breach of contract or administrative failure to deliver mark-sheets does not establish initial dishonest intent.
2. Section 405 IPC (Criminal Breach of Trust): An offence under this section requires an initial entrustment of property to the accused, followed by dishonest misappropriation or conversion. The Court found no material in the police charge-sheet showing that any property was entrusted by Respondent No. 2 or the students to the Petitioners.
3. Section 120-B IPC (Criminal Conspiracy): The investigation failed to demonstrate any meeting of minds or agreement to perform an illegal act.

Judicial Precedents Relied Upon

The Court based its reasoning on foundational precedents of the Supreme Court of India:

• Indian Oil Corporation v. NEPC India Ltd. (2006) 6 SCC 736: The Supreme Court cautioned against the growing tendency to convert civil disputes into criminal cases to seek rapid settlements or exert pressure. It held that while a set of facts can give rise to both civil and criminal liability, criminal prosecution cannot proceed if the foundational elements of a criminal offence are missing.
• Delhi Race Club (1940) Ltd. & Others v. State of Uttar Pradesh & Another (Criminal Appeal No. 3114 of 2024, decided on 23.08.2024): The Apex Court clarified that offences under Section 406 (Criminal Breach of Trust) and Section 420 (Cheating) are conceptually distinct and generally mutually exclusive on the same set of facts, as one relies on legal entrustment while the other relies on fraudulent inducement from the start. In the absence of entrustment or initial fraudulent intent, criminal proceedings amount to an abuse of process.
• State of Haryana v. Bhajan Lal (1992 Supp (1) SCC 335): The High Court applied the illustrative categories specified in Bhajan Lal, which permit quashing where allegations in the FIR, taken at face value, do not disclose a cognizable offence or where the prosecution is manifestly attended with mala fides.

Bhajan Lal Guidelines Applied by the Court:
[FIR/Final Report Allegations] ──► [Contractual Expiry & Mark-sheet Dispute] 
                                          │
                                          ▼
                         [Absence of Deceit at Inception]
                                          │
                                          ▼
                      [Fails Essential Ingredients of IPC 405/420] ──► [Quashed under BNSS 528]

Assessment of Malice and Commercial Context

The Court noted that prior to the registration of the FIR, the parties were already involved in commercial disputes. The Petitioners had issued a cease-and-desist notice, secured orders from the Ministry of Corporate Affairs against Respondent No. 2's company name, and filed a trademark suit. The criminal prosecution was initiated in the backdrop of these pre-existing disputes, indicating an attempt to color a commercial quarrel with criminal overtones.

Final Decision of the Court

The High Court allowed the petition filed under Section 528 of the BNSS, 2023.

The Court quashed:

1. FIR No. 388/2025 registered at Police Station City Kotwali, Rajnandgaon.
2. Final Report / Charge-sheet No. 544/2025 dated December 4, 2025.
3. The cognizance order dated December 15, 2025, passed by the Chief Judicial Magistrate, Rajnandgaon, in Criminal Case No. 11306/2025.
4. All consequential criminal proceedings arising therefrom against the Petitioners.

Point of Law Settled

This judgment reaffirms and reinforces the following principles of criminal law:

1. Commercial Disputes vs. Criminal Offence: A breach of a franchise agreement or an administrative failure to issue educational certificates does not constitute cheating under Section 420 IPC unless dishonest intention is proved to have existed at the inception of the contract.
2. Entrustment Requirement: Criminal breach of trust under Section 405 IPC cannot be invoked without clear evidence of property entrustment and subsequent dishonest misappropriation.
3. Protection Against Retaliatory Prosecution: High Courts, when exercising jurisdiction under Section 528 of the BNSS (formerly Section 482 Cr.P.C.), must intercede to quash proceedings when criminal law is utilized maliciously as a counter-blast to resolve pre-existing civil, corporate, or trademark disputes.

Rupesh Kumar and Another Vs. State of Chhattisgarh and Another, August 6, 2026, CRMP No. 950 of 2026, Neutral Citation: 2026:CGHC:34462-DB, High Court of Chhattisgarh at Bilaspur, Ramesh Sinha C.J. and Ravindra Kumar Agrawal J.