Supreme Court Clarifies: Commercial Account Disputes Do Not Automatically Constitute Criminal Offences

Background of the Dispute

This case concerns an appeal filed before the Supreme Court by Jotun India Private Limited (JIPL) and two of its officers, Deepak Gaba – Regional Sales Manager – North (Decorative) and Sanjay Ramachandran Nair – Sales and Marketing Director (Decorative), challenging the continuation of criminal proceedings initiated by a dealer.

The appeal arose from:

  • A summoning order dated 19th July 2018 passed by the Additional Chief Judicial Magistrate, Court No. 8, Ghaziabad, Uttar Pradesh, in a private complaint filed by Shubhankar P. Tomar, proprietor of Adhunik Colour Solutions (respondent no. 2 – complainant); and
  • A judgment dated 30th March 2022 of the High Court of Judicature at Allahabad, which refused to quash the summoning order under Section 482 of the Code of Criminal Procedure, 1973 (the ‘Code’).

The Magistrate had ordered issuance of summons for an alleged offence under Section 406 of the Indian Penal Code, 1860 (‘IPC’), based on a finding that a prima facie case existed regarding a “forged demand” of Rs. 6,37,252.16 shown as outstanding against the complainant in JIPL’s accounts.

Notably, the private complaint itself named the accused only by designation (“Manager, Jotun India Pvt. Ltd.” and “Chief Manager, Jotun India Pvt. Ltd.”) and not by their individual names. The summoning order also failed to specify the names of those individuals, summoning them only by role.

Commercial Relationship Between the Parties

JIPL is a company incorporated in India and part of an international group that markets decorative paints and performance coatings.

The complainant, Shubhankar P. Tomar, was a dealer of JIPL in:

  • Ghaziabad, Uttar Pradesh; and
  • Delhi region.

Their commercial relationship was governed by dealership/ distributorship agreements. The dates of these agreements are disputed in the record, but the complaint refers to agreements dated:

  • 20th March 2012
  • 30th January 2013
  • 16th May 2014

The complainant alleges that a copy of the agreement dated 20th March 2012 was not furnished to him, though this is not alleged for the later agreements.

Meanwhile, JIPL had independently initiated two criminal complaints under Section 138 of the Negotiable Instruments Act, 1881 (NI Act) on 27th September 2016 against the complainant, after two cheques issued by him were dishonoured for insufficiency of funds:

  • Cheque No. 463151 on Canara Bank, Patparganj Branch, Delhi – Rs. 4,99,610/-
  • Cheque No. 003252 on HDFC Bank, Chander Nagar, Ghaziabad – Rs. 1,93,776/-

Both cheques were dated 8th August 2016 and were allegedly issued towards outstanding dues payable to JIPL. Demand notices were issued by JIPL on 20th August 2016 and, as per postal tracking, were served at the Ghaziabad address on 24th August 2016 (while the Delhi notice was returned as unclaimed).

These facts about JIPL’s Section 138 proceedings, though undisputed, were omitted in the dealer’s later private complaint, which became the subject of the present Supreme Court judgment.

Allegations in the Dealer’s Private Complaint

On 23rd December 2017, the complainant lodged a private complaint before the Magistrate at Ghaziabad, alleging various irregularities in their business dealings with JIPL.

Core allegations

The complaint asserted, inter alia, that:

  • JIPL and the complainant had entered into dealership arrangements under the above-mentioned agreements.
  • Two blank cheques were allegedly given as security when agreements were executed:
    • Cheque No. 580251 (Bank of Baroda)
    • Cheque No. 003251 (HDFC Bank)
  • JIPL allegedly:
    • Did not issue invoices on time but continued to demand payment;
    • Once raised a “forged” bill of Rs. 79,752/- without any corresponding order from the complainant and showed that amount as outstanding as on 30th March 2013;
    • Later withdrew that bill after the complainant protested.
  • Cheque No. 463151 (Canara Bank) was allegedly taken as a security cheque under the agreement dated 16th May 2014, with written confirmation from one Saurav Gaur, claimed to be authorised by JIPL.
  • JIPL allegedly:
    • Dispatched goods in the complainant’s name without prior consent;
    • Issued some invoices directly to customers (third parties) but reflected them under the complainant’s account;
    • Asked the complainant to collect money from such third parties on JIPL’s behalf.

The complaint highlighted issues such as:

  • An invoice of Rs. 53,215/- issued in the complainant’s name but sent directly by JIPL to Manav Rachna International, Faridabad.
  • Another invoice of Rs. 52,000/- allegedly unrelated to the complainant.
  • A claim that false billing had been done up to approximately Rs. 2,00,000/-.
  • Allegation that two JIPL employees, Dhiraj and Saurabh Gaur, had created a forged bill of Rs. 4,33,633.47.

The complainant claimed to have: