In Indroneel Goho v. Razouvonuo Thong & Anr., the Supreme Court held that the mere existence of an arbitration clause does not bar criminal proceedings; however, a contractual dispute cannot be converted into a criminal prosecution without establishing the essential ingredients of the alleged offence.
The dispute arose from a Memorandum of Understanding dated 01.06.2021 concerning Jamguri Tea Estate, under which the complainant transferred ₹40 lakh to Darjeeling Organic Tea Estates Private Limited. Following the termination of the MoU, the complainant alleged that the appellant had fraudulently induced him to part with the money by misrepresenting the ownership of the estate. The Magistrate issued summons under Sections 417 and 420 of the Indian Penal Code (IPC), and the High Court declined to quash the proceedings.
A Bench comprising Justice Vikram Nath and Justice Sandeep Mehta observed that cheating requires dishonest or fraudulent intention at the time the representation is made. The Court noted that the appellant had executed the MoU as an authorised signatory of the company, the funds were transferred to the company’s account, and the complainant was aware of the existing mortgage over the estate. These circumstances did not establish the requisite dishonest intention at the inception of the transaction.
Accordingly, the Supreme Court set aside the High Court’s order and quashed the criminal proceedings against the appellant, while preserving the complainant’s right to pursue civil remedies.
The judgment reinforces the distinction between contractual breaches and criminal offences, emphasising that criminal proceedings must be supported by material establishing the essential ingredients of the alleged offence. An arbitration clause does not exclude criminal liability, but neither can a failed contractual transaction, by itself, justify criminal prosecution.