Criminal Proceedings Cannot Be Used to Recover Disputed Business Dues: Supreme Court Quashes Cheating Case Over ₹1.19 Crore Steel Supplies and Dishonoured Cheques
Case Name: Yogesh Premjibhai Suvariya & Another v. State of Gujarat & Another.
Date of Judgment: 23 September 2026.
Citation: 2026 INSC 1079.
Bench: Justice Ujjal Bhuyan and Justice Atul S. Chandurkar.
Held: The Supreme Court held that criminal proceedings cannot be employed to recover disputed commercial dues when the allegations and investigative material disclose an essentially civil dispute rather than the ingredients of cheating. In this case, the withholding of payment arose from a dispute over adjustment against an earlier ₹2 crore deposit. The Court found that the complainant had resorted to criminal proceedings to recover the withheld amount instead of pursuing a civil remedy, and that continuation of the prosecution would constitute abuse of the court’s process.
Summary: The Supreme Court quashed criminal proceedings against two directors of Shivamy Enterprises Pvt. Ltd. arising from unpaid bills for steel supplies. Shivamy had purchased steel bars from Hans Ispat Ltd. since 2006. The complainant, an employee of Hans Ispat, alleged that the appellants purchased 293 metric tonnes of TMT bars worth ₹1.19 crore under purchase orders dated 14 and 21 November 2011. Ten post-dated cheques issued towards payment were dishonoured, and the bills remained unpaid.
An FIR was registered at Anjar Police Station, Kutch East, under Sections 406, 420 and 114 IPC. Following investigation, a chargesheet was filed, resulting in Criminal Case No. 584 of 2012. The Additional Chief Judicial Magistrate rejected the appellants’ discharge application on 8 February 2016. After an earlier Supreme Court intervention requiring consideration of their revision on merits, the Gujarat High Court discharged them under Section 406 IPC but sustained the prosecution under Section 420 read with Section 114 IPC by its order dated 17 March 2026.
The appellants maintained that the payment had been withheld to adjust dues against ₹2 crore deposited with the supplier during 2006–2007. Significantly, the complainant’s statement under Section 161 Cr.P.C. acknowledged that deposit, although it asserted that repayment was the responsibility of the earlier owners, the Barnala Group, rather than the company’s new owners. The Supreme Court found that the competing claims concerning repayment and adjustment demonstrated the predominantly civil character of the dispute.
Examining Sections 415 and 420 IPC, the Court reiterated the necessity of fraudulent or dishonest inducement. Relying on G. Saminathan v. The State, 2026 , it explained that the ingredients of cheating must be established; a dispute over payment does not, by itself, supply those ingredients.
The Court also relied on Delhi Race Club v. State of Uttar Pradesh, (2024) ; Lalit Chaturvedi v. State of Uttar Pradesh, (2024) ; and Shailesh Kumar Singh alias Shailesh R. Singh v. State of Uttar Pradesh, 2025. These decisions distinguish contractual breaches and unpaid debts from criminal wrongdoing and reiterate that police cannot act as a civil recovery agency. The Court further reproduced the distinction drawn in Delhi Race Club between cheating and criminal breach of trust as independent offences with different foundational requirements.
Rejecting the State’s contention that subsequent withholding of payment gave the transaction criminal overtones, the Court concluded that the complainant’s grievance was essentially civil. No civil recovery suit had been instituted, and the criminal process had instead been invoked to recover the disputed amount. The Court did not adjudicate the validity of the claimed adjustment or determine who was liable to repay the earlier deposit; its decision concerned the sustainability of the criminal prosecution.
Decision: The Supreme Court allowed the appeal and set aside the Gujarat High Court’s order and the Additional Chief Judicial Magistrate’s order .