Supreme Court Quashes Cheating & Criminal Breach of Trust Case in Failed JDA

G. Saminathan & Another Vs State (Supreme Court of India)

Supreme Court Quashes Cheating & Criminal Breach of Trust Case Arising from Failed Joint Development Agreement

The Supreme Court quashed criminal proceedings under Sections 406 and 420 IPC arising out of a failed Joint Development Agreement (JDA), holding that the dispute was purely civil and contractual in nature. The case involved a developer who had paid a refundable security deposit of ₹3 crore under a JDA. After planning permission was refused because the land formed part of an unapproved layout, the landowners cancelled the GPA, sold the property to a third party and sought to refund the security deposit. The developer instead initiated criminal proceedings alleging cheating and criminal breach of trust.

The Court held that the essential ingredients of criminal breach of trust under Sections 405/406 IPC were absent. A refundable security deposit paid pursuant to a commercial contract could not, by itself, be treated as “entrustment of property”, and there was no material to show dishonest misappropriation or conversion of the money in violation of any legal obligation. Mere retention or non-refund of money in a contractual dispute does not constitute criminal breach of trust.

The Court further held that the ingredients of cheating under Sections 415/420 IPC were also not made out, as there was no material to establish that the landowners had a fraudulent or dishonest intention at the inception of the transaction. Both parties had initially acted to perform the JDA, the developer had proceeded with development activities, &  the project failed only after planning permission was rejected. The Court observed that a developer is expected to undertake proper due diligence before entering into a development agreement, &  subsequent title or planning issues cannot automatically be converted into criminal allegations.