Aaditya Khaitan and Others v. State of Jharkhand and Others · 2025 INSC 575

Three commercial relationships behind one FIR

A public-sector corporation awarded project work to the accused company, which then made a separate arrangement with the complainant for a portion of that project. When performance was interrupted and invoices remained unpaid, the complainant accused the company and its officers of suppressing a restriction in the corporation's contract and obtained an FIR invoking cheating, breach of trust and document-related offences under the Indian Penal Code, 1860.

The Supreme Court had to separate the corporation's contract with the main contractor from the subcontract under which the complainant performed work. That distinction mattered because a restriction on subletting without the corporation's consent governed one relationship, while the complainant's payment claim arose from another and could not automatically be converted into a crime.

The High Court had already quashed the case against a managerial officer of the public-sector corporation, yet it kept the FIR alive against the contractor and its officers because the subletting restriction seemed capable of supporting a criminal accusation. On appeal, the Supreme Court returned to the entire complaint to determine whether the distinction drawn between those accused actually answered the allegations made against the company.

What the subcontractor said had happened to its work

The FIR described work beginning under the subcontract, stopping when the corporation directed a halt and resuming after the High Court's directions in the dispute between the corporation and the main contractor. It concentrated on bills raised for the work, payments received in part and the balance the complainant said remained outstanding.

The complainant had attempted to intervene in the litigation between the corporation and the main contractor, but the High Court declined because there was no back-to-back contract linking the complainant to the corporation. The complainant said this was when it discovered that the principal contract limited subletting, yet its own account also showed that it returned to the project and carried on work after that discovery.

The Court also observed that the complainant knew at the outset that its engagement covered only a part of work awarded to the company by the corporation. Although nondisclosure of the written restriction was assumed for argument, the complaint did not suggest that the subcontractor had tried to inspect the principal contract before agreeing to perform the work, which affected the Court's reading of the alleged deception.

Those events were not treated as proof that every assertion by the contractor was accurate. They formed the history the Supreme Court read when asking whether the FIR described an offence by the contractor or a disagreement about the price and consequences of performance under a commercial agreement.

A restriction in one contract and payment under another

For the sake of analysis, the Court assumed that consent had been required and that the accused company had not disclosed that condition when making the subcontract. Even on that assumption, the corporation would be the party entitled to complain of the main contractor's breach of the principal agreement, while the complainant had no direct contractual claim against the corporation over that covenant.

The Court also refused to let the restriction cancel the converse obligation. If the subcontractor had performed work and submitted bills in accordance with its own contract, the main contractor could still be answerable for those bills even if the corporation had a separate objection to the subcontracting arrangement.

That two-way distinction prevented a false choice between treating the accused as criminals and treating the complainant as having no remedy. The decision left the monetary claim to appropriate recovery proceedings while holding that the facts stated in the FIR did not prima facie establish the offences it alleged.

Why stalled recovery did not turn the dispute criminal

The complainant had invoked arbitration to pursue the outstanding amount, but that process had been stayed because the company was subject to an insolvency moratorium under the Insolvency and Bankruptcy Code, 2016. An application it had made before the insolvency tribunal had also been rejected, leaving the complainant with a difficult path to obtaining payment.

The Supreme Court recognised that difficulty without treating it as evidence of fraud at the inception of the subcontract. A delay in access to the chosen recovery forum did not supply the missing elements of cheating, breach of trust or forgery, because the character of the alleged acts had to be assessed from the complaint rather than from the inconvenience of obtaining civil relief.

The same distinction explained why the High Court's refusal to quash could not stand. It had moved from the subletting restriction to a conclusion of dishonest suppression without evaluating the complete account of performance, knowledge, payments and the separate contractual rights of the parties.

What the Supreme Court did and did not resolve

Applying the Section 482 Code of Criminal Procedure, 1973 threshold to the FIR as a whole, the Supreme Court held that the accusations did not disclose a prima facie criminal offence and quashed the report against the appellants. It did not calculate the unpaid balance, decide the merits of the arbitration claim or rule that the main contractor could withhold all payment because of the corporation's restrictive covenant.

The judgment instead locates each question in its proper relationship. The corporation could address a breach of its own contract, the subcontractor could seek payment under its agreement through lawful recovery, and a criminal prosecution could not proceed when the complaint's commercial narrative failed to state an offence.