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

Why the Court looked beyond the restrictive covenant

The High Court had treated a condition against subletting without consent in the principal project contract as a basis for allowing the FIR to continue against the main contractor and its officers. The Supreme Court considered that approach incomplete because a contractual condition could not be evaluated apart from the complainant's account of its own subcontract, its performance and the payments it was trying to recover.

Section 482 of the Code of Criminal Procedure, 1973 required the Court to ask whether the FIR's allegations, accepted as stated, disclosed the offences invoked under the Indian Penal Code, 1860. That question could be answered by reading the complaint as a whole without undertaking a detailed inquiry into disputed evidence or deciding which commercial party would ultimately prevail in its civil claim.

Why the chronology of knowledge mattered

The complainant entered the subcontract knowing that the company had received the project from the public-sector corporation and that the complainant would carry out only part of that project. Although it later said the company had concealed the consent restriction, the Court observed that the complainant had not attempted to examine the principal contract when it first made its own agreement.

The complainant learned of the restriction after the High Court refused its intervention in litigation between the corporation and the company, because it had no back-to-back contract with the corporation. Its FIR then described work resuming under the subcontract after that discovery, a sequence which made it necessary to examine the continued commercial dealings instead of assuming that an earlier omission alone established deception.

The first stoppage was attributed in the complaint to the project not being completed within the time agreed with the corporation, rather than to a judicial finding that the subcontractor had been cheated. The later resumption followed directions in the company's litigation with the corporation, after which the complainant again submitted bills and received part payment, making the entire chronology important to the Court's conclusion.

The Court did not pronounce that the restriction had been disclosed or that every representation by the company was truthful. It assumed the alleged nondisclosure for argument and still asked whether the stated facts, including later performance with knowledge of the condition, supplied criminality toward the complainant.

Why a breach of the principal agreement had a different claimant

If the company had sublet without obtaining the corporation's consent, the condition it breached was part of its own agreement with that corporation. The Court reasoned that the corporation could pursue the contractor for that breach, whereas the complainant, having no direct agreement with the corporation, could not convert the corporation's contractual right into its own accusation of criminal wrongdoing.

This separation did not release the contractor from everything owed under the subcontract. Work performed in accordance with that separate agreement could still give rise to valid invoices against the company, so a breach of the principal agreement was neither a complete payment defence nor evidence that nonpayment itself was a criminal offence.

The FIR described bills raised, some payments made and a balance remaining after periods of interruption and resumption. The Court considered that account characteristic of a recovery dispute and found no prima facie facts that would transform the alleged balance into breach of trust, cheating or forgery merely because the contractor had also faced the corporation's restrictive covenant.

The criminal sections named in the FIR included allegations associated with entrusted property, dishonest inducement and forged documents, but the Court did not infer those elements from their labels. It examined what the complainant had actually said the accused did, finding performance under an agreement and money allegedly due rather than the factual foundation needed to sustain the named offences.

Why a blocked recovery route did not supply criminal ingredients

The complainant had invoked the arbitration provision of its agreement, but the process was stayed as a result of a moratorium in the contractor's insolvency proceedings under the Insolvency and Bankruptcy Code, 2016. The complainant had also made an application before the insolvency tribunal which had been rejected, so the Court recognised that obtaining payment through noncriminal means had become difficult.

The difficulty of that recovery path did not alter the character of the allegations in the FIR. The Court explained that the complainant must pursue appropriate remedies for money due, rather than use an allegation of crime to overcome the delay imposed by the moratorium or to force payment outside the channels applicable to the underlying claim.

Why the Supreme Court ended the FIR altogether

The High Court had already quashed the case against an officer of the corporation, but it had refused the same relief to the contracting company and its officers on the supposed criminal significance of the subletting clause. The Supreme Court found that the High Court had not performed the required whole-complaint analysis and that the report, on its own terms, failed to describe a prima facie offence by the appellants.

It therefore allowed the appeal, invoked the quashing power and directed that no further proceedings follow from the FIR. That order did not decide the payment balance or the parties' contractual rights, since the reason for intervention was the absence of a criminal case on the reported facts rather than a final resolution of the commercial dispute.

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