By S&S Co. Advocates & Solicitors · Published 3 November 2026 · Informational content, not legal advice: see our disclaimer
A business deal that goes bad almost always feels, to the party left unpaid or unsupplied, like something closer to theft than a simple disagreement. As the law stands today, that instinct is usually not enough to support a criminal complaint. A mere failure to perform a contract, however badly it hurts the other side, is ordinarily a civil wrong to be remedied through a suit for damages, not a criminal offence, and Indian courts have become noticeably more willing in the last few years to quash complaints that try to dress up an ordinary commercial failure as cheating or criminal breach of trust.
The line between the two is not about how much money is involved or how angry the complainant is. It turns on a fairly narrow, fact-specific question: was there dishonest intention at the time the deal was made, or did things simply go wrong afterwards.
What actually separates a civil wrong from a crime here
The Bharatiya Nyaya Sanhita, 2023 carries forward the old distinction between cheating and criminal breach of trust, now at Sections 318 and 316 respectively, corresponding to Sections 420 and 406 of the former Indian Penal Code. Both require a dishonest state of mind, but they attach it at different points in the transaction.
Cheating under Section 318 requires that the accused deceived the complainant and, by that deception, dishonestly induced them to part with property or do something they would not otherwise have done, with the deception and the dishonest intention present from the very start of the dealing. Criminal breach of trust under Section 316 presupposes the opposite starting point: the accused lawfully received money or property, often precisely because they were trusted with it, and only later misused or misappropriated it in breach of that trust. A single set of facts can sometimes support one or the other, but courts have held they generally cannot both apply to the same act, since one assumes deceit at inception and the other assumes a lawful entrustment that came first.
Why a mere breach of contract is not enough
The recurring theme across recent rulings is that a later failure to honour a contract does not, by itself, establish either offence. A supplier who takes an advance and genuinely intends to deliver, but later fails because of cash flow problems, a collapsed sub-contract, or simple incompetence, has breached the contract; without evidence that the original representation was false when made, there is ordinarily no cheating. Courts have repeatedly said that fraudulent or dishonest intention has to be shown at the inception of the transaction, not inferred backward from the fact that the deal eventually fell through.
This matters practically because a complainant's strongest instinct after being cheated out of money is to describe the whole relationship as fraudulent from day one, even where the actual falling-out happened much later over a performance dispute, a price disagreement, or a genuine business failure. A criminal complaint built on that kind of retrospective recasting, rather than on specific facts showing deception at the outset, is exactly the pattern that invites a quashing petition and tends not to survive one.
Quashing a complaint under Section 528 of the BNSS
The High Court's power to quash a criminal complaint, now at Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 in place of the former Section 482 of the Code of Criminal Procedure, continues to be exercised largely along the categories laid down by the Supreme Court in State of Haryana v. Bhajan Lal (1992 Supp (1) SCC 335), including where the allegations, even if taken at face value, do not disclose an offence, or where the complaint is shown to be a mala fide attempt to settle what is really a civil dispute through criminal pressure.
Several 2025 Supreme Court rulings have applied this framework specifically to business disputes given a criminal colour. In one matter arising from a land, loan and documents dispute, the Court held that the High Court has a duty to intervene where continuing the criminal proceedings would amount to an abuse of process, or where a purely civil dispute has been given a criminal colour, particularly where the underlying facts raise disputed questions that are properly the subject of a civil trial rather than a criminal prosecution. Another 2025 ruling clarified that the mere existence of a civil remedy does not automatically bar criminal proceedings either, so quashing is not available simply because a civil suit could also have been filed; the complaint still has to independently fail the Bhajan Lal test on its own facts.
What tends to work, and what rarely does
In practice, a quashing petition succeeds more often where the complaint reads like a recovery suit with a criminal label stapled on: a specific sum due under an invoice or an agreed schedule, no particularised allegation of a false representation made at the time of contracting, and a complaint filed only after a demand for payment went unanswered. Petitions fail, or never get filed at all, where the complainant can point to a specific misrepresentation made before the money changed hands, such as a forged document, a company that never actually existed, or a promise the accused is shown to have known was false when made.
Settlement during a pending complaint does not automatically end it either. Courts have distinguished between offences that are essentially civil in nature wrapped in a criminal label, which they are generally willing to quash once parties settle, and offences with a serious public dimension, which are approached more cautiously even where the private parties have resolved their dispute between themselves.
Business-partner and co-director disputes as a common trigger
A particularly frequent variant involves a business partner or co-director accused of siphoning company funds, where the aggrieved side files both a civil suit for accounts and a criminal complaint for breach of trust. Whether the criminal complaint survives usually depends on whether the funds were taken under an arrangement that genuinely entrusted them to the accused in a fiduciary capacity, as opposed to a dispute over how shared business revenue should properly have been allocated between partners, which is more naturally a civil accounting question than a criminal one.
The two tracks are not mutually exclusive, and a civil accounts suit alongside a partnership dissolution claim often proceeds in parallel with a criminal complaint without either barring the other. What generally does not work is using the threat of arrest under a criminal complaint purely as pressure to extract a better settlement in the civil dispute, a strategy courts have grown noticeably less tolerant of in recent years, and one that a quashing petition is specifically designed to unwind once it is recognised for what it is.
Frequently Asked Questions
My business partner took money and never delivered the goods. Is that automatically cheating?
Not automatically. If the partner genuinely intended to deliver at the time the deal was made but later failed, that is ordinarily a civil breach of contract. Cheating requires dishonest intention from the outset, so the facts around what the partner represented and believed at the time of the deal, not just the eventual non-delivery, decide which category the dispute falls into.
Can the same person be charged with both cheating and criminal breach of trust for the same transaction?
Generally no, since the two rest on different starting points: cheating assumes deception from the outset, while breach of trust assumes the property was lawfully entrusted first and misused afterwards. Courts have held the two offences do not comfortably co-exist on the same set of facts, though a complaint can still name both if the facts are genuinely unclear at the filing stage.
If I settle the dispute privately, will the criminal complaint automatically be quashed?
Not automatically, but settlement is a significant factor courts consider, particularly where the offence is essentially civil in character. Courts are more willing to quash on settlement grounds for predominantly private, compoundable-type disputes than for offences seen as carrying a broader public dimension, so the outcome depends on how the specific offence is characterised.
What should I actually do if I think my criminal complaint is weak but my civil claim is strong?
Focus resources on the civil remedy, whether a recovery suit, an accounts suit, or a partnership dissolution claim, since that is where money due under a contract is actually recovered. A criminal complaint built mainly on the fact that payment was not made, without a specific showing of dishonest intent at the time the deal was struck, is a likely candidate for quashing and rarely strengthens the civil claim either.
Does Section 528 BNSS work differently from the old Section 482 CrPC?
The power itself and the governing Bhajan Lal categories continue largely unchanged in substance under the new provision, though the Allahabad High Court has referred questions about the scope of this power to a larger bench, so some aspects of how it applies going forward remain open and worth checking against the latest rulings before relying on older authority alone.
References & Further Reading
The provisions and rulings below were relied on for this guide. The position can change with amendments and later decisions, so check the current text and the latest case law before acting on any of it.
- Bharatiya Nyaya Sanhita, 2023, Section 318 (cheating, corresponding to Section 420 of the former Indian Penal Code) and Section 316 (criminal breach of trust, corresponding to Section 406 IPC)
- Bharatiya Nagarik Suraksha Sanhita, 2023, Section 528 (inherent powers of the High Court, corresponding to Section 482 of the former Code of Criminal Procedure)
- State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335 (categories for quashing a criminal complaint)
- Supreme Court rulings in 2025 applying the civil-dispute-given-criminal-colour principle to quash FIRs arising from commercial and property disputes (see sources for the relevant case reports)
- Related guide: How an FIR Can Be Quashed in the High Court: Section 528 BNSS and the Settled Tests