Civil Or Criminal Liability: Are Legal Cases The New Pressure Tactic?

The world has become a significantly different place to live in today. No one could have ever imagined a situation where fear, pessimism and an uncertain future would take precedence over everything else. Several businesses that were operating at a thin margin before the novel Coronavirus (COVID-19) struck, have been hit hard by the pandemic posing questions on their survival. In terms of resolution and rise in disputes, this could lead to more uncertainty since our laws have also not factored how to resolve rising disputes in contracts and agreements given the mounting pressure and disruptions on businesses due to this pandemic.

For businesses to overcome this moment of crisis, they should use the principle of commerciality judiciously for any underlying transaction rather than seeking to resolve through inappropriate means to extract their interest. Any business association is when two parties come together based on their commercial judgement or business prudence. However, if that outcome is not achieved especially due to circumstances that one could not fathom, the commercial judgement shouldn’t take the colour of any mala fide intention or any conspiracy theory. This is bad for the overall business sentiment, stifles innovations for new-age models and also puts immense pressure on the legal system that is already reeling under the weight of archaic laws.

Over the last couple of years, there has been a growing trend of filing criminal complaints against senior management of companies by commercial partners where negotiations have broken down or where the conditions of operation may have become unfavourable for the two partners. In most cases, these commercial partners would have had no dealing, interaction, or real grievance against the senior personnel of such companies. The complaints filed are at best the outcome of negotiations that have broken down or where the conditions of operation may have become unfavourable for such partners.   In several instances, the intention of one party under a commercial arrangement for filing such complaints even in the absence of any criminality is only to mount pressure on companies to meet their demands.

In January 2010, an FIR had been filed against the Founder and CEO of the leading company in the e-commerce sector alleging that the e-commerce company had sold him a laptop having features different from what had been mentioned at the time of sale. Similarly, in May 2019, an FIR was registered against the CEO, Vice President and Senior Manager of another online service provider when there was an accident that occurred while the technician provided through the service provider and his nephew died after a compressor burst while servicing an air-conditioner in Gurgaon. In May 2020, a criminal complaint was filed against a hospitality company, OYO, by a Bangalore based hotel partner, arising out of disputes relating to reconciliation of accounts/ statements which was later stayed by the Hon’ble High Court of Karnataka in view of there being a prima facie absence of any criminality and the subject matter being arbitrable in terms of the arbitration agreement between the parties.  

The contracts with the commercial partners provide for arbitration as a dispute resolution mechanism or approach civil courts for settlement of disputes. Instead of resorting to mutually agreed dispute resolution mechanisms, commercial partners file criminal complaints in relation to civil and commercial disputes. This is, however, abuse of process of law with the sole /primarily intention of harassment when, in reality, no such criminal action exists.

The underlying motivation, ostensibly, for a party to lodge criminal complaints is that consequences of criminal proceedings are severe (since they carry a real threat of loss of liberty) and thus, far more effective when it comes to resolving or settling disputes. Civil remedies, in contrast, are often perceived as being expensive, fraught with the procedure and time-consuming.

It is important to understand why there is a lower threshold of the criminal justice system in this 21st century in a developing country like India.  

Cheating versus Breach of Contract? 

One of the most common examples of such abuse of process is the Supreme Court of India (Supreme Court) in SW Palanitkar v. the State of Bihar ((2002) 1 SCC 241) and ARCI v. Nimra Cerglass Technics (P) Ltd. ((2016) 1 SCC 348) where the Supreme Court has categorically held that a  breach of promise is different from fraudulent inducement or cheating since the inducement in the case of cheating ought to have been fraudulent from the inception. It also held that if a representation made by the party has subsequently not been kept, criminal liability cannot be foisted on the party and the only right which the complainant acquires is the remedy for breach of contract in a civil court of law. 

Section 480- Adequate protection? 

The practice of applying pressure by initiating criminal prosecution for settling civil disputes and claims, which do not involve any element of a criminal offence, has been severely criticised and deprecated by courts. The courts have readily used inherent powers to quash such vexatious criminal proceedings. The Supreme Court in Prof. RK Vijayasarathy v. Sudha Seetharam (2019 (4) SCALE 254) has held that a criminal complaint ought to be quashed when the matter, though essentially civil in nature, has been cloaked with the character of a criminal offence to harass or pressurize the other party and that the continuation of such proceedings will amount to an abuse of process of the court.

Such instances are legion, Chandrapal Singh and Ors. v. Maharaj Singh And Anr (1982 1 SCC 466) and G. Sagar Suri v. State of UP ((2000) 2 SCC 636). The Hon’ble Supreme Court has consistently observed while exercising its powers under Section 482 of the Code of Criminal Procedure, 1973 to quash a meritless criminal proceeding, that chagrined and frustrated litigants should not be permitted to give vent to their frustration by cheaply invoking the jurisdiction of the criminal court.  Allowing them to do so would be a condonation of abuse of process; a proposition that was recently reaffirmed by the apex court in Commissioner of Police v. Devender Anand, (2019 SCC OnLine SC 996).

Compensation for victims of vexatious proceedings

Though the existing jurisprudence on this aspect provides adequate protection to a party in demolishing a frivolous case, one must note that mere quashing, acquittal or discharge of the innocent party might not be as effective as a deterrent for future cases and the party misusing the justice system must be held accountable and punished accordingly as provided under Section 250 of the Code Of Criminal Procedure, 1973.

Last but not the least, the media must also report such cases responsibly, approaching with caution. Unwanted media attention sometimes incentivizes the filing of such complaints that only add to a nuisance value. The meaning and interpretation of such casual reports can do serious damage to a company’s reputation and on the contrary, the mere filing of a complaint or subsequent registration of an FIR, that the public must notice, does not necessarily entail arrest of the named persons.