Non-Payment of Commercial Dues Is Not Criminal Breach Of Trust: Supreme Court

The Supreme Court has held that mere non-payment of the balance amount in a commercial transaction cannot, by itself, amount to the offence of criminal breach of trust.

Court said that where the dispute essentially concerns unpaid dues arising from a sale transaction, the appropriate remedy lies under civil law and not criminal prosecution.

A Bench of Justices Vikram Nath, Sandeep Mehta and Vijay Bishnoi allowed an appeal filed by Rahul Agarwal against the Allahabad High Court's February 16, 2026 judgment, which had upheld the rejection of his discharge application in a complaint under Section 406 of the Indian Penal Code (IPC) [corresponding to Section 316 of the Bharatiya Nyaya Sanhita (BNS)].

The case arose from a complaint filed by a jeweller in Agra, who alleged that between October 11, 2015 and June 29, 2016, the appellant purchased silver jewellery worth about Rs 11 lakh on credit. According to the complainant, despite repeated demands, an amount of Rs 5,24,929 remained unpaid.

Based on an application filed under Section 156(3) of the Code of Criminal Procedure (CrPC) [corresponding to Section 175 of the Bharatiya Nagarik Suraksha Sanhita (BNSS)], proceedings were initiated against the appellant under Sections 420, 406, 504 and 506 of the IPC (Section 318, 316, 352 and 351 of BNS). However, the trial court took cognisance only of the offence under Section 406 IPC and issued summons on February 11, 2019.

The appellant thereafter approached the Allahabad High Court, which permitted him to file a discharge application before the trial court. However, the trial court rejected the application on December 3, 2025, holding that the defence raised disputed questions of fact that could only be examined during trial.

Can non-payment of dues amount to criminal breach of trust?

The Supreme Court referred to Section 405 IPC and observed that "entrustment" is the foundational requirement for the offence of criminal breach of trust.

The Bench explained that a sale transaction stands on an entirely different footing because ownership of the goods passes from the seller to the purchaser. Therefore, once the goods are sold, the relationship between the parties becomes that of a buyer and seller, and not one involving entrustment.

Examining the complaint, Court noted that the silver anklets were supplied under invoices during the course of ordinary business transactions. There was no allegation that the jewellery had been entrusted to the appellant for safe custody, agency or to be dealt with in any fiduciary capacity.

"The tenor of the complaint is clear enough to show that the transactions between the parties were in the course of ordinary commercial dealings of sale and purchase, pursuant whereto part-payments are admittedly stated to have been made by the appellant," the Bench observed.

It further noted that the complainant himself had admitted both in the complaint and in his statement recorded under Section 200, CrPC (Section 223 of the BNSS) that payments had been received from the appellant from time to time and that only Rs 5,24,929 allegedly remained outstanding.

"In such circumstances, the mere allegation of non-payment of the remaining amount due, by itself, cannot give rise to an offence of criminal breach of trust. The dispute, in substance, arises out of alleged non-payment of outstanding dues, for which the appropriate remedy would lie under the civil law," Court held.

Why did the Supreme Court quash the Section 406 IPC case?

Court found that the essential ingredient of "entrustment" was completely absent from the complaint and the statements recorded during the inquiry.

It observed that the complainant's own statement showed that payments had been made in instalments and only the balance amount remained unpaid. The statements of the other two witnesses were also limited to saying that the appellant had taken jewellery on credit and failed to clear the remaining dues.

Significantly, neither the complaint nor the witness statements suggested that the appellant was under any obligation to hold or deal with the goods on behalf of the complainant in a fiduciary capacity.

The Bench reiterated that while considering a discharge application, the court is only required to determine whether a prima facie case exists. In the present case, even if the allegations were accepted as true, they did not satisfy the basic ingredients of the offence under Section 406 IPC.

Holding that the charge against the appellant was groundless, the Supreme Court ruled that there was no sufficient reason to continue the criminal proceedings and accordingly quashed the case.

Court, however, clarified that it had expressed no opinion on the civil rights and liabilities arising from the transactions and said it would remain open to the complainant to pursue any remedy available under civil law.

Case Title: Rahul Agarwal Vs State of UP & Anr

Bench: Vikram Nath, Sandeep Mehta and Vijay Bishnoi

Date of Judgment: May 14, 2026