Commercial Dispute Is Civil in Nature: Calcutta HC Quashes Criminal Proceedings against Directors amid Insolvency Proceedings [Read Order]

The Calcutta High Court has quashed criminal proceedings against directors of GSA Retail Limited, stating the dispute over unpaid invoices was civil and not criminal, and noting the continuing insolvency procedures under the Insolvency Bankruptcy Code (IBC).

Justice Kausik Chanda, accepted the criminal revision plea brought by Shambhunath Jajodia & Anr. seeking quashing of the proceedings under Sections 420, 422, 506 and 120B of the Indian Penal Code. The proceedings arose from Complaint Case No. CN/509/2023 ongoing before the Metropolitan Magistrate, 5th Court, Calcutta filed by M/s. Fashion Creation on account of non-payment of Rs. 6,32,122/- allegedly due under multiple bills.

Ms. Sutapa Sanyal and others for the petitioners submitted that the disagreement arose out of a long-standing business connection and all transactions were carried out without any formal agreement. They pointed out that GSA Retail Limited, of which both the petitioners were directors, was under a Corporate Insolvency Resolution Process (CIRP) before the National Company Law Tribunal (NCLT) and an Interim Resolution Professional had been appointed to take care of the claims of creditors.

Counsel submitted that the complaint was made after the initiation of insolvency proceedings and was hence not maintainable. The Magistrate ordered a police probe which discovered that the petitioners were no longer directors because of the CIRP and the complainant’s claim had been admitted in the insolvency process. The police report indicated the fight was over company dues and civil in nature.

After reviewing the complaint, police report and accompanying documentation, the Court found that the claims did not include the basic elements of cheating or criminal intent.

The Court referred to the Supreme Court precedents, including Thermax Limited v. K.M. Johny, V.Y. Jose v. State of Gujarat and Vijay Kumar Ghai v. State of West Bengal, to support that civil disputes should not be tried as criminal matters in the absence of fraudulent intent.

The Court found no evidence of any dishonest or fraudulent intent from the onset and cancelled the criminal proceedings. It held the matter arose from a commercial transaction and was devoid of the mens rea for criminal prosecution. CRR 2985 of 2025 was authorised and all connected applications were disposed of correspondingly.

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