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Not All Money Claims Constitute Offence Of Cheating

A growing trend is observed by the judiciary in the usage of criminal prosecution as a tool of harassment or for seeking private vendetta or with an ulterior motive to pressurized the accused. This strategy is frequently used to paint matters which are predominantly of civil nature with the colour of criminality.

This strategy is based on the premise that to get desired results from civil litigation is a time-consuming process and therefore if a person is somehow trapped in a criminal prosecution, the probability of imminent settlement increases. In course of the ensuing discussion, an attempt is made to analyse the elements of Cheating under Indian Penal Code in light of judicial pronouncements encircling the above issue.

Provisions pertaining to the offence of cheating are contained in sections 415 to section 420 of the Indian Penal code (IPC). The offence of cheating is established only when all the following elements are to be proved, namely:
  1. that the representation made by the accused was false,
  2. that the accused knew that the representation was false at the very time he made it,
  3. that he made that false representation with the dishonest intention of deceiving the person to whom it is made, and
  4. that he thereby induced that person to deliver the property or to do or to omit to do something which he would have otherwise not done or omitted.

Thus, for a person to be convicted for the offence of cheating under section 420 of IPC, it has to be established that not only the accused has cheated someone, but also that by cheating he has dishonestly induced the person cheated, to deliver any property. The element of mens-rea is a predominant factor while determining the offence of cheating but in reality, it has to be coupled with actual damage to the person who is claiming to be cheated.

A person can be said to have done dishonestly, if he does that thing with the intention of causing wrongful gain to one person, or wrongful loss to another person. On a charge of cheating, the element of mens-rea has to be evaluated at the very time when such false representation is made. In cases pertaining to cheating, the burden lies on the prosecution to prove affirmatively both elements i.e. false representation has been made and the presence of dishonest intention when it was being made.

It has been further recognized that if the accused gives any explanation of his conduct which is reasonable, it must be taken into consideration, and if there is a possibility that the explanation might be true, it must be accepted, even though the court may not be absolutely convinced of its truth, and even though the accused may not have been able to prove his defence quite conclusively.

If the charge is that the accused has committed a breach of a false promise to do something at future date, as a result of which the complainant had been induced to part with his money or property, the question whether the accused is guilty of a criminal offence of cheating or is liable in a Civil court for damages for breach of contract depends upon the state of mind of the accused at the time when the promise was made.

If the prosecution fails to prove the presence of ulterior intentions at the time of making such promise in affirmation, then criminal liability cannot be foisted at a later stage, arising due to non-fulfilment of promise. The only remedy available is to obtain a decree for damages for breach of contract in a civil suit.

The premise being attached to this reasoning is that there is a possibility that the accused may have intended, at the time when he made the promise, to carry it out, and his subsequent failure to do so may be the result of circumstances about which he had no knowledge at the time when he made the promise and not because of any dishonest intention at the very onset.

Suppose accused induced the complainant to enter into a contract to part with his goods on a promise, that he would make payment against delivery, and when the complainant delivered the goods, the accused did not make the cash payment against the delivery as promised. It was proved that at the time he made the promise ha had no cash available with him and has no prospect of being able to make cash payment against the delivery.

On these facts, the charge of cheating was established because the circumstances of the case placed it beyond any doubt that at the time when the transaction was entered into, the accused has entertained a dishonest intention to cause wrongful loss to the complainant on the pretext of a false promise. On the contrary, if the accused was able to satisfy the court that he was financially viable at the time of making such promise, the matter would have been restricted to only a breach of contract rather than a criminal prosecution.

In the case of State of Kerala v. A. Pareed Pillai and another, a two-Judge Bench ruled that to hold a person guilty of the offence of cheating, it has to be shown that his intention was dishonest at the time of making the promise and such a dishonest intention cannot be inferred from a mere fact that he could not subsequently fulfil the promise.

Similar view has been taken in the case of  S.W. Palanitkar and others v. State of Bihar & another [(2002) 1 SCC 241] and also in the case of  State of Kerala vs. A. Pareed Pillai and Anr. [(1972) 3 SCC 661].

In the case of Hiralal Harilal Bhagwati vs CBI, it has been held that:
It is settled law, by a catena of decisions, that for establishing the offence of cheating, the complainant is required to show that the accused had the fraudulent or dishonest intention at the time of making promise or representation. From his making failure to keep promise subsequently, such a culpable intention right at the beginning that is at the time when the promise was made cannot be presumed.

It is seen from the records that the exemption certificate contained necessary conditions which were required to be complied with after importation of the machine. Since the GCS could not comply with it, therefore, it rightly paid the necessary duties without taking advantage of the exemption certificate.

The conduct of the GCS clearly indicates that there was no fraudulent or dishonest intention of either the GCS or the appellants in their capacities as office-bearers right at the time of making an application for exemption.

Also in the case of Vir Prakash Sharma v. Anil Kumar Agarwal [(2007) 7 SCC 373], it has been held that:
Non-payment or underpayment of the price of the goods by itself does not amount to commission of an offence of cheating or criminal breach of trust.

In the case of All Cargo Movers (I) Pvt. Ltd. v. Dhanesh Badarmal Jain and Anr. [2007 (12) SCALE 391], stating:
"For the said purpose, allegations in the complaint petition must disclose the necessary ingredients therefore. Where a civil suit is pending and the complaint petition has been filed one year after filing of the civil suit, we may for the purpose of finding out as to whether the said allegations are prima facie cannot notice the correspondences exchanged by the parties and other admitted documents. It is one thing to say that the Court at this juncture would not consider the defence of the accused but it is another thing to say that for exercising the inherent jurisdiction of this Court, it is impermissible also to look to the admitted documents. Criminal proceedings should not be encouraged, when it is found to be mala fide or otherwise an abuse of the process of the Court. Superior Courts while exercising this power should also strive to serve the ends of justice."

Similar observation has been raised in the case of Sharon Michael and ors. vs. State of Tamil Nadu and Anr. [2009 (1) SCALE 627]".

In the case of Laxmi Narayan Kalra v. the State of Bihar, AIR 1956 SC 544: 1956 CrLJ 948, the cheque was issued by way of security but was not supported by credit in the bank. The court opined that:
under the circumstances, though the action of the accused was highly reprehensible, in absence of any dishonest intention, the charge under section 420 failed, and conviction has to be set aside.

Recently in the case of Satishchandra Ratanlal Shah v. the State of Gujarat, it was held that:
the mere inability of the appellant to return the loan amount cannot give rise to criminal prosecution for cheating unless the fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this men's rea which is the crux of the offence.

It has been held that giving of a cheque in lieu of money due with the knowledge that the drawer had no funds with the bank, does not amount to an offence of cheating in the absence of any evidence to show that the person to whom the cheque was issued parted with any property, or that he did anything which he would not have done, had he knew that the cheque would be dishonoured. A reference may be made to Nagarajan v. Jinnah Saheb.

In this case, it has been held that where a cheque does not imply any representation that the drawer has money in the bank to the amount shown in the cheque, for he may either have authority to overdraw or have an honest intention of paying the necessary money before the cheque can be presented.

Mere fact that the cheque is dishonoured may not by itself give rise to a criminal offence [Bholanath v. State, 1982 CrLJ 1482]. Mere dishonour of cheque given by the accused for payment of the price of goods supplied is no offence unless the giving of the cheque is connected with the purchase and supply of the goods [Prestolite of India v. Munsif Magistrate Hawali, 1978 CrLJ 58 (All)].

However it has been held in the case of Sazid Khan v. State of Haryana, 2018 SCC OnLine P&H 1733, Section 138 of NI Act and Section 420 IPC not exclusive to each other, a person can be charged with both offences simultaneously

In the case of Dalip Kaur & Ors. Vs. Jagnar Singh & Anr, It was held that if the dispute between the parties was essentially a civil dispute resulting from a breach of contract on the part of the appellants for non- refunding the amount of advance, the same would not constitute an offence of "cheating‟ or criminal breach of trust‟.

Thus from the above discussion, it is clear that ulterior intention is the premise for cheating. However, the courts have on multiple occasion has opined that there exists no permanent yardstick to determine the underlying nature of an event to be classified as a matter of purely civil in nature or whether it has the essence of cheating. It has to be determined on the fact of each case. It has gone to envisage that the injury alleged may form the basis of civil claim and may also constitute the ingredients of some crime punishable under criminal law.

When there is a dispute between the parties arising out of a transaction involving the passing of valuable properties between them, the aggrieved person may have right to sue for damages or compensation and at the same time, the law permits the victim to proceed against the wrongdoer for having committed an offence of criminal breach of trust or cheating.

Therefore, it is essential that the averments raised in the complaint as well as in the petition do clearly bring out all the facts in a coherent manner, so as to enable the adjudicating authority to differentiate between civil and criminal aspects of the case. 

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