Essential Ingredients to Constitute Offence of Cheating under Section 420 IPC [Case Law]

Penal Code, 1860 - Ss. 415 & 420 - Making of a false representation is one of the essential ingredients to constitute the offence of cheating under Section 420 IPC. Therefore, in order to bring a case for the offence of cheating, it is not sufficient enough to prove that a false representation had been made, but, it is further necessary to prove that the representation was false to the knowledge of the maker and was made in order to deceive the de facto complainant. 

Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown at the beginning of the transaction. Distinction between mere breach of contract and the cheating would depend upon the intention of the accused at the time of alleged inducement. If it is established that the intention of the accused was dishonest at the very time when he made a promise and entered into a transaction with the complainant to part with his property or money, then the liability is criminal and the accused is guilty of the offence of cheating. On the other hand, if all that is established that a representation made by the accused has subsequently not been kept, criminal liability cannot be foisted on the accused and the only right which the complainant acquires is the remedy for breach of contract in a civil court.

IN THE HIGH COURT OF KERALA AT ERNAKULAM

ANNIE JOHN, J.

B.A. No.951 of 2018

Dated this the 12th day of March, 2018 

CRIME NO. 2030/2017 OF POOJAPPURA POLICE STATION, THIRUVANANDAPURAM 

PETITIONER/ ACCUSED

RAJESH

BY ADV.SRI.B.PRAMOD 

RESPONDENT

THE STATE OF KERALA, REP. BY THE PUBLIC PROSECUTOR, HIGH COURT OF KERALA, ERNAKULAM.

BY SENIOR PUBLIC PROSECUTOR SRI.K.B. UDAYAKUMAR 

ORDER 

The petitioner is the accused in a crime registered alleging offence under section 420 of the Indian Penal Code. The crux of the factual allegations raised against the petitioner is that he obtained Rs.10 lakhs from the 1st informant on 21.10.2016, by giving a promise that the 1st informant would be made the Chairman of daily news paper by name “Express Vartha”. An agreement was also entered between the parties in respect of the above understanding. But the petitioner failed to honour the agreement and instead, continued with the publication of the weekly in his name alone. Hence a private complaint was filed by the de facto complainant and on the strength of that, the Additional Chief Judicial Magistrate, Thiruvananthapuram has forwarded the complaint under Section 156(3) of the Code of Criminal Procedure for investigation. In fact the petitioner had borrowed only Rs.5 lakhs from the de facto complainant, and as a security for the said transaction, the de facto complainant had obtained the signature of the petitioner in a document styled as an agreement Annexure IV. In that it was purposefully written that the petitioner had invested Rs.20 lakhs for running of the business. Subsequently, the petitioner repaid Rs.3 lakhs with interest at the rate of 5% per annum and for the remaining 2 lakhs, another document was executed wherein it appears that the de facto complainant invested Rs.10 lakhs in the business for becoming the Chairman of the publishing concern. The petitioner was forced to sign Annexure III written by the 1st informant as a security for the remaining 2 lakhs. In fact the real nature of the transaction was suppressed by the de facto complainant and a prevaricated version was presented by him in Annexure I complaint. In fact the first informant does not have any experience in the field of journalism as he claimed in the complaint. Even if the allegations raised against the petitioner are assumed to be true, the same do not make out any offence. The allegation at the best would make out a civil dispute only and the custodial interrogation or even arrest of the petitioner is not required.

2. The learned Public Prosecutor has seriously opposed the application by stating that this is a case which would attract the offence under section 420 I.P.C. In fact this petitioner has obtained Rs.10 lakhs from the de facto complainant on 21.10.2016 by giving a promise that the first informant would be made the Chairman of the daily news paper by name “Express Vartha”. An agreement was also entered between the parties in respect of the understanding. But the petitioner failed to honour the agreement and instead, he continued with the publication of the weekly in his name alone. Accordingly, the crime was registered on the strength of a private complaint filed by the de facto complainant against the petitioner. Annexure I is the FIR and Annexure II is the FI Statement. According to the petitioner's counsel, the petitioner is innocent. In fact he had borrowed only Rs.5 lakhs on agreeing to repay the same with 5% interest per annum and for the security, the de facto complainant asked him to execute an agreement. Accordingly the de facto complainant obtained signature of the petitioner in a document styled as an agreement dated 23.05.2016 wherein it makes it appear that he had invested Rs.20 lakhs in the business. Annexure IV is the agreement alleged to have executed between the petitioner and the de facto complainant. Annexure III would state that there was an agreement between the petitioner and the de facto complainant so as to start the daily news paper by name “Express Vartha” for the purpose of spreading wide knowledge guidelines to help the Malayalees, who are located in foreign countries. As per the agreement, both parties agreed to have equal importance therein. The 3rd condition in Annexure IV would state that the total asset of the said institution was fixed as Rs.20 lakhs and both are having equal share in it. Accordingly Rs.10 lakhs was alleged to have received by the petitioner herein and the learned counsel for the petitioner has pointed out that as per Annexure IV, it is evident that only Rs.10 lakhs was given by the de facto complainant to the petitioner as on the date of the execution of it. Annexure IV was executed on 23.05.2016 and petitioners counsel has stated that he had borrowed only Rs.5 lakhs and subsequent to that, he repaid Rs.3 lakhs with interest and the remaining amount is only Rs.2 lakhs. Accordingly, another agreement was executed by stating that the de facto complainant has invested Rs.10 lakhs in the business for becoming the Chairman of the publishing concern. Petitioner has signed on the document dated 21.10.2016 for the security of the remaining 2 lakhs. The said copy of the agreement dated 21.10.2016 is produced and marked as Annexure III. Annexure III would state that the petitioner and the de facto complainant decided to start an institution for the running of the daily news paper named “Express Vartha”. In that, it was stated that the total value of the assets of the institution would come to Rs.40 lakhs and as, half of the amount of Rs.20 lakhs was accepted by the petitioner herein.

Pointing out this fact, petitioner's counsel has argued that Annexure IV would show that the petitioner has alleged to have accepted Rs.20 lakhs from the de facto complainant and subsequent to that, Annexure III was executed on 21.10.2016 wherein it was stated that the total value of the assets of the institution was fixed as Rs.20 lakhs and the petitioner has accepted Rs.10 lakhs. The de facto complainant has suppressed Annexure IV from the court even at the time of filing Annexure I. Annexure I is the complaint filed before the Additional Chief Judicial Magistrate Court, Trivandrum, wherein the petitioner has suppressed execution of Annexure IV. But relied on Annexure III it was stated that the petitioner has alleged to have received Rs.10 lakhs as half of the share of the investment. Learned counsel for the petitioner pointed out that the de facto complainant has no consistent case and according to the petitioner's counsel these agreements were executed as and when the petitioner has borrowed Rs.5 lakhs from the de facto complainant. The FIR was registered under section 420 of the I.P.C. In this connection, I shall discuss about the relevant section in Indian Penal Code.

3. Section 415 of the I.P.C. illustrates about the cheating wherein it was stated that whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.

4. The Explanation would state that a dishonest concealment of facts is a deception within the meaning of this section. Section 420 I.P.C. is the penal provision. In fact this case was originated on the strength of the agreement executed between the de facto complainant and the petitioner. The definite case of the de facto complainant is that the petitioner has accepted Rs.10 lakhs from him under the impression that he would be appointed as the Chairman of the said institution. But he failed to do so, hence he has filed a compliant by stating that the petitioner has cheated him. In fact prior to the present complaint, there was another agreement executed on 23.05.2016 by stating that the petitioner has received Rs.20 lakhs from him by valuing the entire assets as Rs.40 lakhs. But this fact has been suppressed in Annexure I and filed the present complaint against him. In fact it is important to note that the primary requirement to make out an offence of cheating under section 415 punishable under section 420 of the I.P.C. In that petitioner had a dishonest or fradulent intention at the time of inducement is made. In Shruti Enterprises Ltd. v. State of Bihar and Others [2006 Cr.L.J. 1916 (Pat.)]“ it was stated that dishonest or fraudulent intention at the time of inducement is made. This distinction depends upon the intention of accused at the time of the alleged inducement. Mere breach of contract cannot give rise to criminal prosecution under Section 420 unless fraudulent or dishonest intention is shown right at the beginning of transaction time, when the offence was said to have been committed. If it is established that the intention of the accused was dishonest at the time of entering into the agreement, then the liability will be criminal and the accused will be guilty of the offence of cheating. On the other hand, if all that is established that a representation made by the accused has subsequently not been kept, criminal liability cannot be fastened on the accused and the only right which complainant acquires is to a decree of damages for breach of contract in Civil Court”.

5. In International Advanced Research Centre for Powder Metallurgy and New Materials (ARCI) & others v. Nirma Cerglass Technics (P) Ltd. & another [2015 KHC 4633], it is held that mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown at the beginning of the transaction. Distinction between mere breach of contract and the cheating would depend upon the intention of the accused at the time of alleged inducement. If it is established that the intention of the accused was dishonest at the very time when he made a promise and entered into a transaction with the complainant to part with his property or money, then the liability is criminal and the accused is guilty of the offence of cheating. On the other hand, if all that is established that a representation made by the accused has subsequently not been kept, criminal liability cannot be foisted on the accused and the only right which the complainant acquires is the remedy for breach of contract in a civil court.

6. The essential ingredients to attract Section 420 IPC are: (i) cheating; (ii) dishonest inducement to deliver property or to make, alter or destroy any valuable security or anything which is sealed or signed or is capable of being converted into a valuable security and (iii) mens rea of the accused at the time of making the inducement.

7. The making of a false representation is one of the essential ingredients to constitute the offence of cheating under Section 420 IPC. Therefore, in order to bring a case for the offence of cheating, it is not sufficient enough to prove that a false representation had been made, but, it is further necessary to prove that the representation was false to the knowledge of the maker and was made in order to deceive the de facto complainant. This fact is reiterated in S.W. Palanitkar and others v. State of Bihar and another [2002 (1) SCC 241].

8. Here in this case, the allegation of the de facto complainant is that the petitioner has obtained Rs.10 lakhs from him on making him the belief that he would be posted as the Chairman of the concerned institution. But it is clear from Annexure IV that before Annexure III, there was another agreement stating the same fact. But he has not revealed the execution of Annexure IV prior to the execution of Annexure III agreement. It indicates that Annexures III and IV are not actually a transaction regarding running of the daily news paper “Express Vartha” and no ground is made out that the petitioner had got any dishonest intention in his mind at the very initial stage or inception of the transaction. It is a case of breach of the terms of the agreement giving rise to a civil cause of action. In fact, breach of procedure without involving any fraud or deception cannot amount to cheating. Nowadays it is prevalent in the society that if any transaction fails in view of an agreement executed between the parties, the aggrieved parties will try to rectify that grievances by resorting criminal proceedings especially by virtue of Section 420 I.P.C.

9. In Annexure III it was stated that in case petitioner faces financial crisis for running the institution “Express Vartha” for daily news paper, the de facto complainant has to support him and vice versa. The wordings used in Annexure III would really indicate that it would be an agreement between the petitioner and the de facto complainant. That being so, enforcement of the terms of agreement will entitle the parties to resort civil remedies. The custodial interrogation is not required. The prosecution has no case that petitioner will abscond and obstruct the smooth investigation in this case. Therefore I am inclined to grant the anticipatory bail, as prayed for by the petitioner.

In the result, this application is allowed and the Station House Officer, Poojappura Police Station, Thiruvananthapuram District is directed to enlarge the petitioner on bail in the event of his arrest on execution of a bond for Rs.25,000/- with two solvent sureties each for the like sum to the satisfaction of the Investigating Officer.