This article is written by Vividh Jain, a student of the Institute of Law, NIRMA University. In this article, the author tries to figure out the answer to the question, do all money claims constitute the offence of cheating? 

Introduction

A growing phenomenon is noticed by the Judiciary in the use of criminal prosecution as a method of persecution, for pursuance of private vendetta or as a way to pressurize the victim with an ulterior purpose. This strategy is often used to paint matters with the colour of criminality that are predominantly of a civil nature. This approach is based on the assumption that securing satisfactory outcomes from civil litigation is a lengthy or time-consuming procedure and, therefore, increases the probability of eventual settlement if a defendant is already caught in criminal prosecution. An attempt is made, in the course of the subsequent discussion, to analyze the essential elements of cheating under the Indian Penal Code, 1860 in the light of the judicial pronouncements surrounding the above issue.

Section 420 of the Indian Penal Code

Section 420 of the Indian Penal Code, 1860 talks about an offence committed by someone who cheats another person and, thus, induces the deceived person to deliver his/her property in favour of the offender. This section also stipulates the punishment for the offence of cheating. Section 420 of the Indian Penal Code states that anyone who cheats and, thus, dishonestly induces the deceived individual to deliver any property to any individual, or to make or distort the whole or any part of that valuable security, or anything that is sealed or signed and that is capable of being converted it into a valuable security, shall be punished with imprisonment for not less than a term of seven years, or with fine, or both. Section 420 of the Indian Penal Code makes the offence of cheating cognizable and non-bailable. Section 415, Section 416, Section 417, Section 418, Section 419, and Section 420 of the Indian Penal Code contain the provisions relating to the office of offence. 

Essential ingredients of the offence of cheating

To establish the offence of cheating, all of the following elements have to be proved, namely:

1. Cheating; 
2. Dishonestly inducing the deceived individual to deliver any property to any individual, or to make or distort the whole or any part of that valuable security, or anything that is sealed or signed, and capable of being converted into a valuable security;
3. Presence of mens rea on part of the accused at the time of inducing someone; and 
4. False misrepresentation, which means that the representation or portrayal made by the accused was false. 

In order to bring any case involving the offence of cheating under Section 420 of the Indian Penal Code, it is not solely sufficient to prove that a false representation had been made by the accused, but it is also necessary to prove that the representation made by the accused was false to the accused’s knowledge and was deliberately made to mislead the complainant, and only then can this Section be invoked. Thus, in order to convict a person for the offence of cheating, according to Section 420 of the Indian Penal Code, it must be proven that not only did the accused has cheat another person, but also dishonestly compel the deceived person to deliver his/her property in favour of the offender by the mode of cheating. The essential elements of mens rea is a primary consideration while assessing the offence of cheating but in practice, it must be combined with direct injury to the individual who appears to be deceived. 

Reasoning

An individual is said to have done something dishonestly, if he does that act to cause wrongful gain or wrongful loss to another person. In the claims related to cheating, at the same moment that some false representation is made, the mens rea factor needs to be evaluated. In cases of cheating, the responsibility rests on the prosecution to show affirmatively that all the above-mentioned components were fulfilled, i.e., misleading representation and the existence of dishonest intent as it was being made. If the accused has made a violation of a false promise to do something in the near future, as a result of which the plaintiff was forced to part with his money or property, the problem whether the accused is convicted of a criminal offence of cheating or is liable in a civil case for compensation for the violation of contract relies on the state of mind of the perpetrator at the time when promise was made. 

If, at the time of making such a promise in acknowledgement, the prosecution fails to show the presence of further intentions, then criminal liability can not be imposed at a later stage, as a result of failure to fulfil the promise. The only remedy available is to get a decree for damages in a civil lawsuit for breach of contract. The concept attached to this reasoning is that there is a reasonable chance that the accused might well have intended to carry this out, at the time he had made such a promise, and his subsequent failure to do so might result from circumstances about which he was unaware, at the time when he had made such a promise, and not from any dishonest intent at the very beginning. 

For example, if an accused induced the complainant to enter into an agreement for parting with his goods on a guarantee that he would make the payment against delivery, and the perpetrator didn’t actually make the cash payment against the delivery, as guaranteed, when the complainant delivered the goods. It was proved that there was no cash available with him during the time he made such a promise and had no prospect of making cash payment against the delivery. Against these facts, the charge of cheating was founded because the circumstances of the case put it beyond a reasonable doubt that the accused possessed a dishonest intention to cause, the complainant, wrongful loss under the basis of a false promise made at the time the contract was entered into. On the contrary, if the accused were able to satisfy the court that, at the time of making such a promise, he was financially sustainable, the matter would have been confined to a contract breach rather than a criminal prosecution.

Difference between mere ‘breach of contract’ and the ‘offence of cheating’

Differentiation depends on the accused’s intention at the time of induction which must be evaluated by his subsequent act but it might not be the sole standard to determine his liability. Just a breach of contract could not necessarily lead to criminal prosecution for cheating unless, there was presence of a fraudulent or dishonest intention on the part of the accused at the onset of the transaction, and only then the offence is said to have been committed. Thus, the intention stands to be the substance of the offence. To hold a person guilty for the offence of cheating, it is essential to demonstrate that, at the time of making such a promise, he had a fraudulent or dishonest intention. Consequently, when the offender renounces the commission of the offence, such a guilty intention can not be believed to be correct, at the outset, of his pure inability to uphold such a commitment. Section 73 to Section 75 of the Indian Contracts Act, 1872 deals with the violation of contract while Section 420 of the Indian Penal Code deals with crime linked to cheating.

Relevant case laws

In the case of State of Kerala v. A. Pareed Pillai and another, a two-Judge bench ruled that, in order to prove an individual guilty of the crime of cheating, it must be proved that there was a dishonest intention on the accused’s part at the time of making the commitment and such dishonest intention could not be concluded from the mere reality that he couldn’t subsequently fulfil the commitment. A similar view was taken into consideration in the case of S.W. Palanitkar and Ors. v. State of Bihar & Anr.

The case of Hiralal Harilal Bhagwati v. CBI was related to a partnership dispute, where Respondent no. 2 lodged a complaint of cheating against the appellant in association to the tutorial business he was running, known as ‘Pranjali,’ which administered classes in management education. In this case, he stated that the present applicants contacted him via his agents who owned a subsidiary business of Hughes Network Organization, USA. The court determined the established rule, through a catena of rulings, that, in order to determine the crime of cheating, it is necessary for the complainant to prove that the perpetrator had a fraudulent or dishonest intention at the time of creating a commitment or representation.

By his actual inability to uphold promise, it is not right to infer a criminal intent at the outset, that is, at the moment where the commitment was made. Also, it is seen that the exemption certificate contained the proper prerequisites which had to be fulfilled after the machine was imported. Therefore, since the GCS did not meet it, it properly paid the required duties without taking full advantage of the certificate of exemption. The behavior of the GCS explicitly showed that, at the time of filing an application for exemption, there was no false or dishonest purpose, either of the GCS or of the appellants in their capacity as office-bearers. Even in the case of Vir Prakash Sharma v. Anil Kumar Agarwal, it had been held that the underpayment or non-payment of the price of the goods alone does not constitute the commission of an offence of fraud or cheating or a criminal breach of trust.

In the case of All Cargo Movers Pvt. Ltd v. Dhanesh Jain Badarmal and Anr., the Supreme Court of India stated that, “Furthermore, for that reason, the claims in the complaint petition must reveal the required ingredients. When a civil suit is ongoing and the complaint petition has been lodged one year after the civil suit has been lodged, we do not, in order to decide if such charges are prima facie, reveal the correspondence exchanged between the parties and other accepted information. This is one thing to claim that the Court does not recognize the appeal of the complainant at this juncture, but it is another thing to suggest that it is, therefore, impermissible to glance through the accepted records in order to practice the intrinsic jurisdiction of this Court. Criminal proceedings should not be facilitated if the Court’s procedure is considered to be mala fide or, otherwise, coercive. Superior courts will always aim to represent the ends of justice while using control.”

In the case of Laxmi Narayan Singh v. State of Bihar, the dispute was related to the election to the Bihar State Co-operative Bank Limited Management Committee of which, out of a total vacancy of thirteen, six persons were named as directors to the managing committee. The court held that the cheque was issued by security but did not provide credit assistance in the Bank. The court ruled that, under such cases, while the accused’s conduct was particularly reprehensible, the prosecution, under Section 420 of the IPC, collapsed in the absence of any dishonest motive, and the conviction must be set aside. 

In the recent case of Satishchandra Ratanlal Shah v. Government of Gujarat, it was held that the appellant ‘s mere failure to refund the loan sum can not give rise to criminal liability for theft until the dishonest or fraudulent intention is revealed right from the onset of the contract because the crux of the crime is the mens rea of this individual. The reference of this case was made in Nagarajan v. Jinnah Saheb as well. It said that offering a cheque instead of money due, in the information that the drawer did not have funds with the bank, would not lead to an offence of cheating in the absence of any evidence to prove that the individual to whom the cheque was issued parts with any property, or that he did something he should not have done if he had understood that the cheque would have been dishonored. 

However, in the case of Sazid Khan v. State of Haryana, it was held that a person may be charged simultaneously under Section 138 of the Negotiable Instruments Act and Section 420 Indian Penal Code. In Dalip Kaur & Ors v. Jagnar Singh & Anr, it was held that if the conflict between the parties was simply a civil dispute resulting from a violation of terms of a contract by the appellants, who failed to refund the balance of the advance, the same would not constitute the offence of cheating or a criminal breach of trust.

Conclusion

Thus, it is clear from the above discussion that the offence of cheating is established if the accused has an ulterior intention. Nevertheless, on many occasions, the courts have ruled that there is no definitive criterion for deciding the true purpose of an incident to be categorized as solely a civil matter or that it has the essence of cheating. Every case needs to be decided on the basis of evidence. This has been envisaged that the alleged injury could shape the foundation of civil claim and may even represent the elements of a criminal offence punishable under criminal law. Where a conflict occurs between the parties arising from a contract concerning the sale of certain property between them, the aggrieved party will have the right to sue for negligence or restitution because, at the same period, the statute requires the claimant to move against the wrongdoer for having performed an offence of cheating or criminal breach of trust.

References 

• https://www.lawyered.in/legal-disrupt/articles/section-420-ipc-everything-you-need-know/
• http://www.legalserviceindia.com/legal/article-2201-not-all-money-claims-constitute-offence-of-cheating.html#:~:text=Provisions%20pertaining%20to%20the%20offence,Indian%20Penal%20code%20(IPC).

LawSikho has created a telegram group for exchanging legal knowledge, referrals and various opportunities. You can click on this link and join: