Every act of breach of trust may not be resulted in a penal offence
of criminal breach of trust unless there is evidence of manipulating act of
fraudulent misappropriation. An act of breach of trust involves a civil
wrong in respect of which the person may seek his remedy for damages
in civil courts but any breach of trust with a mens rea gives rise to a
criminal prosecution as well.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 7630 of 2015
PARTHKUMAR RAMNIKLAL KALAVADIYA &
V
STATE OF GUJARAT & 1.
CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 09/12/2016
1 By this application under Section 482 of the Code of Criminal
Procedure, 1973, the applicants – original accused persons seek to
invoke the inherent powers of this Court, praying for quashing of the
First Information Report lodged before the D.C.B. Police Station, Rajkot
bearing C.R. No.I5 of 2015 for the offence punishable under Sections
406, 420 and 120B read with 114 of the Indian Penal Code.
2 The case of the first informant may be summarised as under:
2.1 The first informant is the owner of a shop situated at the Balaji
Hall, Block No.3, Omnagar, Part No.1, 150 Feet Ring Road, Rajkot. She
entered into an agreement of leave and license dated 20th June 2013
with the applicant No.1. It is her case that after an about five months
from the date of the agreement, she noticed that the applicant No.2 was
in possession of the shop and was carrying on his business. She later
came to know that the applicant No.1 had unlawfully subletting the shop
in favour of the applicant No.2. The applicant No.2 was questioned by
the first informant as to how come he was in possession of the shop in
question. The applicant No.2 is alleged to have been given a highhanded
reply and also threatened the first informant with dire consequences.
3 It appears that the respondent No.2 – original first informant,
although served with the notice of rule issued by this Court, has chosen
not to remain present and oppose this application either in person or
through an advocate.
4 It appears that the applicant No.1 has preferred a Regular Civil
Suit No.40 of 2014 in the Court of the Additional Senior Civil Judge,
Rajkot for injunction. In the said suit, a counter claim has been filed by
the first informant. The first informant also preferred an application
Exhibit: 18 for injunction. By order dated 18th April 2014, the Exhibit: 5
application filed by the original plaintiff i.e. the applicant No.1 herein
was rejected, whereas the application Exhibit: 18 filed by the first
informant in her counter claim was allowed. The original plaintiffs are
restrained from interfering with the possession and use of some part of
the suit property.
5 Be that as it may, the short point which falls for my consideration
is whether plain reading of the First Information Report discloses
commission of any cognizable offence. To put it in other words, whether
the necessary ingredients to constitute an offence of criminal breach of
trust or cheating are spelt out.
6 The learned counsel appearing for the applicants would submit
that even if the entire case of the first informant is accepted as true,
none of the ingredients to constitute an offence of criminal breach of
trust or cheating are spelt out.
7 On the other hand, the learned A.P.P. appearing for the State
would submit that the agreement was with the applicant No.1. The
applicant No.1 unlawfully put the applicant No.2 in possession of the
shop, and thereby, committed breach of trust of leave and license, and
therefore, a prima facie case of criminal breach of trust is made out.
8 Having heard the learned counsel appearing for the parties and
having considered the materials on record, the only question that falls
for my consideration is whether the F.I.R. deserves to be quashed.
9 The offences of criminal breach of trust (Section 406 IPC) and
cheating (Section 420 IPC) have specific ingredients. In order to
constitute a criminal breach of trust (Section 406 IPC).
1) There must be entrustment with person for property or dominion over
the property, and
2) The person entrusted :
a) dishonestly misappropriated or converted property to his own
use, or
b) dishonestly used or disposed of the property or willfully suffers
any other person so to do in violation
i) any direction of law prescribing the method in which the trust is
discharged and
ii) of legal contract touching the discharge of trust (see: S.W.P.
Palanitkar v. State of Bihar, (2002)1 SCC 241) : (AIR 2001
SC 2960).
Similarly, in respect of an offence under section 420 IPC, the
essential ingredients are :
1) deception of any person, either by making a false or misleading
representation or by other action or by omission;
2) fraudulently or dishonestly inducing any person to deliver any property,
or
3) the consent that any persons shall retain any property and finally
intentionally inducing that person to do or omit to do anything which he
would not do or omit (see: Harmanpeet Singh Ahluwalia v. State of
Punjab, (2009)7 SCC 712 : (2009) Cr.L.J. 3462 (SC) )
10 Further, in both sections, mens rea i.e. intention to defraud or the
dishonest intention must be present from the very beginning or inception
without which either of these sections cannot be invoked.
11 In my view, the plain reading of the First Information Report fails
to spell out any of the aforesaid ingredients noted above. I may only say
with a view to clear a serious misconception of law in the mind of the
police as well as the courts below that if it is a case of the complainant
that offence of criminal breach of trust as defined under Section 405 of
IPC, punishable under Section 406 of IPC, is committed by the accused,
then in the same breath it could not be said that the accused has also
committed the offence of cheating as defined and explained in Section
415 of the IPC, punishable under Section 420 of the IPC.
12 Every act of breach of trust may not be resulted in a penal offence
of criminal breach of trust unless there is evidence of manipulating act of
fraudulent misappropriation. An act of breach of trust involves a civil
wrong in respect of which the person may seek his remedy for damages
in civil courts but any breach of trust with a mens rea gives rise to a
criminal prosecution as well. It has been held in Hart Prasad Chamaria
v. B.K. Surekha and others, reported in 1973(2) SCC 823 as under :
We have heard Mr. Maheshwarit on behalf of the appellant and are of the
opinion that no case has been made out against the respondents under
Section 420 Indian Penal Code. For the purpose of the present appeal, we
would assume that the various allegations of fact which have been made in
the complaint by the appellant are correct. Even after making that
allowance, we find that the complaint does riot disclose the commission of
any offence on the part of the respondents under Section 420 Indian Penal
Code. There is nothing in the complaint to show that the respondents had
dishonest or fraudulent intention at the time the appellant parted with Rs.
35.000/ There is also nothing to indicate that the respondents induced
the appellant to pay them Rs. 35.000/ by deceiving him. It is further not
the case of the appellant that a representation was made, the respondents
knew the same to be false. The fact that the respondents subsequently did
not abide by their commitment that they would show the appellant to be
the proprietor of Drang Transport Corporation and would also render
accounts to him in the month of December might create civil liability on
the respondents for the offence of cheating.
13 To put it in other words, the case of cheating the dishonest
intention starts with the very inception of the transaction. But in the case
of criminal breach of trust, the person who comes into possession of the
movable property receives it legally, but illegally retains it or converts it
to his own use against the terms of the contract. Then the question is, in
a case like this, whether the retention is with dishonest intention or not.
Whether the retention involves criminal breach of trust or only a civil
liability would depend upon the facts of each case.
14 The distinction between mere breach of contract and the offence
of criminal breach of trust and cheating are fine one. In case of cheating,
it depends upon the intention of the accused at the time of inducement,
which may be judged by a subsequent conduct but for this the
subsequent conduct is not the sole test but mere breach of contract
which cannot give rise to a criminal prosecution for cheating unless
fraudulent or dishonest intention is shown right from the beginning of
the transaction i.e. the time when the offence is said to have been
committed. Therefore, it is his intention, which is the gist of the offence.
Whereas, for the criminal breach of trust, the property must have been
entrusted to the accused or he must have dominion over it. The property
in respect of which the offence after breach of trust has been committed
must be either the property of some person other than the accused or the
beneficial interest in or ownership of it must be of some other person.
The accused must hold that property on trust of such other person. But
the offence, i.e. the offence of breach of trust and cheating involve
dishonest intention but they are mutually exclusive and different in basic
concept. There is a distinction between criminal breach of trust and
cheating. For cheating, criminal intention is necessary at the time of
entrustment. In criminal breach of trust, mere proof of entrustment is
sufficient. Thus, in case of criminal breach of trust, the offender is
lawfully entrusted with the property and he dishonestly misappropriated
the same. Whereas, in case of cheating, the offender practices fraudulent
or dishonest to induce with another person to deliver the property. In
such situation, both the offences cannot coexist simultaneously.
15 I may quote with profit a decision of the Supreme Court in the
case of Nageshwar Prasad Singh alias Sinha v. Narayan Singh, AIR
1999 SC 1480. In the said case, the allegation of the prosecution was
that an agreement was signed between the complainant respondent and
the appellant whereby some land was agreed to be sold by the appellant
to the complainants on a consideration, and allegedly a part thereof was
paid as earnest money, the balance being payable in the manner
indicated in the deed. The most important term in the deed was that
possession of the plot would stand transferred to the complainants and
possession in fact was delivered to the complainants over which they
made certain constructions. The complaint was laid on the basis that the
appellant had cheated the complainants of the sum of money they had
paid as earnest money as his subsequent conduct reflected that he was
not willing to complete the bargain for which the complainants had to
file a suit for specific performance which was pending in the civil court.
Held, that latter part of illustration (g) to Section 415, I.P.C. illustrates
that at the time when agreement for sell was executed, it could have, in
no event, been termed dishonestly so as to hold that the complainants
were cheated of the earnest money, which they passed to the appellant
as part consideration and possession of the total amount involved in the
bargain was passed over to the complainant/respondent and which
remained in their possession. Now it is left to imagine who would be
interested for dealing the matter for completing the bargain when
admittedly the complainants have not performed their part in making
full payment. The matter was, therefore, before the civil court in this
respect. The liability, if any, arising out by breaching thereof was civil in
nature and not criminal. Accordingly, the appeal was allowed and
complaint proceedings were quashed.
16 It was further held by the Supreme Court in the case of Hridaya
Ranjan Prasad Verma v. State of Bihar, AIR 2000 SC 2341 at Pp.
234546 of para 16) as below :
"15. In determining the question it has to be kept in mind that the
distinction between, mere breach of contract and the offence of cheating is
a fine one. It depends upon the intention of the accused at the time of
inducement which may be judged by his subsequent conduct but for this
subsequent conduct is not the sole test. Mere breach of contract cannot give
rise to criminal prosecution for cheating unless fraudulent or dishonest
intention is shown right at the beginning of the transaction, that is the
time when the offence is said to have been committed. Therefore, it is the
intention, which is the gist of the offence. To hold a person guilty of
cheating it is necessary to show that he had fraudulent or dishonest
intention at the time of making the promise. From his mere failure to keep
up promise subsequently such a culpable intention right at the beginning,
that is, when he made the promise cannot be presumed."
17 In All Cargo Movers (I) Pvt. Ltd. & others v. Dhanesh Badarmal
Jain & another, JT 2007 (12) SC 345, the Apex Court quashed a
criminal proceeding on the premise that the allegations contained in
complaint were wholly inconsistent with the pleadings in a collateral
civil proceeding. It held as follows :
"17. We are of the opinion that the allegations made in the complaint
petition, even if given face value and taken to be correct in its entirety, do
not disclose an offence. For the said purpose, This Court may not only take
into consideration the admitted facts but it is also permissible to look into
the pleadings of the plaintiffrespondent No.1 in the suit. No allegation
whatsoever was made against the appellants herein in the notice. What
was contended was negligence and/or breach of contract on the part of the
carriers and their agent. Breach of contract simplicitor does not constitute
an offence. For the said purpose, allegations in the complaint petition must
disclose the necessary ingredients therefor. 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."
18 In K.L.E. Society & others v. Siddalingesh, (2008) 4 SCC 541, on
a similar issue, the Supreme Court quashed a criminal proceeding
labeling it to be an abuse of process of Court as the allegations contained
in the complaint ran contrary to the averments made in the petition filed
under the Industrial Disputes Act. The Apex Court held as follows :
"7. One thing is clear on reading of High Court's reasoning that the High
Court came to the conclusion that deductions were made without any
rhyme and reason and without any basis. That was not the case of the
complainant. On the other hand, it tried to make out a case that the
deduction was made with an object. That obviously, was the foundation to
substantiate claim of entrustment. On a close reading of the complaint it
is clear that the ingredients of Sections 403, 405 and 415 do not exist.
The statement made in the complaint runs contrary to the averments
made in the petition in terms of Section 33(C) (2)."
19 In State of Orissa v. Debendra Nath Padhi, (2005) SCC (Cri.)
415, the Supreme Court held that the High Court could take into
account materials of "unimpeachable character of sterling quality" while
exercising its inherent powers to quash a criminal proceeding and
observed as follows :
"29. Regarding the argument of accused having to face the trial despite
being in a position to produce material of unimpeachable character of
sterling quality, the width of the powers of the High Court under Section
482 of the Code and Article 226 of Constitution is unlimited whereunder
in the interests of justice the High Court can make such orders as may be
necessary to prevent abuse of the process of any Court or otherwise to
secure the ends of justice within the parameters laid down in Bhajan Lals
case.
20 In Vijaya Rao v. State of Rajasthan & another (2005) SCC (Cri.)
1600, the Supreme Court held that merely using expressions like
"fraudulent representation" and "malafide intention" does not give rise to
an inference that the complaint discloses the ingredients of the offence
of cheating.
21 In Hridaya Ranjan Prasad Verma & others v. State of Bihar &
another (2000) SCC (Cri.) 786, the Supreme Court succinctly laid down
the distinction between breach of contract in one hand and the offence
of cheating in the other.
"15. In determining the question it has to be kept in mind that the
distinction between mere breach of contract and the offence of
cheating is a fine one. It depends upon the intention of the accused at
the time to inducement which may be judged by his subsequent
conduct but for this subsequent conduct is not the sole test. Mere
breach of contract cannot give rise to criminal prosecution for
cheating unless fraudulent or dishonest intention is shown right at the
beginning of the transaction, that is the time when the offence is said
to have been committed. Therefore it is the intention which is the gist
of the offence. To hold a person guilty of cheating it is necessary to
show that he had fraudulent or dishonest intention at the time of
making the promise. From his mere failure to keep up promise
subsequently such a culpable intention right at the beginning, that is,
when he made the promise cannot be presumed."
22 In Anil Kumar Bose v. State of Bihar, (1974) SCC (Cri.) 652, the
Supreme Court held that mere failure to perform a duty or observe rules
of procedure may be an administrative lapse or any error of judgement
but cannot be equated with dishonest intention or cheating.
23 Criticizing the institution of malicious and frivolous criminal
proceeding against individuals, the Supreme Court in PEPSI Foods Ltd.
& another v. Special Judicial Magistrate & Ors., (1998) SCC (Cri.)
1400, held as follows :
"28. Summoning of an accused in a criminal case is a serious matter.
Criminal law cannot be set into motion as a matter of course. it is not that
the complainant has to bring only two witnesses to support his allegations
in the complaint to have the criminal law set into motion. The order of the
magistrate summoning the accused must reflect that he has applied his
mind to the facts of the case and the law applicable thereto. He has to
examine the nature of allegations made in the complaint and the evidence
both oral and documentary in support thereof and would that be sufficient
for the complainant to succeed in bringing charge home to the accused. It
is not that the Magistrate is a silent spectator at the time of recording of
preliminary evidence before summoning of the accused. Magistrate has to
carefully scrutinise the evidence brought on record and may even himself
put questions to the complainant and his witnesses to elicit answers to find
out the truthfulness of the allegations or otherwise and then examine if
any offence is prima facie committed by all or any of the accused."
24 In B.Suresh Yadav v. Sharifa Bee & another, JT (2007) 12 SC
341, the Supreme Court again highlighted the distinction between a
mere breach of contract and the offence of cheating.
25 In Inder Mohan Goswami & another v. State of Uttaranchal &
others, (2007)12 SCC 1, the Supreme Court analysed inherent powers
of the High Court under Section 482 as follows :
"23. This court in a number of cases has laid down the scope and ambit of
courts' powers under section 482 Cr.P.C. Every High Court has inherent
power to act ex debito justitiae to do real and substantial justice, for the
administration of which alone it exists, or to prevent abuse of the process of
the court. Inherent power under section 482 Cr.P.C. can be exercised:
(i) to give effect to an order under the Code;
(ii) to prevent abuse of the process of court, and
(iii) to otherwise secure the ends of justice.
24. Inherent powers under section 482 Cr.P.C. though wide have to be
exercised sparingly, carefully and with great caution and only when such
exercise is justified by the tests specifically laid down in this section itself.
Authority of the court exists for the advancement of justice. If any abuse of
the process leading to injustice is brought to the notice of the court, then
the Court would be justified in preventing injustice by invoking inherent
powers in absence of specific provisions in the Statute."
26 In view of the aforesaid discussion, this application is allowed. The
First Information Report lodged before the D.C.B. Police Station, Rajkot
bearing C.R. No.I5 of 2015 for the offence punishable under Sections
406, 420 and 120B read with 114 of the Indian Penal Code are hereby
ordered to be quashed.
27 It is needless to clarify that the civil proceedings between the
parties shall be decided on its own merits without being influenced by
any of the observations made by this Court in this judgment and order.
Having regard to the nature of dispute, the 12th Additional Senior Civil
Judge, Rajkot is directed to take up the Regular Civil Suit No.40 of 2014
along with the counter claim for hearing and dispose of the same within
a period of six months from the date of receipt of this order.
28 Rule is made absolute to the aforesaid extent. Direct service is
permitted.
(J.B.PARDIWALA, J.)
Print Page
of criminal breach of trust unless there is evidence of manipulating act of
fraudulent misappropriation. An act of breach of trust involves a civil
wrong in respect of which the person may seek his remedy for damages
in civil courts but any breach of trust with a mens rea gives rise to a
criminal prosecution as well.
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CRIMINAL MISC.APPLICATION (FOR QUASHING & SET ASIDE
FIR/ORDER) NO. 7630 of 2015
PARTHKUMAR RAMNIKLAL KALAVADIYA &
V
STATE OF GUJARAT & 1.
CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA
Date : 09/12/2016
1 By this application under Section 482 of the Code of Criminal
Procedure, 1973, the applicants – original accused persons seek to
invoke the inherent powers of this Court, praying for quashing of the
First Information Report lodged before the D.C.B. Police Station, Rajkot
bearing C.R. No.I5 of 2015 for the offence punishable under Sections
406, 420 and 120B read with 114 of the Indian Penal Code.
2 The case of the first informant may be summarised as under:
2.1 The first informant is the owner of a shop situated at the Balaji
Hall, Block No.3, Omnagar, Part No.1, 150 Feet Ring Road, Rajkot. She
entered into an agreement of leave and license dated 20th June 2013
with the applicant No.1. It is her case that after an about five months
from the date of the agreement, she noticed that the applicant No.2 was
in possession of the shop and was carrying on his business. She later
came to know that the applicant No.1 had unlawfully subletting the shop
in favour of the applicant No.2. The applicant No.2 was questioned by
the first informant as to how come he was in possession of the shop in
question. The applicant No.2 is alleged to have been given a highhanded
reply and also threatened the first informant with dire consequences.
3 It appears that the respondent No.2 – original first informant,
although served with the notice of rule issued by this Court, has chosen
not to remain present and oppose this application either in person or
through an advocate.
4 It appears that the applicant No.1 has preferred a Regular Civil
Suit No.40 of 2014 in the Court of the Additional Senior Civil Judge,
Rajkot for injunction. In the said suit, a counter claim has been filed by
the first informant. The first informant also preferred an application
Exhibit: 18 for injunction. By order dated 18th April 2014, the Exhibit: 5
application filed by the original plaintiff i.e. the applicant No.1 herein
was rejected, whereas the application Exhibit: 18 filed by the first
informant in her counter claim was allowed. The original plaintiffs are
restrained from interfering with the possession and use of some part of
the suit property.
5 Be that as it may, the short point which falls for my consideration
is whether plain reading of the First Information Report discloses
commission of any cognizable offence. To put it in other words, whether
the necessary ingredients to constitute an offence of criminal breach of
trust or cheating are spelt out.
6 The learned counsel appearing for the applicants would submit
that even if the entire case of the first informant is accepted as true,
none of the ingredients to constitute an offence of criminal breach of
trust or cheating are spelt out.
7 On the other hand, the learned A.P.P. appearing for the State
would submit that the agreement was with the applicant No.1. The
applicant No.1 unlawfully put the applicant No.2 in possession of the
shop, and thereby, committed breach of trust of leave and license, and
therefore, a prima facie case of criminal breach of trust is made out.
8 Having heard the learned counsel appearing for the parties and
having considered the materials on record, the only question that falls
for my consideration is whether the F.I.R. deserves to be quashed.
9 The offences of criminal breach of trust (Section 406 IPC) and
cheating (Section 420 IPC) have specific ingredients. In order to
constitute a criminal breach of trust (Section 406 IPC).
1) There must be entrustment with person for property or dominion over
the property, and
2) The person entrusted :
a) dishonestly misappropriated or converted property to his own
use, or
b) dishonestly used or disposed of the property or willfully suffers
any other person so to do in violation
i) any direction of law prescribing the method in which the trust is
discharged and
ii) of legal contract touching the discharge of trust (see: S.W.P.
Palanitkar v. State of Bihar, (2002)1 SCC 241) : (AIR 2001
SC 2960).
Similarly, in respect of an offence under section 420 IPC, the
essential ingredients are :
1) deception of any person, either by making a false or misleading
representation or by other action or by omission;
2) fraudulently or dishonestly inducing any person to deliver any property,
or
3) the consent that any persons shall retain any property and finally
intentionally inducing that person to do or omit to do anything which he
would not do or omit (see: Harmanpeet Singh Ahluwalia v. State of
Punjab, (2009)7 SCC 712 : (2009) Cr.L.J. 3462 (SC) )
10 Further, in both sections, mens rea i.e. intention to defraud or the
dishonest intention must be present from the very beginning or inception
without which either of these sections cannot be invoked.
11 In my view, the plain reading of the First Information Report fails
to spell out any of the aforesaid ingredients noted above. I may only say
with a view to clear a serious misconception of law in the mind of the
police as well as the courts below that if it is a case of the complainant
that offence of criminal breach of trust as defined under Section 405 of
IPC, punishable under Section 406 of IPC, is committed by the accused,
then in the same breath it could not be said that the accused has also
committed the offence of cheating as defined and explained in Section
415 of the IPC, punishable under Section 420 of the IPC.
12 Every act of breach of trust may not be resulted in a penal offence
of criminal breach of trust unless there is evidence of manipulating act of
fraudulent misappropriation. An act of breach of trust involves a civil
wrong in respect of which the person may seek his remedy for damages
in civil courts but any breach of trust with a mens rea gives rise to a
criminal prosecution as well. It has been held in Hart Prasad Chamaria
v. B.K. Surekha and others, reported in 1973(2) SCC 823 as under :
We have heard Mr. Maheshwarit on behalf of the appellant and are of the
opinion that no case has been made out against the respondents under
Section 420 Indian Penal Code. For the purpose of the present appeal, we
would assume that the various allegations of fact which have been made in
the complaint by the appellant are correct. Even after making that
allowance, we find that the complaint does riot disclose the commission of
any offence on the part of the respondents under Section 420 Indian Penal
Code. There is nothing in the complaint to show that the respondents had
dishonest or fraudulent intention at the time the appellant parted with Rs.
35.000/ There is also nothing to indicate that the respondents induced
the appellant to pay them Rs. 35.000/ by deceiving him. It is further not
the case of the appellant that a representation was made, the respondents
knew the same to be false. The fact that the respondents subsequently did
not abide by their commitment that they would show the appellant to be
the proprietor of Drang Transport Corporation and would also render
accounts to him in the month of December might create civil liability on
the respondents for the offence of cheating.
13 To put it in other words, the case of cheating the dishonest
intention starts with the very inception of the transaction. But in the case
of criminal breach of trust, the person who comes into possession of the
movable property receives it legally, but illegally retains it or converts it
to his own use against the terms of the contract. Then the question is, in
a case like this, whether the retention is with dishonest intention or not.
Whether the retention involves criminal breach of trust or only a civil
liability would depend upon the facts of each case.
14 The distinction between mere breach of contract and the offence
of criminal breach of trust and cheating are fine one. In case of cheating,
it depends upon the intention of the accused at the time of inducement,
which may be judged by a subsequent conduct but for this the
subsequent conduct is not the sole test but mere breach of contract
which cannot give rise to a criminal prosecution for cheating unless
fraudulent or dishonest intention is shown right from the beginning of
the transaction i.e. the time when the offence is said to have been
committed. Therefore, it is his intention, which is the gist of the offence.
Whereas, for the criminal breach of trust, the property must have been
entrusted to the accused or he must have dominion over it. The property
in respect of which the offence after breach of trust has been committed
must be either the property of some person other than the accused or the
beneficial interest in or ownership of it must be of some other person.
The accused must hold that property on trust of such other person. But
the offence, i.e. the offence of breach of trust and cheating involve
dishonest intention but they are mutually exclusive and different in basic
concept. There is a distinction between criminal breach of trust and
cheating. For cheating, criminal intention is necessary at the time of
entrustment. In criminal breach of trust, mere proof of entrustment is
sufficient. Thus, in case of criminal breach of trust, the offender is
lawfully entrusted with the property and he dishonestly misappropriated
the same. Whereas, in case of cheating, the offender practices fraudulent
or dishonest to induce with another person to deliver the property. In
such situation, both the offences cannot coexist simultaneously.
15 I may quote with profit a decision of the Supreme Court in the
case of Nageshwar Prasad Singh alias Sinha v. Narayan Singh, AIR
1999 SC 1480. In the said case, the allegation of the prosecution was
that an agreement was signed between the complainant respondent and
the appellant whereby some land was agreed to be sold by the appellant
to the complainants on a consideration, and allegedly a part thereof was
paid as earnest money, the balance being payable in the manner
indicated in the deed. The most important term in the deed was that
possession of the plot would stand transferred to the complainants and
possession in fact was delivered to the complainants over which they
made certain constructions. The complaint was laid on the basis that the
appellant had cheated the complainants of the sum of money they had
paid as earnest money as his subsequent conduct reflected that he was
not willing to complete the bargain for which the complainants had to
file a suit for specific performance which was pending in the civil court.
Held, that latter part of illustration (g) to Section 415, I.P.C. illustrates
that at the time when agreement for sell was executed, it could have, in
no event, been termed dishonestly so as to hold that the complainants
were cheated of the earnest money, which they passed to the appellant
as part consideration and possession of the total amount involved in the
bargain was passed over to the complainant/respondent and which
remained in their possession. Now it is left to imagine who would be
interested for dealing the matter for completing the bargain when
admittedly the complainants have not performed their part in making
full payment. The matter was, therefore, before the civil court in this
respect. The liability, if any, arising out by breaching thereof was civil in
nature and not criminal. Accordingly, the appeal was allowed and
complaint proceedings were quashed.
16 It was further held by the Supreme Court in the case of Hridaya
Ranjan Prasad Verma v. State of Bihar, AIR 2000 SC 2341 at Pp.
234546 of para 16) as below :
"15. In determining the question it has to be kept in mind that the
distinction between, mere breach of contract and the offence of cheating is
a fine one. It depends upon the intention of the accused at the time of
inducement which may be judged by his subsequent conduct but for this
subsequent conduct is not the sole test. Mere breach of contract cannot give
rise to criminal prosecution for cheating unless fraudulent or dishonest
intention is shown right at the beginning of the transaction, that is the
time when the offence is said to have been committed. Therefore, it is the
intention, which is the gist of the offence. To hold a person guilty of
cheating it is necessary to show that he had fraudulent or dishonest
intention at the time of making the promise. From his mere failure to keep
up promise subsequently such a culpable intention right at the beginning,
that is, when he made the promise cannot be presumed."
17 In All Cargo Movers (I) Pvt. Ltd. & others v. Dhanesh Badarmal
Jain & another, JT 2007 (12) SC 345, the Apex Court quashed a
criminal proceeding on the premise that the allegations contained in
complaint were wholly inconsistent with the pleadings in a collateral
civil proceeding. It held as follows :
"17. We are of the opinion that the allegations made in the complaint
petition, even if given face value and taken to be correct in its entirety, do
not disclose an offence. For the said purpose, This Court may not only take
into consideration the admitted facts but it is also permissible to look into
the pleadings of the plaintiffrespondent No.1 in the suit. No allegation
whatsoever was made against the appellants herein in the notice. What
was contended was negligence and/or breach of contract on the part of the
carriers and their agent. Breach of contract simplicitor does not constitute
an offence. For the said purpose, allegations in the complaint petition must
disclose the necessary ingredients therefor. 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."
18 In K.L.E. Society & others v. Siddalingesh, (2008) 4 SCC 541, on
a similar issue, the Supreme Court quashed a criminal proceeding
labeling it to be an abuse of process of Court as the allegations contained
in the complaint ran contrary to the averments made in the petition filed
under the Industrial Disputes Act. The Apex Court held as follows :
"7. One thing is clear on reading of High Court's reasoning that the High
Court came to the conclusion that deductions were made without any
rhyme and reason and without any basis. That was not the case of the
complainant. On the other hand, it tried to make out a case that the
deduction was made with an object. That obviously, was the foundation to
substantiate claim of entrustment. On a close reading of the complaint it
is clear that the ingredients of Sections 403, 405 and 415 do not exist.
The statement made in the complaint runs contrary to the averments
made in the petition in terms of Section 33(C) (2)."
19 In State of Orissa v. Debendra Nath Padhi, (2005) SCC (Cri.)
415, the Supreme Court held that the High Court could take into
account materials of "unimpeachable character of sterling quality" while
exercising its inherent powers to quash a criminal proceeding and
observed as follows :
"29. Regarding the argument of accused having to face the trial despite
being in a position to produce material of unimpeachable character of
sterling quality, the width of the powers of the High Court under Section
482 of the Code and Article 226 of Constitution is unlimited whereunder
in the interests of justice the High Court can make such orders as may be
necessary to prevent abuse of the process of any Court or otherwise to
secure the ends of justice within the parameters laid down in Bhajan Lals
case.
20 In Vijaya Rao v. State of Rajasthan & another (2005) SCC (Cri.)
1600, the Supreme Court held that merely using expressions like
"fraudulent representation" and "malafide intention" does not give rise to
an inference that the complaint discloses the ingredients of the offence
of cheating.
21 In Hridaya Ranjan Prasad Verma & others v. State of Bihar &
another (2000) SCC (Cri.) 786, the Supreme Court succinctly laid down
the distinction between breach of contract in one hand and the offence
of cheating in the other.
"15. In determining the question it has to be kept in mind that the
distinction between mere breach of contract and the offence of
cheating is a fine one. It depends upon the intention of the accused at
the time to inducement which may be judged by his subsequent
conduct but for this subsequent conduct is not the sole test. Mere
breach of contract cannot give rise to criminal prosecution for
cheating unless fraudulent or dishonest intention is shown right at the
beginning of the transaction, that is the time when the offence is said
to have been committed. Therefore it is the intention which is the gist
of the offence. To hold a person guilty of cheating it is necessary to
show that he had fraudulent or dishonest intention at the time of
making the promise. From his mere failure to keep up promise
subsequently such a culpable intention right at the beginning, that is,
when he made the promise cannot be presumed."
22 In Anil Kumar Bose v. State of Bihar, (1974) SCC (Cri.) 652, the
Supreme Court held that mere failure to perform a duty or observe rules
of procedure may be an administrative lapse or any error of judgement
but cannot be equated with dishonest intention or cheating.
23 Criticizing the institution of malicious and frivolous criminal
proceeding against individuals, the Supreme Court in PEPSI Foods Ltd.
& another v. Special Judicial Magistrate & Ors., (1998) SCC (Cri.)
1400, held as follows :
"28. Summoning of an accused in a criminal case is a serious matter.
Criminal law cannot be set into motion as a matter of course. it is not that
the complainant has to bring only two witnesses to support his allegations
in the complaint to have the criminal law set into motion. The order of the
magistrate summoning the accused must reflect that he has applied his
mind to the facts of the case and the law applicable thereto. He has to
examine the nature of allegations made in the complaint and the evidence
both oral and documentary in support thereof and would that be sufficient
for the complainant to succeed in bringing charge home to the accused. It
is not that the Magistrate is a silent spectator at the time of recording of
preliminary evidence before summoning of the accused. Magistrate has to
carefully scrutinise the evidence brought on record and may even himself
put questions to the complainant and his witnesses to elicit answers to find
out the truthfulness of the allegations or otherwise and then examine if
any offence is prima facie committed by all or any of the accused."
24 In B.Suresh Yadav v. Sharifa Bee & another, JT (2007) 12 SC
341, the Supreme Court again highlighted the distinction between a
mere breach of contract and the offence of cheating.
25 In Inder Mohan Goswami & another v. State of Uttaranchal &
others, (2007)12 SCC 1, the Supreme Court analysed inherent powers
of the High Court under Section 482 as follows :
"23. This court in a number of cases has laid down the scope and ambit of
courts' powers under section 482 Cr.P.C. Every High Court has inherent
power to act ex debito justitiae to do real and substantial justice, for the
administration of which alone it exists, or to prevent abuse of the process of
the court. Inherent power under section 482 Cr.P.C. can be exercised:
(i) to give effect to an order under the Code;
(ii) to prevent abuse of the process of court, and
(iii) to otherwise secure the ends of justice.
24. Inherent powers under section 482 Cr.P.C. though wide have to be
exercised sparingly, carefully and with great caution and only when such
exercise is justified by the tests specifically laid down in this section itself.
Authority of the court exists for the advancement of justice. If any abuse of
the process leading to injustice is brought to the notice of the court, then
the Court would be justified in preventing injustice by invoking inherent
powers in absence of specific provisions in the Statute."
26 In view of the aforesaid discussion, this application is allowed. The
First Information Report lodged before the D.C.B. Police Station, Rajkot
bearing C.R. No.I5 of 2015 for the offence punishable under Sections
406, 420 and 120B read with 114 of the Indian Penal Code are hereby
ordered to be quashed.
27 It is needless to clarify that the civil proceedings between the
parties shall be decided on its own merits without being influenced by
any of the observations made by this Court in this judgment and order.
Having regard to the nature of dispute, the 12th Additional Senior Civil
Judge, Rajkot is directed to take up the Regular Civil Suit No.40 of 2014
along with the counter claim for hearing and dispose of the same within
a period of six months from the date of receipt of this order.
28 Rule is made absolute to the aforesaid extent. Direct service is
permitted.
(J.B.PARDIWALA, J.)
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