Many a time, offence of cheating under Section 420 IPC is alleged to have been made out where there is a breach of contract or violation of the terms of an agreement leading to monetary loss. However, many such cases do not stand the test of law.
So, when can it be said that an offence of cheating is made out where there is a breach of contract?
Recently, in the case of ARCI v. Nimra Cerglass Technics (P) Ltd., (2016) 1 SCC 348, the Supreme Court explained the difference between a breach of contract and the cheating offence. It was held that:
“The 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 is 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. 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.”
Likewise, in the case of S.W. Palanitkar v. State of Bihar, (2002) 1 SCC 241, the Supreme Court had held that in order to constitute an offence of cheating, the intention to deceive should be in existence at the time when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise, to say that he committed an act of cheating. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating.”
Therefore, a mere breach of contract or a promise not kept (even if it leads to a monetary loss) may not always amount to an offence of cheating. It may, of course, give rise to a remedy of approaching a civil court with appropriate relief.
However, if there was a dishonest intention since the inception, i.e., at the very time when a promise is made and a transaction is entered into with the opposite party leading to parting with of property or money, then it may lead to the offence of cheating.
In the case of the case of Devender Kumar Singla v. Baldev Krishan Singla, (2005) 9 SCC 15 : AIR 2004 SC 3084, Supreme made the following observations with regard to the ingredients of the offence under Section 420 IPC and Section 415 IPC:
“Section 420 deals with certain specified classes of cheating. It deals with the cases whereby the deceived person is dishonestly induced to deliver any property to any person or to make, alter or destroy, the whole or any part of a valuable security or anything which is signed or sealed and which is capable of being converted into a valuable security. Section 415 defines “cheating”. The said provision requires: (i) deception of any person, (ii) whereby fraudulently or dishonestly inducing that person to deliver any property to any person or to consent that any person shall retain any property, or (iii) intentionally inducing that person 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. Deception of any person is common to the second and third requirements of the provision. The said requirements are alternative to each other and this is made significantly clear by use of disjunctive conjunction “or”. The definition of the offence of cheating embraces some cases in which no transfer of property is occasioned by the deception and some in which such a transfer occurs. Deception is the quintessence of the offence. The essential ingredients to attract Section 420 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) the mens rea of the accused at the time of making the inducement. The making of a false representation is one of the ingredients for the offence of cheating under Section 420. …”.
In this regard, in the above case of S.W. Palanitkar, it was held that in order to bring a case for the offence of cheating, it is not merely sufficient 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 accused and was made in order to deceive the complainant.
Thus, whether a breach of contract also amounts to the offence of cheating would depend upon intention of accused at the time of alleged inducement. If it is established that intention of accused was dishonest at the very time when he made promise and entered into transaction with complainant to part with his property or money, then liability is criminal and accused is guilty of offence of cheating. However, if all that is established is that a representation or promise made by accused was subsequently not kept, criminal liability cannot be foisted on accused and only right which complainant acquires in such a situation is remedy for breach of contract in civil court; and, thus, he can only file a civil suit.
