I had an agreement with some other party under which I was required to pay some amount to that party on fulfilment of certain conditions. Subsequently, I refused to pay that amount to the said party since in my view the necessary conditions under the said agreement had not been satisfied. However, the other party had a different opinion and felt that the conditions had been fulfilled and that I should have paid the amount mentioned in the agreement to him. He has now filed a criminal case of cheating (under Section 420 IPC) against me for non-payment of the said amount to him. In my view, even if there is a dispute between the two of us, this dispute is of a civil nature and the opposite party cannot file a criminal complaint of cheating against me. Please advise me.
Answer: I do not have the advantage of the detailed facts of your case, including the terms of the agreement, what conditions were required to be satisfied before payment of the agreed amount, and whether (and how) those conditions were satisfied or not satisfied. Therefore, it will not be possible for me to comment on the merits of the facts of your case. However, I’ll highlight the relevant legal principles governing the offence of cheating in the case of a dispute arising out of a contract or agreement.
Relevant part of Section 415 of Indian Penal Code (IPC) which defines “cheating” and Section 420 of IPC are reproduced below:
“415. Cheating.—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”.
Explanation.—A dishonest concealment of facts is a deception within the meaning of this section.
420. Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person deceived 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, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
It is now a well-established principle of law that every breach of contract or every dispute under a contract or agreement does not amount to the offence of cheating. Breach of contract would amount to cheating only in those cases where there was any deception played at the very inception. To establish the offence of cheating, the accused should be shown to have had fraudulent or dishonest intention at the time of making promise or representation. Subsequent events in this regard are not that important.
In the case of Uma Shankar Gopalika v. State of Bihar, (2005) 10 SCC 336, the Supreme Court held as under:
“It is well settled that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In the present case it has nowhere been stated that at the very inception there was any intention on behalf of the accused persons to cheat which is a condition precedent for an offence under Section 420 IPC.”
In the case of V.Y. Jose v. State of Gujarat, (2009) 3 SCC 78, the Supreme Court held that:
“14. An offence of cheating cannot be said to have been made out unless the following ingredients are satisfied:
(i) deception of a person either by making a false or misleading representation or by other action or omission;
(ii) fraudulently or dishonestly inducing any person to deliver any property; or to consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit.
For the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making initial promise being absent, no offence under Section 420 of the Penal Code can be said to have been made out.”
In the above case, the Supreme Court further held as under:
“21. There exists a distinction between pure contractual dispute of a civil nature and an offence of cheating. Although breach of contract per se would not come in the way of initiation of a criminal proceeding, there cannot be any doubt whatsoever that in the absence of the averments made in the complaint petition wherefrom the ingredients of an offence can be found out, the court should not hesitate to exercise its jurisdiction under Section 482 of the Code of Criminal Procedure.
22. We may reiterate that one of the ingredients of cheating as defined in Section 415 of the Penal Code is existence of an (sic fraudulent or dishonest) intention of making initial promise or existence thereof from the very beginning of formation of contract.”
Likewise, in the recent case of Vesa Holdings (P) Ltd. v. State of Kerala, (2015) 8 SCC 293, the Supreme Court has held as under:
“12. …the settled proposition of law is that every breach of contract would not give rise to an offence of cheating and only in those cases breach of contract would amount to cheating where there was any deception played at the very inception. If the intention to cheat has developed later on, the same cannot amount to cheating. In other words for the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making initial promise being absent, no offence under Section 420 of the Penal Code, 1860 can be said to have been made out.
13. It is true that a given set of facts may make out a civil wrong as also a criminal offence and only because a civil remedy may be available to the complainant that itself cannot be a ground to quash a criminal proceeding. The real test is whether the allegations in the complaint disclose the criminal offence of cheating or not. In the present case there is nothing to show that at the very inception there was any intention on behalf of the accused persons to cheat which is a condition precedent for an offence under Section 420 IPC. In our view the complaint does not disclose any criminal offence at all. The criminal proceedings should not be encouraged when it is found to be mala fide or otherwise an abuse of the process of the court. The superior courts while exercising this power should also strive to serve the ends of justice. In our opinion, in view of these facts allowing the police investigation to continue would amount to an abuse of the process of the court and the High Court committed an error in refusing to exercise the power under Section 482 of the Criminal Procedure Code to quash the proceedings.”
In view of the legal position made clear in the above judgments of the Supreme Court, it should be obvious that merely because the agreed amount was not paid by you to the opposite party, it would not make it an offence of cheating under Section 420 IPC. What is required more is that you had a fraudulent or dishonest intention at the beginning itself to deceive or to not to pay. Then only an offence of cheating can be said to have been made out. In the absence of detailed facts, I cannot comment more. You have to apply these legal principles to the facts of your case to ascertain whether or not the offence of cheating is made out. Of course, there may still be a civil dispute in the matter even if a criminal offence is not made out.
