Appeal
Appeal against quash petition partly allowed to the extent of section 406 IPC but denied to quash section 420 IPC
2. This appeal impugns the judgment and order of the High Court at Madras dated 06.04.2023 in Crl. O.P. No. 847 of 2021 and Crl. M.P. No. 518 of 2021, whereby the prayer of the appellant to quash final report and consequential proceedings in C.C. No. 3569 of 2020 on the file of the Metropolitan Magistrate (CCB and CBCID, Metro Cases), Egmore, Chennai-600008, under Section 406 and 420 of the Indian Penal Code, 1860, was partly allowed to the extent of indictment under Section 406 IPC; however, the prayer to quash indictment under Section 420 IPC was declined.
Brief facts
Final report filed for cheques dishonoured and the allegation is that the accused had cheated the complainant with criminal breach of trust
3. In brief, the prosecution case, as could be evinced from the final report (i.e., police report) submitted under Section 173 of the Code of Criminal Procedure, 1973, is that the accused (the appellant herein) was producing a ‘movie’. In the course of its production, he ran short of funds. He, therefore, requested the de-facto complainant (i.e., the second-respondent herein) to lend him money on assurance that it would be returned by a share in profits to the extent of 30%. Later, further money was lent on promise of an additional 17% share in profits. Ultimately, two postdated cheques of Rs.24 lacs each were issued by the accused to the de facto complainant towards return of the principal amount which returned unpaid for insufficient funds in the account. Based on above, it was alleged that the accused had cheated the complainant and had also committed offence of criminal breach of trust.
Appellant is the accused and preferred quash
4. Aggrieved by the police report and the consequential proceedings, the appellant invoked the jurisdiction of the High Court under Section 482 of CrPC, inter alia, to quash the report and the consequential proceedings on the ground that a pure civil cause of action was given colour of a criminal offence.
Hon’ble High Court quashed section 406 IPC but not section 420 IPC
5. By the impugned order, the High Court quashed the indictment of an offence punishable under Section 406 IPC but declined to quash the proceedings qua the offence of cheating punishable under Section 420 IPC.
Analysis
9. We have accorded due consideration to the rival submissions and have perused the record.
Hon’ble High Court’s order of upholding cheating
10. The police report indicted the appellant for offences of criminal breach of trust and cheating punishable under Sections 406 and 420 IPC respectively. The High Court came to the conclusion, and rightly so, that no offence punishable under Section 406 of IPC is made out as there was no entrustment. Regarding the offence of cheating, the High Court concluded that prima facie it is made out. The reasoning of the High Court in support of its conclusions can be found in paragraph 6 of its judgment, which is extracted below:
“This Court on perusal of the impugned final report finds that the offence under Section 406 IPC is not made out. There is no entrustment made to the petitioner, in order to attract the offence of criminal breach of trust. However, this Court finds that there was an Agreement between the petitioner and the de-facto complainant on 30.12.2013. The Agreement shows that the petitioner promised 30% interest on the initial invested amount on Rs. 19,60,000/-. Thereafter, the de-facto complainant paid Rs. 27,00,000/- on 03.04.2014; and the petitioner had promised 47% profit on the invested amount. The petitioner had not made any payment to the defacto complainant/second-respondent as promised. While so, the de-facto complainant/second-respondent objected to the petitioner releasing the movie. The petitioner had given one more undertaking letter, wherein, he had promised to pay the principal sum in two instalments, profit on a subsequent date; and that if the project did not yield any profit, he would pay an interest on the said sum of Rs. 48,00,000/-. All the above facts, disclose that at every stage, the representation has been made to the de-facto complainant to induce him to part with money. The allegations prima facie disclose the offence under Section 420 IPC. In the facts of the instant case, the question whether it was only a breach of promise or cheating has to be adjudicated only during trial. Therefore, this Court is not inclined to quash the impugned final report in so far as the offence under Section 420 IPC. Hence, the impugned final report is quashed only in respect of offence under Section 406 IPC. However, the learned Metropolitan Magistrate may try the case on the basis of evidence adduced before him without being influenced by any of the observations made in this order. The learned Metropolitan Magistrate (CCB and CBCID, Metro Cases), Egmore, Chennai – 600 008 may conduct the trial as expeditiously as possible”.
11. The above extract makes it clear that the High Court was of the view that as the money was advanced on a promise of good returns and, subsequently, an undertaking was also given to return the principal amount if the project did not yield any profit, it could be taken that the complainant parted with his money on the inducement of the appellant and therefore, prima facie, an offence punishable under Section 420 IPC is made out.
Deception and non-disclosure of relevant information constitute cheating
12. In Iridium India Telecom Ltd. v. Motorola Inc. this Court laid down the ingredients of an offence of cheating as defined in Section 415 of IPC. It was observed that Section 415 of IPC has two parts. The first part makes it necessary that the deception by the accused of the person deceived, must be fraudulent or dishonest. Such deception must induce the person to either: (a) deliver property to any person; or (b) consent that any person shall retain any property. The second part also requires that the accused must by deception intentionally induce the person deceived either to do or omit to do anything which he would not do or omit, if he was not so deceived. Besides, such act or omission must cause or must be likely to cause damage or harm to that person in body, mind, reputation or property. Thus, deception is a necessary ingredient for the offence of cheating under both parts of this section. Besides, the complainant must allege/ prove that the inducement had been caused by the deception exercised by the accused. In other words, such deception must produce the inducement to part with or deliver property, which the complainant would not have parted with or delivered, but for the inducement resulting from such deception. The explanation to the section clarifies that non-disclosure of relevant information would also be treated as a misrepresentation of facts leading to deception.
It is necessary to show that the accused had fraudulent intention at the time of making promise
13. In order to constitute an offence of cheating the intention to deceive should be in existence 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. Mere failure to keep the promise subsequently cannot be the sole basis to presume that dishonest intention existed from the very beginning.
If the intention to cheat has developed later, the same cannot amount to cheating
14. In Vesa Holdings Private Limited and Another v. State of Kerala and others, this court held that every breach of contract would not give rise to an offence of cheating. 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, the same cannot amount to cheating. In other words, for the purpose of constituting an offence of cheating, the complaint 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 about failure on part of the accused to keep his promise, in absence of a dishonest intention at the time of making the initial promise, no offence under Section 420 of IPC is made out.
The Hon’ble High Court quash the offence of cheating if the dishonest intention is note existed at the time making of promise
15. Whether non-fulfilment of promise/ commitment by the accused is a reflection of his or her dishonest intention at the time of making the promise is ordinarily a matter of trial. However, in our view, where the transaction between the parties is such that fulfilment of the promise is not entirely in the control of the promisor, or there is an inherent risk in fulfilment of the promise, the High Court may, in exercise of its inherent powers under the Code, or under Article 226 of the Constitution, as the case may be, upon consideration of the attending circumstances, take a decision whether the dishonest intention existed or not at the time of making the promise. And, if it comes to the conclusion that the alleged conduct of the parties does not reflect a dishonest intention of the accused from the very beginning, it may quash the criminal complaint/ proceedings and relegate the aggrieved party to civil remedies.
In the present case certain money was advanced for movie making with the alleged promise of share in profits
16. In the present case, what the High Court overlooked is that money was advanced for movie making and initially the agreement was to share the profits. Importantly, when the first tranche of money was transferred by the de-facto complainant to the accused, the alleged promise was a share in profits. Second tranche of money was transferred when the project could not be completed for want of funds. It also appears from paragraph 2 of the impugned order that before the movie could be released, de facto complainant took objection to its release. However, when the appellant gave two post-dated cheques, the movie could be released.
After additional money was paid later post-dated cheques were issued to return the principal amount and the making of movie is not false hence no false promise
17. The aforesaid facts would indicate that the initial payment of money by the de-facto complainant to the appellant was for a movie project on promise of a share in profits. Additional money was paid later for its completion under a promise of an enhanced share in the profits. Thereafter, post-dated cheques were issued to return the principal amount because of an objection taken by the de facto complainant to the release of the movie. Since there is no denial about the completion of the movie and its ultimate release, what is clear is that the promise to make a movie was not false. Therefore, it cannot be said the appellant made a false promise that he would make a movie with the aid of funds received by him. Insofar as promise qua sharing of profits is concerned, there are no allegations that the movie earned profits. Therefore, from the allegations made in the complaint it cannot be said that there was any dishonest intention of the appellant in making the promise which remained unfulfilled. In our view, the High Court overlooked that movie making is a high risk business. No one can be sure whether a movie would earn profits or would be a flop. If one agrees to share profits in lieu of his investment in a movie, he takes the risk of a possible zero return. Thus, the nature of transaction between the parties was a crucial factor in determining whether the investor party should be allowed to bring in a criminal action or pursue civil remedies. Unfortunately, the High Court overlooked this vital aspect.
18. Insofar as dishonour of those two cheques are concerned, it is clear that those were post-dated cheques issued not as an inducement to obtain delivery of money from the de facto complainant but to discharge an existing obligation at a future date. Thus, in essence, those cheques were not by way inducement to lend money or invest money in the proposed movie. Therefore, dishonour of those cheques, though may give right to initiate proceeding under Section 138 of the Negotiable Instruments Act, 1881, would not ipso facto amount to an offence of cheating, inasmuch as for an offence of cheating dishonest intention must exist from the very beginning. Ordinarily, post-dated cheques are issued either by way of security to discharge an existing or future liability or to discharge the liability at some point of time in future. It is quite possible that at the time of issuance of a post-dated cheque, the drawer may have reason to believe that he would have sufficient balance in his account by the date of the cheque. Therefore, in our view, dishonour of a postdated cheque by itself is not sufficient to presume existence of a dishonest intention on part of its drawer.
Despite the borrowing of money if the appellant had not made the movie, then there is an existence of a dishonest intention
19. In the instant case, there is nothing to indicate that the appellant had a dishonest intention from the very beginning. Had it been a case where the appellant had not made the movie despite borrowing funds to make one, an inference about existence of a dishonest intention was permissible. However, here there is no allegation that movie was not made. Rather, it was made and released. The prosecution case itself is to the effect that further advance was taken to complete and release the movie. However, when complainant took objection to its release, the appellant issued post-dated cheques to repay the principal amount. Thus, those cheques were to discharge an existing liability and not by way of an inducement to take more money.
Technical discussions
20. Assuming that by issuance of those cheques, the de facto complainant was led to vacate his objection to movie’s release, even then an offence of cheating would not be made out for two reasons. First, those cheques were post-dated therefore, did not carry a representation of sufficient funds in the bank account at the time of its issuance. Second, initial agreement, as per the allegations, was to share profit on release of the movie. Thus, in absence of allegations that movie made profits, in our view, the complaint and the supporting materials failed to indicate that the appellant harboured a dishonest intention from inception. In conclusion, the allegations only disclosed a civil cause of action and the High Court fell in error in not quashing the criminal proceedings.
Conclusion
Appeal allowed
21. For the foregoing reasons, the appeal is allowed. The impugned judgment and order of the High Court is set aside to the extent it declined quashing of the proceedings under Section 420 IPC. The impugned criminal proceedings under Section 420 IPC are also quashed. Pending applications if any stands disposed of.
Resources
Judgments cited and involved
Primary Proceedings
- V. Ganesan vs. State Rep. by the Sub-Inspector of Police & Anr. (Criminal Appeal No. 1470 of 2026): The current Supreme Court appeal.
- SLP Criminal No. 10478 of 2023: The Special Leave Petition from which this criminal appeal arose.
- Crl. O.P. No. 847 of 2021 and Crl. M.P. No. 518 of 2021: The High Court at Madras judgment and order dated April 6, 2023, which was impugned in this appeal.
- C.C. No. 3569 of 2020: The original proceedings on the file of the Metropolitan Magistrate (CCB and CBCID, Metro Cases), Egmore, Chennai.
Cited Precedents
- Iridium India Telecom Ltd. v. Motorola Inc., (2011) 1 SCC 74: Cited to outline the essential ingredients of the offence of cheating as defined under Section 415 of the IPC.
- Vesa Holdings Private Limited and Another v. State of Kerala and others, (2015) 8 SCC 293: Quoted to establish that every breach of contract does not amount to cheating and that fraudulent intention must exist at the time of the promise.
Acts and Sections
Indian Penal Code (IPC), 1860
- Section 406 (Punishment for criminal breach of trust): The appellant was originally indicted under this section. The High Court quashed this charge, concluding there was no “entrustment” of property.
- Section 415 (Cheating): This section defines cheating and its two primary components: fraudulent/dishonest inducement to deliver property, or intentional inducement to do/omit an act causing harm. The Court emphasized that “deception” is a necessary ingredient under both parts.
- Section 420 (Cheating and dishonestly inducing delivery of property): This was the primary charge contested in the appeal. The Supreme Court ultimately quashed the proceedings under this section, finding no evidence of dishonest intention at the time the promise was made.
Code of Criminal Procedure (CrPC), 1973
- Section 173: Relates to the “final report” or police report submitted to the Magistrate after an investigation.
- Section 482: The section invoked by the appellant to move the High Court to quash the criminal proceedings to prevent abuse of the process of law.
Other Acts
- Negotiable Instruments Act, 1881 (Section 138): The Court noted that while the dishonor of the two post-dated cheques might provide grounds for proceedings under Section 138 (dishonor of cheque for insufficiency of funds), it does not automatically constitute the criminal offence of cheating.
- Constitution of India (Article 226): Mentioned as a source of power (alongside the CrPC) for High Courts to quash criminal proceedings when a dispute is purely civil and lacks dishonest intention from the beginning.
Party
V. Ganesan vs. State Rep. by the Sub-Inspector of Police & Anr - Criminal Appeal No. 1470 of 2026 (arising out of SLP Criminal No. 10478 of 2023) - 2026 INSC 265 - March 19, 2026 – Hon’ble Mr. Justice Pamidighantam Sri Narasimha and Hon’ble Mr. Justice Manoj Misra.
