Mere Failure to Return Security Deposit will not Attract Offence of Cheating [CASE LAW]

The Indian Penal Code, 1860 – Section 420 - Mere failure to return the security deposit will not attract the offence of cheating.
If the complaint is read as a whole, the grievance of the complainant appears to be that the petitioner did not repay the amount of Rs.10,00,000/- inspite of the fact that he stopped supplying him the soft drink. This dispute between the petitioner and the complainant is essentially of a civil nature. Even if it is accepted that the petitioner was liable to repay the amount and that he did not repay the amount to the complainant, mere failure on his part in that regard will not attract the offence of cheating. Whether the entire amount of Rs.10,00,000/- is due from the petitioner to the complainant is a matter to be decided by the civil court. In these circumstances, the averments in the complaint, read as a whole, will not attract the offence of cheating which is punishable under Section 420 I.P.C. [Para 13]


The Indian Penal Code, 1860 – Sections 415 and 420 - Distinction between mere breach of contract and the offence of cheating. 
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. 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 the promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.
Criminal Law - If a civil remedy is available, Court should not hesitate to quash criminal proceedings to prevent abuse of process of court.
Whether a complaint discloses a criminal offence or not depends upon the nature of facts alleged therein. Whether essential ingredients of criminal offence are present or not has to be judged from the facts alleged. A complaint disclosing a civil transaction may also have a criminal texture. What is to be considered is whether a dispute which is essentially of a civil nature is given a cloak of criminal offence. In such a situation, if a civil remedy is available, this Court should not hesitate to quash criminal proceedings to prevent abuse of process of court. [Para 15]
Referred to : Paramjeet Batra v. State of Uttarakhand, (2013) 11 SCC 673 
The Code of Criminal Procedure, 1973 - Section 482 - Where the ingredients required to constitute the offences alleged are not made out from a bare reading of the complaint, the continuation of the criminal proceedings will constitute an abuse of the process of the court. 
The jurisdiction under Section 482 of the Code has to be exercised with care. In the exercise of its jurisdiction, this Court can examine whether a matter which is essentially of a civil nature has been given a cloak of a criminal offence. Where the ingredients required to constitute the offences alleged are not made out from a bare reading of the complaint, the continuation of the criminal proceedings will constitute an abuse of the process of the court. True, while exercising its jurisdiction under Section 482 of the Code, this Court has to be cautious. This power is to be used sparingly and only for the purpose of preventing abuse of the process of any court or otherwise to secure ends of justice. [Para 14] 
Facts of the Case
The basic grievance of the complainant is that the petitioner has not repaid the amount of Rs.10,00,000/- given as security deposit. Even as per the allegations in the complaint, the amount of Rs.10,00,000/- was given by the complainant to the petitioner as security deposit for appointing the complainant as the distributor of the soft drink in two districts. There is no specific allegation in the complaint that the petitioner did not appoint the complainant as the distributor of the soft drink in the two districts after receiving the amount from him. There is also no allegation in the complaint that the petitioner did not supply at all soft drink to the complainant. The allegation in the complaint is only to the effect that the petitioner did not supply the soft drink as per the order given by the complainant. Even if it is accepted that the complainant had given an amount of Rs.10,00,000/- to the petitioner, whether repayment of the aforesaid amount by the petitioner to the complainant had become due is a matter which could be decided by the civil court on interpretation of the terms in the agreement between the two parties. The dispute between the petitioner and the second respondent/complainant is essentially of a civil nature and that the complainant has given it a cloak of criminal offence. The facts alleged in the complaint, if considered as a whole, do not attract the offence punishable under Section 420 I.P.C. Continuation of the proceedings against the petitioner would be an abuse of process of court.


IN THE HIGH COURT OF KERALA AT ERNAKULAM
R. NARAYANA PISHARADI, J.
Crl.M.C.No.3479 of 2015
Dated this the 27th day of May, 2019
AGAINST THE ORDER/JUDGMENT IN CC 2525/2012 of JUDICIAL MAGISTRATE OF FIRST CLASS ,TIRUR CRIME NO. 77/2012 OF Tirur Police Station , Malappuram
P. Subash Chandran v. State of Kerala
PETITIONER/ACCUSED: BY ADV. SRI.BIJU BALAKRISHNAN
RESPONDENTS/STATE AND DE FACTO COMPLAINANT:  BY ADV. SMT.N.DEEPA SRI.E.C.BINEESH PUBLIC PROSECUTOR
O R D E R
The petitioner is the accused in the case C.C.No.2525/2012 pending before the Court of the Judicial First Class Magistrate-I, Tirur. The petition is filed by him to quash the proceedings in the case, by invoking the power of this Court under Section 482 of the Code of Criminal Procedure, 1973 (hereinafter referred to as 'the Code').


2. The prosecution against the petitioner was initiated on the basis of the complaint filed by the second respondent before the Court of the Judicial First Class Magistrate-I, Tirur which was forwarded to the police under Section 156(3) of the Code for investigation. On the basis of the aforesaid complaint, Crime No.77/2012 (Annexure-A2) of Tirur police station was registered against the petitioner for the offence punishable under Section 420 of the Indian Penal Code. After completing the investigation, the police filed Annexure-A3 final report (charge sheet) against the petitioner for the aforesaid offence. The learned Magistrate has taken cognizance of the offence and numbered the case as C.C.No.2525/2012.
3. The material allegations in the complaint (Annexure-A1) filed by the second respondent (hereinafter referred to as 'the complainant') against the petitioner are as follows: The petitioner made the complainant to believe that he is the distributor of the soft drink by name “Pep Up Black Label” and that the complainant would be appointed as the distributor of the aforesaid drink in Malappuram District if he gave Rs.5,00,000/- as security deposit. On the basis of this representation made by the petitioner, the complainant gave him an amount of Rs.5,00,000/- as security deposit. The petitioner also told the complainant that distributors for the drink were not available in Kozhikode District and he demanded an amount of Rs.5,00,000/- as security deposit for appointing the complainant as the distributor of the drink in Kozhikode District. Thus, the complainant gave a total amount of Rs.10,00,000/- as security deposit for appointing him as the distributor of the drink in Malappuram and Kozhikode Districts. On many occasions, the petitioner did not use to supply soft drink as per the order given by the complainant. The complainant had told the petitioner that if he did not supply the drink as per the order given, it could not be sold by him. Even then, the petitioner did not send the complainant the stock required for supply in the aforesaid two districts. Then, the complainant demanded the petitioner to return the amount of Rs.10,00,000/- given as security deposit. However, the petitioner did not repay the amount of Rs.10,00,000/- to the complainant and he has cheated the complainant.
4. Heard learned counsel for the petitioner and the learned Public Prosecutor and also the learned counsel for the second respondent/complainant.
5. Learned counsel for the petitioner contended that the allegations in the complaint are not true and that the petitioner is not liable to pay any amount to the complainant and that the dispute between him and the complainant is essentially of a civil nature. Learned counsel for the petitioner also contended that the real intention of the complainant is to extract money from him with the help of the police.


6. On the other hand, learned counsel for the second respondent/complainant contended that whether the petitioner had any dishonest intention or not is a matter to be decided after adducing evidence in the case and the proceedings against the petitioner cannot be quashed at the threshold.
7. The allegation against the petitioner is that he has committed the offence punishable under Section 420 I.P.C. It would thus be necessary to examine the ingredients of the above offence and whether the allegations made in the complaint, read on their face, attract that offence.
8. Section 415 of the Indian Penal Code reads as follows:
"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".
9. The ingredients to constitute an offence of cheating are as follows: (i) there should be fraudulent or dishonest inducement of a person by deceiving him; (ii) (a) the person so induced should be intentionally induced to deliver any property to any person or to consent that any person shall retain any property, or (b) the person so induced should be intentionally induced to do or to omit to do anything which he would not do or omit if he were not so deceived; and (iii) in cases covered by (ii) (b) above, the act or omission should be one which caused or is likely to cause damage or harm to the person induced in body, mind, reputation or property. A fraudulent or dishonest inducement is an essential ingredient of the offence of cheating.


10. Section 420 of the Indian Penal Code reads as follows:
"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."
11. The ingredients to constitute an offence under Section 420 I.P.C are the following: (i) a person must commit the offence of cheating under Section 415 I.P.C; and (ii) the person cheated must be dishonestly induced to (a) deliver property to any person; or (b) make, alter or destroy valuable security or anything signed or sealed and capable of being converted into valuable security. Cheating is an essential ingredient for an act to constitute the offence under Section 420 I.P.C.
12. It has to be kept in mind that there is distinction between mere breach of contract and the offence of cheating. 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. 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 the promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.
13. The basic grievance of the complainant is that the petitioner has not repaid the amount of Rs.10,00,000/- given as security deposit. Even as per the allegations in the complaint, the amount of Rs.10,00,000/- was given by the complainant to the petitioner as security deposit for appointing the complainant as the distributor of the soft drink in two districts. There is no specific allegation in the complaint that the petitioner did not appoint the complainant as the distributor of the soft drink in the two districts after receiving the amount from him. There is also no allegation in the complaint that the petitioner did not supply at all soft drink to the complainant. The allegation in the complaint is only to the effect that the petitioner did not supply the soft drink as per the order given by the complainant. Even if it is accepted that the complainant had given an amount of Rs.10,00,000/- to the petitioner, whether repayment of the aforesaid amount by the petitioner to the complainant had become due is a matter which could be decided by the civil court on interpretation of the terms in the agreement between the two parties. If the complaint is read as a whole, the grievance of the complainant appears to be that the petitioner did not repay the amount of Rs.10,00,000/- inspite of the fact that he stopped supplying him the soft drink. This dispute between the petitioner and the complainant is essentially of a civil nature. Even if it is accepted that the petitioner was liable to repay the amount and that he did not repay the amount to the complainant, mere failure on his part in that regard will not attract the offence of cheating. Whether the entire amount of Rs.10,00,000/- is due from the petitioner to the complainant is a matter to be decided by the civil court. In these circumstances, I am of the considered view that the averments in the complaint, read as a whole, will not attract the offence of cheating which is punishable under Section 420 I.P.C.


14. The jurisdiction under Section 482 of the Code has to be exercised with care. In the exercise of its jurisdiction, this Court can examine whether a matter which is essentially of a civil nature has been given a cloak of a criminal offence. Where the ingredients required to constitute the offences alleged are not made out from a bare reading of the complaint, the continuation of the criminal proceedings will constitute an abuse of the process of the court. True, while exercising its jurisdiction under Section 482 of the Code, this Court has to be cautious. This power is to be used sparingly and only for the purpose of preventing abuse of the process of any court or otherwise to secure ends of justice.
15. Whether a complaint discloses a criminal offence or not depends upon the nature of facts alleged therein. Whether essential ingredients of criminal offence are present or not has to be judged from the facts alleged. A complaint disclosing a civil transaction may also have a criminal texture. What is to be considered is whether a dispute which is essentially of a civil nature is given a cloak of criminal offence. In such a situation, if a civil remedy is available, this Court should not hesitate to quash criminal proceedings to prevent abuse of process of court (See Paramjeet Batra v. State of Uttarakhand: (2013) 11 SCC 673).
16. In the instant case, this Court is satisfied that the dispute between the petitioner and the second respondent/complainant is essentially of a civil nature and that the complainant has given it a cloak of criminal offence. The facts alleged in the complaint, if considered as a whole, do not attract the offence punishable under Section 420 I.P.C. Continuation of the proceedings against the petitioner would be an abuse of process of court.
17. Consequently, the petition is allowed. The entire proceedings against the petitioner in the case C.C.No.2525/2012 pending before the Court of the Judicial First Class Magistrate-I, Tirur, which are based on Annexure- A3 final report, are hereby quashed.

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