Tag Archives: Dishonest Intention

Breach of Trust – With Mens Rea

Though the contract is of a civil nature, if there is an element of cheating and fraud, it is always open for a party in a contract, to prosecute the other side for the offences alleged. In S.W. Palanitkar v. State of Bihar, (2002) 1 SCC 241 it was held that every breach of contract may not result in a penal offence, but in the very same judgments, it was further held that breach of trust with mens rea gives rise to a criminal prosecution as well. In a given case, whether there is any mens rea on the part of the accused or not is a matter which is required to be considered having regard to the facts and circumstances of the case and contents of the complaint etc.         In Anil Mahajan v. Bhor Industries Ltd., (2005) 10 SCC 228, it has been held that where there exists a fraudulent and dishonest intention at the time of the commission of the offence, law permits the victim to proceed against the wrongdoer for having committed an offence of criminal breach of trust or cheating. D R Lakshman v. State of Karnataka, (2019) 9 SCC 677.

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Mere Breach of a Promise – Does Not Constitute the Offence of Criminal Breach of Trust

The law clearly recognizes a difference between simple payment/investment of money and entrustment of money or property. A mere breach of a promise, agreement or contract does not, ipso facto, constitute the offence of the criminal breach of trust contained in Section 405 Indian Penal Code without there being a clear case of entrustment.         In the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea. The mere inability of a party to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, as it is this mens rea which is the crux of the offence. The legislature intended to criminalise only those breaches which are accompanied by fraudulent, dishonest or deceptive inducements, which resulted in involuntary and inefficient transfers, under Section 415 Indian Penal Code. Satishchandra Ratanlal Shah v. State of Gujarat, (2019) 9 SCC 148.

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Breach of Contract vis a vis Offence of Cheating

In Rashmi Jain v. State of U.P., 2014 (1) SCALE 415, the court said that mere failure of a person to keep up promise subsequently, a culpable intention right at the beginning, i.e., when he made the promises cannot be presumed. A distinction has to be kept in mind between mere breach of contract and the offence of cheating. It depends upon the intention of the accused at the time of inducement. The subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent, dishonest intention is shown at the beginning of the transaction.
In Vesa Holdings Pvt. Ltd. v. State of Kerala, 2015 CRLJ 2455 the court held 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. 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 IPC can be said to have been made out. Suneel Galgotia v. State of U.P., 2016 (92) ACC 40.

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Filed under Criminal Law, Offence of Cheating