From the decisions cited by the appellant, 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 Indian Penal Code can
be said to have been made out.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.2341 OF 2011
Vesa Holdings P. Ltd. & Anr. …
versus
State of Kerala & Ors. …
Citation;(2015) 8 SCC293
1. All these appeals are filed challenging the impugned
common order dated 28.1.2011 passed by the High Court
of Kerala at Ernakulam in Criminal Misc. Nos.220 to 222 of
2011 whereby the petition filed by the appellants under
Section 482 of Criminal Procedure Code seeking to quashPage 2
2
the FIR in Crime No.1461/2010 registered by
Changanasserry Police Station against the appellants
under Sections 417, 418, 420, 120B and 34 IPC was
dismissed.
2. The undisputed facts in brief are as follows: The
appellant in Criminal Appeal No.2341 of 2011 is a Limited
company of which appellants Venkataraman in Criminal
Appeal No.2344 of 2011 and appellant Mani Prasad in
Criminal Appeal No.2343 of 2011 were Directors and the
appellant Chandrasekhran in Criminal Appeal No.2342 of
2011 was the promoter. The Company availed a loan from
the Industrial Investment Bank of India and respondent
No.3 herein/complainant as the AGM of the said bank at
the relevant time, dealt with their loan application and
had sanctioned the same. The company defaulted in
repayment and wanted to settle the loan amount. The 3rd
respondent on retirement from the bank agreed to act as
a Consultant of the company in settling the loan and the
company issued a letter dated 6.8.2008 stating that the
settlement of the Company dues should be at Rs.8.25
crores and the acceptance letter from the IIBI should be
obtained on or before 30.10.2008 and it was also agreed
that Rs.75 lakhs would be given towards consultancy fees
for the above settlement, out of which Rs.5 lakhs was
given in advance to the 3rd respondent and the balance
amount to be paid on the completion of the assignment.
The Company also issued a cheque dated 6.8.2008 for a
sum of Rs.30 lakhs drawn on HDFC Bank Limited and the
same was agreed to be presented to the bank after
obtaining the acceptance letter from IIBI on or before
30.10.2008 or otherwise the cheque should be returned to
the company. The 3rd respondent made an endorsement in
writing in the said letter agreeing to the said terms and
signed it. The 3rd respondent filed a private complaint
dated 13.10.2010 against the company, its Directors and
Promoter in the Court of Judicial First Class Magistrate
Changanasserry and the same was forwarded to the
police for investigation under Section 156(3) of the Code
of Criminal Procedure and the Police registered a case in
Crime No.1461 of 2010 for the alleged offences under
Sections 417, 418, 420, 120B and 34 IPC. It is alleged in
the complaint that the loan transaction of the company
with IIBI was settled with the efforts of the
complainant/respondent No.3 herein but the company,
Directors and Promoter did not pay him the consultancy
fee as promised and they conspired together to deceive
the complainant and committed offences as alleged. The
company and its Directors filed petitions under Section
482 Criminal Procedure Code in Criminal M.C.No.220 to
222 of 2011 on the file of the High Court of Kerala at
Ernakulam contending that the understanding between
the company and the complainant was that the
settlement with the IIBI should be completed by
30.10.2008 and the complainant was not able to settle the
loan before the said date and hence he could not present
the cheque in the light of the condition imposed on him in
the letter dated 6.8.2008 and the settlement was
completed only on 5.1.2009 due to the efforts of the
company itself and not at the instance of the complainant
and at any rate it can only be breach of contract for which
no criminal liability can be fastened against the company
and its Directors. The High Court dismissed the petitions
by holding that the truth of the allegations have to be
ascertained by the investigating agency. Challenging the
said order the present appeals have been preferred.
3. The learned senior counsel Mr. A. Ramesh appearing
for the appellants contended that the contract under letter
dated 6.8.2008 was time bound and there was no element
of fraud or dishonest intention in it and nothing fructified
on the side of the complainant and due to continued
efforts of the appellants the loan was settled by making
payment of Rs.10.50 crores in total and the 3rd respondent
to enrich himself illegally has resorted to criminal
prosecution and it is liable to be quashed. It is his further
contention that the allegation in the complaint does not
disclose the commission of offence of cheating and only
discloses the civil dispute at best and the complaint is
nothing but an abuse of process to harass and extort
money from the appellants and the High Court
erroneously refused to quash the same. In support of
submissions he relied on the following decisions - Uma
Shankar Gopalika Vs. State of Bihar and Another
[(2005) 10 SCC 336]; All Cargo Movers (India)
Private Limited and others Vs. Dhanesh Badarmal
Jain and Another [(2007) 14 SCC 776]; and V.Y. Jose
and Another Vs. State of Gujarat and another
[(2009)3 SCC 78].
4. Per contra the learned counsel appearing for
respondent No.3 contended that there is no merit in the
contention of the appellants that the FIR discloses only a
civil case or that there is no allegation making out the
criminal offence of cheating. It is his further contention
that the facts in the present case may make out a civil
wrong as also a criminal offence and only because a civil
remedy may also be available to the complainant that by
itself cannot be a ground to quash the criminal
proceedings. In support of his submission he relied on the
decision of this Court in Vijayander Kumar and others
Vs. State of Rajasthan and another [(2014) 3 SCC
389]
5. We also heard the learned counsel for the State
namely respondent Nos. 1 and 2.
6. We have been taken through the complaint petition
in its entirety. The letter dated 6.8.2008 contains the
offer of the appellants as well as the acceptance made by
3rd respondent, and it reads thus :
“August 6, 2008
Mr. K.G.S. Nair
Keezhoot, Changanasserry
Kerala.
Dear Sir,
Sub: Settlement of IIBI dues at Rs.8.25 Crores.
Please refer to the discussion we had on the above
subject. As discussed we are agreeable to pay you
a lump sum amount of Rs. 75 lacs towards
consultancy fee for the above settlement, out of
this amount Rs.5 lacs will be paid upfront for out of
pocket expenses and the balance amount Rs.70
lacs will be paid on completion of the assignment.
We enclose herewith a cheque bearing number
47025 for Rs.30,00,000 (Thirty lacs only) dated
06.08.2008 drawn on HDFC Bank Ltd, which as
agreed, this cheque should be presented to bank
only after obtaining acceptance letter from IIBI on
or before 30th October 2008 or otherwise the
cheque should be returned to us. Please note that
company should be informed before presenting
the said cheque.
If it is agreeable you may return the duplicate of
this letter, duly signed in token of acceptance of
the offer.
Thanking you,
Yours faithfully,
For Vesa Holdings Private Limited
Director
I Accord my consent to this assignment.
(K.G.S. Nair)”
7. It is also not in dispute that the IIBI did not issue
any acceptance letter on or before 30.10.2008 with
regard to the settlement of disputes of the appellant
company. The 3rd respondent also did not present the
cheque dated 6.8.2008 issued by the appellant
company for encashing a sum of Rs.30 lakhs. Due to
the efforts of the appellant company IIBI finally agreed
and issued letter of acceptance dated 5.1.2009. One
year later, the 3rd respondent sent a letter dated
6.3.2010 to the appellant company demanding the
balance amount of Rs.70 lakhs towards the
consultancy fee. No allegation whatsoever was made
against the appellants herein in the said letter. It was
only mentioned in it that the consultation fee remains
unpaid and the company is delaying the payment on
one pretext or the other. In this context it is relevant to
point out that after the expiry of the validity period of
the cheque dated 6.8.2008, the 3rd respondent did not
ask for re-issue of the same.
8. From the decisions cited by the appellant, 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 Indian Penal Code can
be said to have been made out.
9. 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. Criminal proceedings should not
be encouraged when it is found to be malafide or
otherwise an abuse of the process of the court.
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
court and the High Court committed an error in refusing
to exercise the power under Section 482 Criminal
Procedure Code to quash the proceedings.
10. Accordingly all the appeals are allowed and the
impugned order dated 28.1.2011 rendered by the High
Court is set aside and the complaint and the
proceedings in Crime No. 1461/2010 of Changanasserry
Police Station against the appellants are hereby
quashed.
…….…………………...J.
(V. Gopala Gowda)
.…………………………J.
(C. Nagappan)
New Delhi;
March 17, 2015.
Print Page
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 Indian Penal Code can
be said to have been made out.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURISDICTION
CRIMINAL APPEAL NO.2341 OF 2011
Vesa Holdings P. Ltd. & Anr. …
versus
State of Kerala & Ors. …
Citation;(2015) 8 SCC293
1. All these appeals are filed challenging the impugned
common order dated 28.1.2011 passed by the High Court
of Kerala at Ernakulam in Criminal Misc. Nos.220 to 222 of
2011 whereby the petition filed by the appellants under
Section 482 of Criminal Procedure Code seeking to quashPage 2
2
the FIR in Crime No.1461/2010 registered by
Changanasserry Police Station against the appellants
under Sections 417, 418, 420, 120B and 34 IPC was
dismissed.
2. The undisputed facts in brief are as follows: The
appellant in Criminal Appeal No.2341 of 2011 is a Limited
company of which appellants Venkataraman in Criminal
Appeal No.2344 of 2011 and appellant Mani Prasad in
Criminal Appeal No.2343 of 2011 were Directors and the
appellant Chandrasekhran in Criminal Appeal No.2342 of
2011 was the promoter. The Company availed a loan from
the Industrial Investment Bank of India and respondent
No.3 herein/complainant as the AGM of the said bank at
the relevant time, dealt with their loan application and
had sanctioned the same. The company defaulted in
repayment and wanted to settle the loan amount. The 3rd
respondent on retirement from the bank agreed to act as
a Consultant of the company in settling the loan and the
company issued a letter dated 6.8.2008 stating that the
settlement of the Company dues should be at Rs.8.25
crores and the acceptance letter from the IIBI should be
obtained on or before 30.10.2008 and it was also agreed
that Rs.75 lakhs would be given towards consultancy fees
for the above settlement, out of which Rs.5 lakhs was
given in advance to the 3rd respondent and the balance
amount to be paid on the completion of the assignment.
The Company also issued a cheque dated 6.8.2008 for a
sum of Rs.30 lakhs drawn on HDFC Bank Limited and the
same was agreed to be presented to the bank after
obtaining the acceptance letter from IIBI on or before
30.10.2008 or otherwise the cheque should be returned to
the company. The 3rd respondent made an endorsement in
writing in the said letter agreeing to the said terms and
signed it. The 3rd respondent filed a private complaint
dated 13.10.2010 against the company, its Directors and
Promoter in the Court of Judicial First Class Magistrate
Changanasserry and the same was forwarded to the
police for investigation under Section 156(3) of the Code
of Criminal Procedure and the Police registered a case in
Crime No.1461 of 2010 for the alleged offences under
Sections 417, 418, 420, 120B and 34 IPC. It is alleged in
the complaint that the loan transaction of the company
with IIBI was settled with the efforts of the
complainant/respondent No.3 herein but the company,
Directors and Promoter did not pay him the consultancy
fee as promised and they conspired together to deceive
the complainant and committed offences as alleged. The
company and its Directors filed petitions under Section
482 Criminal Procedure Code in Criminal M.C.No.220 to
222 of 2011 on the file of the High Court of Kerala at
Ernakulam contending that the understanding between
the company and the complainant was that the
settlement with the IIBI should be completed by
30.10.2008 and the complainant was not able to settle the
loan before the said date and hence he could not present
the cheque in the light of the condition imposed on him in
the letter dated 6.8.2008 and the settlement was
completed only on 5.1.2009 due to the efforts of the
company itself and not at the instance of the complainant
and at any rate it can only be breach of contract for which
no criminal liability can be fastened against the company
and its Directors. The High Court dismissed the petitions
by holding that the truth of the allegations have to be
ascertained by the investigating agency. Challenging the
said order the present appeals have been preferred.
3. The learned senior counsel Mr. A. Ramesh appearing
for the appellants contended that the contract under letter
dated 6.8.2008 was time bound and there was no element
of fraud or dishonest intention in it and nothing fructified
on the side of the complainant and due to continued
efforts of the appellants the loan was settled by making
payment of Rs.10.50 crores in total and the 3rd respondent
to enrich himself illegally has resorted to criminal
prosecution and it is liable to be quashed. It is his further
contention that the allegation in the complaint does not
disclose the commission of offence of cheating and only
discloses the civil dispute at best and the complaint is
nothing but an abuse of process to harass and extort
money from the appellants and the High Court
erroneously refused to quash the same. In support of
submissions he relied on the following decisions - Uma
Shankar Gopalika Vs. State of Bihar and Another
[(2005) 10 SCC 336]; All Cargo Movers (India)
Private Limited and others Vs. Dhanesh Badarmal
Jain and Another [(2007) 14 SCC 776]; and V.Y. Jose
and Another Vs. State of Gujarat and another
[(2009)3 SCC 78].
4. Per contra the learned counsel appearing for
respondent No.3 contended that there is no merit in the
contention of the appellants that the FIR discloses only a
civil case or that there is no allegation making out the
criminal offence of cheating. It is his further contention
that the facts in the present case may make out a civil
wrong as also a criminal offence and only because a civil
remedy may also be available to the complainant that by
itself cannot be a ground to quash the criminal
proceedings. In support of his submission he relied on the
decision of this Court in Vijayander Kumar and others
Vs. State of Rajasthan and another [(2014) 3 SCC
389]
5. We also heard the learned counsel for the State
namely respondent Nos. 1 and 2.
6. We have been taken through the complaint petition
in its entirety. The letter dated 6.8.2008 contains the
offer of the appellants as well as the acceptance made by
3rd respondent, and it reads thus :
“August 6, 2008
Mr. K.G.S. Nair
Keezhoot, Changanasserry
Kerala.
Dear Sir,
Sub: Settlement of IIBI dues at Rs.8.25 Crores.
Please refer to the discussion we had on the above
subject. As discussed we are agreeable to pay you
a lump sum amount of Rs. 75 lacs towards
consultancy fee for the above settlement, out of
this amount Rs.5 lacs will be paid upfront for out of
pocket expenses and the balance amount Rs.70
lacs will be paid on completion of the assignment.
We enclose herewith a cheque bearing number
47025 for Rs.30,00,000 (Thirty lacs only) dated
06.08.2008 drawn on HDFC Bank Ltd, which as
agreed, this cheque should be presented to bank
only after obtaining acceptance letter from IIBI on
or before 30th October 2008 or otherwise the
cheque should be returned to us. Please note that
company should be informed before presenting
the said cheque.
If it is agreeable you may return the duplicate of
this letter, duly signed in token of acceptance of
the offer.
Thanking you,
Yours faithfully,
For Vesa Holdings Private Limited
Director
I Accord my consent to this assignment.
(K.G.S. Nair)”
7. It is also not in dispute that the IIBI did not issue
any acceptance letter on or before 30.10.2008 with
regard to the settlement of disputes of the appellant
company. The 3rd respondent also did not present the
cheque dated 6.8.2008 issued by the appellant
company for encashing a sum of Rs.30 lakhs. Due to
the efforts of the appellant company IIBI finally agreed
and issued letter of acceptance dated 5.1.2009. One
year later, the 3rd respondent sent a letter dated
6.3.2010 to the appellant company demanding the
balance amount of Rs.70 lakhs towards the
consultancy fee. No allegation whatsoever was made
against the appellants herein in the said letter. It was
only mentioned in it that the consultation fee remains
unpaid and the company is delaying the payment on
one pretext or the other. In this context it is relevant to
point out that after the expiry of the validity period of
the cheque dated 6.8.2008, the 3rd respondent did not
ask for re-issue of the same.
8. From the decisions cited by the appellant, 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 Indian Penal Code can
be said to have been made out.
9. 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. Criminal proceedings should not
be encouraged when it is found to be malafide or
otherwise an abuse of the process of the court.
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
court and the High Court committed an error in refusing
to exercise the power under Section 482 Criminal
Procedure Code to quash the proceedings.
10. Accordingly all the appeals are allowed and the
impugned order dated 28.1.2011 rendered by the High
Court is set aside and the complaint and the
proceedings in Crime No. 1461/2010 of Changanasserry
Police Station against the appellants are hereby
quashed.
…….…………………...J.
(V. Gopala Gowda)
.…………………………J.
(C. Nagappan)
New Delhi;
March 17, 2015.
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