"Courts & Police Yet Don't Understand": Supreme Court Explains Fine Distinction Between Criminal Breach Of Trust & Cheating

The Supreme Court has explained the fine distinction between Criminal Breach of Trust and Cheating, saying that the Courts and Police Officers still do not understand the difference between the two.

The Court explained thus in a criminal appeal filed by Delhi Race Club (1940) Ltd. against the order of the Allahabad High Court by which it rejected an application and declined to quash the summoning order by the Additional Chief Judicial Magistrate.

The two-Judge Bench comprising Justice J.B. Pardiwala and Justice Manoj Misra observed, “We may only say, with a view to clear a serious misconception of law in the mind of the police as well as the courts below, that if it is a case of the complainant that offence of criminal breach of trust as defined under Section 405 of IPC, punishable under Section 406 of IPC, is committed by the accused, then in the same breath it cannot be said that the accused has also committed the offence of cheating as defined and explained in Section 415 of the IPC, punishable under Section 420 of the IPC.”

The Bench added that every act of breach of trust may not result in a penal offence of criminal breach of trust unless there is evidence of manipulating act of fraudulent misappropriation. It further explained that an act of breach of trust involves a civil wrong in respect of which the person may seek his remedy for damages in civil courts but, any breach of trust with a mens rea, gives rise to a criminal prosecution as well.

Senior Advocate Suhail Dutt represented the appellants while AOR Rajat Singh represented the respondents.

In this case, the respondent (complainant) lodged a private complaint against the appellants for the offence punishable under Sections 406, 420, and 120B of the Indian Penal Code (IPC). It was said in the complaint that the appellants (Secretary and Honorary President of appellant company) used to purchase grains and oats from the complainant meant to be fed to the horses maintained by the appellant company. According to the complainant, an amount of Rs. 9,11,434/- was due and payable to him by the appellants towards the sale of horse grains and oats over a period of time.

It was alleged that as the appellants failed to make the payment, the complainant thought fit to file the complaint as according to him he was cheated by them. The Court took cognizance but postponed the issuance of process as it thought fit to initiate magisterial inquiry under Section 202 of the Criminal Procedure Code (CrPC). At the end of the magisterial inquiry, the Court issued process for the offence punishable under Section 406 of the IPC. The appellants preferred an application under Section 482 of the CrPC before the High Court, praying for quashing of the summoning order passed by the Magistrate. However, the High Court rejected their application and therefore, they approached the Apex Court.

The Supreme Court in view of the above facts noted, “It is by now well settled that at the stage of issuing process it is not the duty of the Court to find out as to whether the accused will be ultimately convicted or acquitted. The object of consideration of the merits of the case at this stage could only be to determine whether there are sufficient grounds for proceeding further or not. Mere existence of some grounds which would be material in deciding whether the accused should be convicted or acquitted does not generally indicate that the case must necessarily fail.”

The Court remarked that the criminal law cannot be set into motion as a matter of course and it is not that the complainant has to bring only two witnesses to support his allegations in the complaint to have the criminal law set into motion. It emphasised that the order of the Magistrate summoning the accused must reflect that he has applied his mind to the facts of the case and the law applicable thereto.

“There cannot be any doubt that once it is held that sine qua non for exercise of the power to issue summons is the subjective satisfaction “on the ground for proceeding further” while exercising the power to consider the legality of a summons issued by a Magistrate, certainly it is the duty of the Court to look into the question as to whether the learned Magistrate had applied his mind to form an opinion as to the existence of sufficient ground for proceeding further and in that regard to issue summons to face the trial for the offence concerned”, it said.

The Court further referred to the judgment in the case of S.W. Palanitkar & Ors. v. State of Bihar & Anr. reported in (2002) 1 SCC 241 in which the Supreme Court had expounded the difference in the ingredients required for constituting an offence of criminal breach of trust (Section 406 IPC) viz-a-viz the offence of cheating (Section 420).

“… in both the aforesaid sections, mens rea i.e. intention to defraud or the dishonest intention must be present, and in the case of cheating it must be there from the very beginning or inception. … . To put it in other words, the case of cheating and dishonest intention starts with the very inception of the transaction. But in the case of criminal breach of trust, a person who comes into possession of the movable property and receives it legally, but illegally retains it or converts it to his own use against the terms of the contract, then the question is, in a case like this, whether the retention is with dishonest intention or not, whether the retention involves criminal breach of trust or only a civil liability would depend upon the facts of each case”, it enunciated.

The Court observed that the distinction between mere breach of contract and the offence of criminal breach of trust and cheating is a fine one. It elucidated that in case of cheating, the intention of the accused at the time of inducement should be looked into which may be judged by a subsequent conduct, but for this, the subsequent conduct is not the sole test and mere breach of contract cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the transaction i.e. the time when the offence is said to have been committed.

“Therefore, it is this intention, which is the gist of the offence. Whereas, for the criminal breach of trust, the property must have been entrusted to the accused or he must have dominion over it. The property in respect of which the offence of breach of trust has been committed must be either the property of some person other than the accused or the beneficial interest in or ownership’ of it must be of some other person. The accused must hold that property on trust of such other person. Although the offence, i.e. the offence of breach of trust and cheating involve dishonest intention, yet they are mutually exclusive and different in basic concept”, it added.

Moreover, the Court explained that for cheating, criminal intention is necessary at the time of making a false or misleading representation i.e., since inception and in criminal breach of trust, mere proof of entrustment is sufficient. It said that thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriated the same, whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver any property and in such a situation, both the offences cannot co-exist simultaneously.

“At the most, the court of the Additional Chief Judicial Magistrate could have issued process for the offence punishable under Section 420 of the IPC i.e. cheating but in any circumstances no case of criminal breach of trust is made out”, it also said.

Before closing the case, the Court highlighted the casual approach of the Courts in cases like the present one. It noted, “The IPC remained in force for almost a period of 162 years until it was repealed and replaced by the Bharatiya Nyaya Sanhita (“BNS”) in December 2023 which came into effect on 1 st July 2024. It is indeed very sad to note that even after these many years, the courts have not been able to understand the fine distinction between criminal breach of trust and cheating.”

The Court emphasised that the Magistrate must carefully apply its mind to ascertain whether the allegations, as stated, genuinely constitute the specific offences. It said that when a case arises from a FIR, this responsibility is of the police to thoroughly ascertain whether the allegations levelled by the informant indeed falls under the category of cheating or criminal breach of trust.

“Unfortunately, it has become a common practice for the police officers to routinely and mechanically proceed to register an FIR for both the offences i.e. criminal breach of trust and cheating on a mere allegation of some dishonesty or fraud, without any proper application of mind. … It is high time that the police officers across the country are imparted proper training in law so as to understand the fine distinction between the offence of cheating viz-a-viz criminal breach of trust. Both offences are independent and distinct”, it added.

The Court concluded that the two offences cannot coexist simultaneously in the same set of facts as they are antithetical to each other and the two provisions of the IPC (now BNS, 2023) are not twins that they cannot survive without each other.

Accordingly, the Apex Court allowed the appeal and set aside the impugned order.

Cause Title- Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr. (Neutral Citation: 2024 INSC 626)

Appearance:

Appellants: Senior Advocate Suhail Dutt, AOR B. Vijayalakshmi Menon, Advocates Azhar Alam, and Sankalp Goswami.

Respondents: AOR Rajat Singh, Advocates Neeraj Kumar Sharma, and Sarthak Chandra.

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