Mere Inability To Return Loan Amount Cannot Lead To Criminal Prosecution For Cheating: Rajasthan HC
The Rajasthan High Court has clarified that the mere inability 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.
The Court quashed the impugned FIR and the criminal proceedings against the petitioner under Sections 420 and 406 of the IPC while observing that in a case of advancement of money as a loan for consideration of interest, there was no question of entrustment and therefore, there would be no question of criminal breach of trust.
A Single Bench of Justice Rajendra Prakash Soni held, “It is well settled that before there can be criminal breach of trust, there must be entrustment. The law clearly recognizes a difference between simple advancement/investment of money and entrustment of money. 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.”
Advocate Sheetal Kumbhat appeared for the petitioner, while Senior Advocate Dhirendra Singh represented the respondents.
A petition was filed under Section 482 of the Cr.P.C. to quash the FIR and the criminal proceedings against the petitioner accused of alleged cheating and criminal breach of trust.
The petitioner argued that the complaint was purely civil in nature and nstead of filing a money recovery civil suit, the complainant lodged the FIR under the cloak of a criminal offence in order to harass the petitioner.
The High Court noted that the sole foundation of the FIR was for the recovery of money advanced as a loan. The Court further noted that the FIR came to be registered at the instance of the complainant on account of the alleged non-payment of a loan amount taken by the petitioner.
The Bench explained, “In a case of advancement of money as a loan for consideration of interest, there is no question of entrustment and therefore, there would be no question of criminal breach of trust. Consequently, no offence punishable under Section 406 IPC can be said to have been committed by the petitioner even if all the material placed on record is taken at face value.”
In the context of contracts, the Court explained that the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea.
“The mere inability of the petitioner 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 Bench explained.
“The legislature intended to criminalise only those breaches which are accompanied by fraudulent, dishonest or deceptive inducements, which resulted in involuntary and in-efficient transfers, under Section 415 of Indian Penal Code,” the Court remarked.
Consequently, the Court observed that the dispute was purely of civil nature and initiation of criminal proceedings was a “clear abuse of the process of law.”
Accordingly, the High Court allowed the petition.
Cause Title: Madanlal Pareek v. State of Rajasthan & Anr. (Neutral Citation: 2024:RJ-JD:38144)
Appearance:
Petitioner: Advocate Sheetal Kumbhat
Respondents: Senior Advocate Dhirendra Singh; Advocate Priyanka Borana; PP Shrawan Singh
