SUPREME COURT: ITS VERY REGRETFUL THAT COURTS HAVEN’T UNDERSTOOD DIFFERENCE BETWEEN CRIMINAL BREACH OF TRUST AND CHEATING

Author : Advocate Khrishna Ghai

Posted on : 27,Aug,2024

SUPREME COURT: ITS VERY REGRETFUL THAT COURTS HAVEN’T UNDERSTOOD DIFFERENCE BETWEEN CRIMINAL BREACH OF TRUST AND CHEATING

The Supreme Court on Friday expressed disappointment that even after 162 years of the Indian Penal Code, 1860 (IPC) being in effect, police and courts still struggle to differentiate between the offenses of criminal breach of trust and cheating. In the case of Delhi Race (1940) Limited and Others v. State of Uttar Pradesh and Another, a Bench of Justice JB Pardiwala and Justice Manoj Misra emphasized the need for nationwide training of police officers, pointing out that they often mechanically register first information reports (FIRs) for both offenses based on mere allegations of dishonesty or fraud.

The Court remarked, "It has become a common practice for police officers to routinely and mechanically register an FIR for both criminal breach of trust and cheating on a mere allegation of dishonesty or fraud, without proper application of mind. It is high time that police officers across the country are provided with adequate legal training to understand the distinction between the offense of cheating and criminal breach of trust. Both offenses are distinct and cannot coexist in the same set of facts, as they are antithetical to each other."

The Court was hearing an appeal from a horse racing company and its Secretary, who challenged an Allahabad High Court order refusing to quash a summoning order in a complaint filed under Sections 406 (criminal breach of trust), 420 (cheating), and 120B (criminal conspiracy) of the IPC. The private complainant alleged that the company had failed to pay ₹9,11,434 for grains and oats meant for horses.

The Additional Chief Judicial Magistrate conducted an inquiry and issued a process against the company. However, the High Court, in refusing to quash the summoning order, noted that the company had a mala fide intention in withholding the payment.

Dissatisfied with the High Court's decision, the company approached the Supreme Court. The apex court pointed out that the IPC contains no provision for vicarious liability that would automatically implicate the office bearers of a company in cases of cheating or criminal breach of trust. The Court stressed that vicarious liability would only arise if explicitly provided for in the statute, and office bearers could only be charged if direct allegations were made against them.

The Court further observed that the magistrate failed to fully consider the correctness of the complaint. Upon examining the complaint, the Court found that no offense of either cheating or criminal breach of trust was made out, as these offenses, though involving dishonest intention, are mutually exclusive. While criminal intention is necessary for cheating, mere proof of entrustment suffices for criminal breach of trust.

The Court clarified, "The Additional Chief Judicial Magistrate could have issued a process for the offense punishable under Section 420 of the IPC, i.e., cheating, but no case of criminal breach of trust is made out. There is no entrustment of any property in this case. The complainant's case is straightforward: the price of the goods sold was not paid. Once there is a sale, Section 406 of the IPC does not apply."

The Court also noted that the offense of cheating under Section 420 IPC was not made out, as the complainant admitted that the invoices raised were not cleared. The appropriate course of action for the complainant would have been to file a civil suit for the recovery of the amount, rather than criminal proceedings.

The Supreme Court set aside the criminal proceedings against the appellants and expressed concern that despite the long history of the IPC, and now the new law, courts and police officers still struggle to understand the distinction between cheating and criminal breach of trust.

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