Karnataka High Court
Mr Umar Farooq vs The State Of Karnataka on 22 October, 2024
Author: M.Nagaprasanna
Bench: M.Nagaprasanna
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NC: 2024:KHC:42404
CRL.P No. 7274 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 22ND DAY OF OCTOBER, 2024
BEFORE
THE HON'BLE MR JUSTICE M.NAGAPRASANNA
CRIMINAL PETITION NO. 7274 OF 2024
BETWEEN:
1. MR. UMAR FAROOQ
S/O MR. THOKUR IDINABBA
AGED ABOUT 51 YEARS, PROPRIETOR OF
M/S. IOBITCODE INTERACTIVE,
HAVING OFFICE AT
ALFA CENTER NO.20, OUTER RING ROAD
VENUGOPALASWAMY LAYOUT, EJIPURA
VIVEKANAGARA POST, BENGALURU CITY
KARNATAKA - 560 047.
2. MRS. SHYAMALA N.,
W/O MR. VARADHA RAJU K.,
AGED ABOUT 48 YEARS
Digitally signed
H.R.MANAGER OF M/S. IOBITCODE
by NAGAVENI INTERACTIVE, HAVING OFFICE AT
Location: HIGH
COURT OF ALFA CENTER NO.20, OUTER RING ROAD
KARNATAKA VENUGOPALASWAMY LAYOUT, EJIPURA
VIVEKANAGARA POST, BENGALURU CITY
KARNATAKA - 560 047.
...PETITIONERS
(BY SRI MANU KULKARNI, ADVOCATE FOR
SRI KANISHK RAVINDRAN, ADVOCATE)
AND:
1. THE STATE OF KARNATAKA
BY VIVEKNAGAR POLICE STATION
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NC: 2024:KHC:42404
CRL.P No. 7274 of 2024
CUBBON PARK SUB-DIVISION
REPRESENTED BY
STATE PUBLIC PROSECUTOR
HIGH COURT BUILDING
DR. BR. AMBEDKAR VEEDHI
BENGALURU - 560 001.
2. THE PRINCIPAL ADDITIONAL
DIRECTOR GENERAL
DIRECTORATE GENERAL OF
GST INTELLIGENCE
BENGALURU ZONE UNIT NO.112
S.P.ENCLAVE, ADJACENT TO
KARNATAKA BANK, K.H.ROAD
BENGALURU - 560 027.
...RESPONDENTS
(BY SRI HARISH GANAPATHY, HCGP FOR R1;
SRI M.N.KUMAR, ADVOCATE FOR R2)
THIS CRL.P IS FILED U/S 482 OF THE CR.P.C PRAYING
TO QUASH THE IMPUGNED FIR IN CR.NO.125/2021 DATED
04.08.2021 REGISTERED BY THE 1ST RESPONDENT /
VIVEKNAGAR POLICE BENGALURU AS AGAINST THE
PETITIONERS HEREIN WHO ARE ARRAIGNED AS ACCUSED
NO.1 TO 2 FOR THE OFFENCES P/U/S 120B, 420 OF IPC AND
SEC. 66-D OF I.T ACT PENDING ON THE FILE OF THE HONBLE
XXIX A.C.M.M COURT AT BENGALURU AS PRODUCED
HEREWITH AT ANNEXURE-A AND CONSEQUENTLY QUASH THE
ENTIRE PROCEEDINGS.
THIS PETITION, COMING ON FOR ADMISSION, THIS DAY,
ORDER WAS MADE THEREIN AS UNDER:
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NC: 2024:KHC:42404
CRL.P No. 7274 of 2024
CORAM: HON'BLE MR JUSTICE M.NAGAPRASANNA
ORAL ORDER
The petitioners - accused Nos.1 and 2 are before this Court calling in question registration of a crime in Crime No.125/2021, pending before the XXIX ACMM Court, Bengaluru, registered for the offences under Sections 120B and 420 of the IPC and Section 66D of the Information Technology Act, 2000 (for short 'the Act).
2. Heard Sri Manu Kulkarni, learned counsel for Sri Kanishk Ravindran, learned counsel for the petitioners, Sri Harish Ganapathy, learned High Court Government Pleader for respondent No.1 and Sri M.N.Kumar, learned counsel for respondent No.2.
3. Facts in brief, germane, are as follows:
A crime comes to be registered before the first respondent - police by the second respondent that the first petitioner - proprietor of one M/s.Iobitcode Interactive, having its office within the jurisdiction of the police station before -4- NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 whom the crime is registered, on the allegation that the first petitioner - company is in evasion of payment of GST, which is to be paid to the government. It is the contention of the second respondent - GST Intelligence that upon certain investigation conducted by them, it is noticed that certain documents reveal that 12 companies registered in different places under different names, were involved in online betting and found to be of certain suspicion that more than ten companies are operating from the said address. Petitioner No.2 is said to be the Human Resource Manager of the company who has illegally purchased several SIM cards and those SIM cards were linked to different bank accounts, which allegedly facilitated certain fake transactions. Based upon this, the second respondent - GST Intelligence registers the crime before the first respondent. The crime is registered on
04.08.2021. The jurisdictional police are still investigating into the matter despite passage of 40 months. Continued investigation has driven these petitioners to this Court in the subject petition.
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4. Sri Manu Kulkarni, learned counsel appearing for Sri Kanishk Ravindran, learned counsel for the petitioner would vehemently contend that the offences alleged against these petitioners are the ones punishable under Sections 120B and 420 of the IPC and Section 66D of the Act. None of the ingredients as necessary under Section 415 of the IPC is met in the case at hand. There is not even a single victim who has come forward to complain against the petitioners that he is the victim of alleged fraud. He would contend that since four years, the police are still investigating into the matter. He would further contend that the GST Intelligence has already initiated the proceedings under the Goods and Services Tax (for short 'the GST') and therefore, the crime registered for the offences under Sections 120B and 420 of the IPC and Section 66D of the Act, cannot be permitted to continue.
5. Sri M.N.Kumar, learned counsel representing respondent No.2 - complainant would contend that the petitioners are involved in online betting. There are so many suspicious circumstances of the functioning of the petitioners.
Therefore, they had registered a complaint with the -6- NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 jurisdictional police. The police have not completed investigation since 4 years, that does not mean that the complaint should be quashed. The allegations in the complaint clearly meet the ingredients of the offences so alleged.
Therefore, a restricted view should not be given to the offence under Section 420 of the IPC. The petitioners have indulged in fraud and hoodwinking several persons. He would admit that the proceedings are instituted by the GST Intelligence under the GST, but the petitioners are not cooperating with the investigation with the GST Intelligence.
6. The learned High Court Government Pleader, Sri Harish Ganapathy, would contend that they are investigating into the matter and trying to unearth as to who is the victim in the case at hand. No victim has admittedly come forward alleging against the petitioners. Therefore, they should be given some more time to investigate into the matter.
7. I have given my anxious consideration to the submissions made by the learned counsel for the respective parties and have perused the material on record.
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8. The afore-narrated facts are not in dispute and requires no reiteration. Petitioner No.2 - GST Intelligence on investigation and procuring certain documents files a complaint before the jurisdictional police. Since the entire issue has now triggered from the complaint, it reads as follows:
"To The Station House Officer, Vivek Nagar Police Station, Bengaluru, Karnataka - 560 047.
Sir, Sub: Indulging in suspicious/illegal transactions including betting / gambling by the entities operating https://betstarexch. com;https://khelo24bet.com/; https://bet inexchange.com/ - Reg.
This office has initiated investigation on the evasion of GST by a group of entities which are engaged in rendering taxable supplies involving games of skill. However, during the search proceedings initiated on one of such business entities i.e M/s lobitcode Interactive located at Alfa Centre, 20, Outer Ring Rd, Venugopal swamy Layout, Bengaluru, Karnataka 560047 on 02/08/2021, it is noticed that a group of entities are operating from the same premises, and the activities rendered by such entities appears to be suspicious / illegal transactions including betting/gambling.
2. The list of such group entities which appear to have been floated and operating from such premises, detailing legal name, trade name, GST registration no are detailed here under:-8-
NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 Sl. Trade Name Legal Name GSTIN No. 1 Selvaraj Double Down 29BFMPL5480F1Z1 Leonard Inreractive 2 Selvaraj Electronic Virtual 29DDUPR4474R1ZO Priyan Raj Solutions 3 Manjula Indie World Studio 29AVWPA2655E1ZD Basavarajappa Arabagatti 4 Rangan Hema Whale Bytes 29HRPH22449A1Z7 Technology 5 Gayatri Vantage Point 29BSYPC4914N1ZT Technology 6 Shobha Dass Vivid Web Solutions 29GFAPD3594B1ZL Durairaj 7 Shanthi Worldwide 29KQVPS7068R1ZW Technology Solutions 8 Redtronix Redtronix 29AAKCR5672C1Z3 Technology Technology Pvt.
Pvt. Ltd. Ltd.
9 Questweb Questweb 29AAACQ7052K1Z3
Technologies Technologies Pvt.
Pvt. Ltd. Ltd.
10 Oculus Valve Oculus Valve 29GFQPM9926E1ZM
Entertainment Entertainment
11 Ubisoft Ubisoft Reflections 29AACCU8393D1ZY
Reflections Private Limited
Private Limited
12 Securepayin Securepayin 29ABECS6336F1Z5
Payments Pvt. Payments Pvt. Ltd.
Ltd.
3. Smt Shyamala N and her two accomplices being the persons who are in the helm of affairs, their statements were recorded during such search proceedings conducted on 02/08/2021 and a copy of such statements deposed by them are attached herewith. In the statement, it is admitted by Shyamala N that sites viz., https://betstarexch.com; https://khelo24bet.c om/; https://betinexchange.com/ are having their customer support and development teams operating from the said premises under different entity names and perusal of the activities offered by these sites indicate that they are registered from overseas -9- NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 location and are offering the services of gambling / betting. In addition to the above, the said persons have admitted to being involved in arranging the sim cards, facilitating opening of bank accts, registration on GST portal of multiple fake entities, arranging for co-working space for these non-
existing entities. Evidences gathered suggest that there are at least 70 such fake entities. Further, evidences gathered at their office /residence suggest that they are actively involved in betting/ gambling activities undertaken by the group of entities.
4. It is given to understand that betting/gambling are illegal activities as per law in the state of Karnataka. In view of such law in force in the state of Karnataka and having come to notice about such illegal betting being taken place at a location in Bengaluru, it is opined it is more appropriate to hand over the case to Police Department for their further necessary proceedings as deemed fit.
6. Presently, Smt. Shymala N who is one of the crucial persons in the helm of affairs is available this Office i.e Directorate of Goods and Services Tax Intelligence, No. 112, S.P.Enclave Adjacent to Karnataka Bank, K.H Road, Bengaluru - 560 027, in connection with the ongoing investigation against such group of entities."
(Emphasis added) The companies that are allegedly run by the petitioners, first petitioner in particular, is projected to be the foundation of the crime. The GST Intelligence suspects that these petitioners are involved in arranging SIM cards, facilitating opening of bank accounts, registration on GST portal of multiple fake entities and arranging for co-working space for non-existing entities.
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 Based upon this, the GST Intelligence communicates to the Station House Officer of the Viveknagar Police Station to register a crime and it then becomes a crime in crime No.125/2021 for offences under Sections 120B and 420 of the IPC and Section 66D of the Act.
9. The second respondent - complainant has filed its statement of objections reiterating the contents of the complaint and projecting much about procurement of several SIM cards and would also rely on certain voluntary statement recorded of Manikandan who is said to have alleged in the crime with the help of the second petitioner. The allegation projected in the statement of objections is, evading tax and money laundering. It is an admitted fact that for evasion of tax, the petitioners are being proceeded under the GST.
10. The issue now would be, whether the allegations would meet the ingredients of Section 415 of the IPC and Section 66D of the Act. If the two are met, then comes the Section 120B of the IPC. Therefore, I deem it appropriate to notice Section 415 of the IPC. For an offence to become
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 punishable under Section 420 of the IPC, ingredients as obtaining under Section 415 of the IPC is necessarily to be present. Section 415 of the IPC reads as follows:
"415. Cheating.--Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat".
Explanation.--A dishonest concealment of facts is a deception within the meaning of this section."
Section 415 of the IPC mandates that 'whoever by deceiving any person fraudulently or dishonestly induces the person so deceived to deliver any property to any person'. Therefore, there should be a person who has been deceived and the deception should be from the inception, all with an dishonest intention to commit fraud.
11. A perusal at the complaint would not indicate any person complaining against the petitioners. Therefore, there has been no person who has been deceived. Unless there is
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 any person who has been hoodwinked, the ingredients under Section 415 of the IPC cannot be met. Interpretation of the offence of cheating under Section 415 of the IPC need not detain this Court for long or delve deep into the matter as the Apex Court in plethora of judgments has elucidated what is necessary for an offence under Section 415 of the IPC, for it to become punishable under Section 420 of the IPC. The Apex Court right from the year 2000 in the case of HRIDAYA RANJAN PRASAD VERMA v. STATE OF BIHAR1 has held as follows:-
"14. On a reading of the section it is manifest that in the definition there are set forth two separate classes of acts which the person deceived may be induced to do. In the first place he may be induced fraudulently or dishonestly to deliver any property to any person. The second class of acts set forth in the section is the doing or omitting to do anything which the person deceived would not do or omit to do if he were not so deceived. In the first class of cases the inducing must be fraudulent or dishonest. In the second class of acts, the inducing must be intentional but not fraudulent or dishonest.
15. In determining the question it has to be kept in mind that the distinction between mere breach of contract and the offence of cheating is a fine one. It depends upon the intention of the accused at the time of inducement which may be 1 (2000) 4 SCC 168
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 judged by his subsequent conduct but for this subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction, that is the time when the offence is said to have been committed. Therefore it is the intention which is the gist of the offence. To hold a person guilty of cheating it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed."
(Emphasis supplied) Later, in the case of UMA SHANKAR GOPALIKA v. STATE OF BIHAR2 the Apex Court has held as follows:
"6. Now the question to be examined by us is as to whether on the facts disclosed in the petition of complaint any criminal offence whatsoever is made out much less offences under Sections 420/120-B IPC. The only allegation in the complaint petition against the accused persons is that they assured the complainant that when they receive the insurance claim amounting to Rs 4,20,000, they would pay a sum of Rs 2,60,000 to the complainant out of that but the same has never been paid. Apart from that there is no other allegation in the petition of complaint. It was pointed out on behalf of the complainant that the accused fraudulently persuaded the complainant to agree so that the accused persons may take steps for moving the Consumer Forum in relation to the claim of Rs 4,20,000. It is well 2 (2005) 10 SCC 336
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 settled 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 the present case it has nowhere been stated 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."
(Emphasis supplied) In the case of V.Y.JOSE v. STATE OF GUJARAT3 the Apex Court holds as follows:
"14. An offence of cheating cannot be said to have been made out unless the following ingredients are satisfied:
(i) deception of a person either by making a false or misleading representation or by other action or omission;
(ii) fraudulently or dishonestly inducing any person to deliver any property; or to consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit.
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 3 (2009) 3 SCC 78
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 promise being absent, no offence under Section 420 of the Penal Code can be said to have been made out.
28. A matter which essentially involves dispute of a civil nature should not be allowed to be the subject-matter of a criminal offence, the latter being not a short cut of executing a decree which is non- existent. The superior courts, with a view to maintain purity in the administration of justice, should not allow abuse of the process of court. It has a duty in terms of Section 483 of the Code of Criminal Procedure to supervise the functionings of the trial courts."
(Emphasis supplied) In VESA HOLDINGS (P) LIMITED v. STATE OF KERALA4, the Apex Court has held as follows:
"12. 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 Penal Code, 1860 can be said to have been made out."
(Emphasis supplied) 4 (2015) 8 SCC 293
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 In the case of SATISCHANDRA RATANLAL SHAH v. STATE OF GUJARAT5, the Apex Court has held as follows:
"11. Having observed the background principles applicable herein, we need to consider the individual charges against the appellant. Turning to Section 405 read with Section 406 IPC, we observe that the dispute arises out of a loan transaction between the parties. It falls from the record that Respondent 2 knew the appellant and the attendant circumstances before lending the loan. Further it is an admitted fact that in order to recover the aforesaid amount, Respondent 2 had instituted a summary civil suit which is still pending adjudication. The law clearly recognises 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 IPC without there being a clear case of entrustment.
12. In this context, we may note that there is nothing either in the complaint or in any material before us, pointing to the fact that any property was entrusted to the appellant at all which he dishonestly converted for his own use so as to satisfy the ingredients of Section 405 punishable under Section 406 IPC. Hence the learned Magistrate committed a serious error in issuing process against the appellant for the said offence. Unfortunately, the High Court also failed to correct this manifest error.
13. Now coming to the charge under Section 415 punishable under Section 420 IPC. In the context of contracts, the distinction between mere breach of 5 (2019) 9 SCC 148
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 contract and cheating would depend upon the fraudulent inducement and mens rea. (See Hridaya Ranjan Prasad Verma v. State of Bihar [Hridaya Ranjan Prasad Verma v. State of Bihar, (2000) 4 SCC 168: 2000 SCC (Cri) 786].) In the case before us, admittedly the appellant was trapped in economic crisis and therefore, he had approached Respondent 2 to ameliorate the situation of crisis. Further, in order to recover the aforesaid amount, Respondent 2 had instituted a summary civil suit seeking recovery of the loan amount which is still pending adjudication. The mere inability of the appellant 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. Even if all the facts in the complaint and material are taken on their face value, no such dishonest representation or inducement could be found or inferred.
14. Moreover, this Court in a number of cases has usually cautioned against criminalising civil disputes, such as breach of contractual obligations (refer to Gian Singh v. State of Punjab [Gian Singh v. State of Punjab, (2012) 10 SCC 303: (2012) 4 SCC (Civ) 1188: (2013) 1 SCC (Cri) 160: (2012) 2 SCC (L&S) 988] ). 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 IPC.
15. However, the High Court appears to have been carried away by the moral element involved in the breach of promise and made certain observations. Being a policy consideration, such suggestions need to be restricted. The aforementioned
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 observations of the High Court were not only unnecessary for the adjudication of this matter, but the same could have been understood as casting some kind of aspersions on the accused. This clearly reflected a loaded dice situation against the appellant herein."
(Emphasis supplied)
12. Considering the entire spectrum of law earlier laid down, the Apex Court in the case of R.K. VIJAYASARATHY v.
SUDHA SEETHARAM6 holds as follows:
"11. The first respondent has alleged in the complaint that the appellants have committed offences under Sections 405, 406, 415 and 420 read with Section 34 of the Penal Code. It would thus be necessary to examine the ingredients of the above offences and whether the allegations made in the complaint, read on their face, attract those offences under the Penal Code.
Xxxxx
15. Section 415 of the Penal Code reads thus:
"415. Cheating.--Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat"."
16. The ingredients to constitute an offence of cheating are as follows:
6(2019) 16 SCC 739
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 16.1. There should be fraudulent or dishonest inducement of a person by deceiving him:
16.1.1. The person so induced should be intentionally induced to deliver any property to any person or to consent that any person shall retain any property, or 16.1.2. The person so induced should be intentionally induced to do or to omit to do anything which he would not do or omit if he were not so deceived; and 16.2. In cases covered by 16.1.2. above, the act or omission should be one which caused or is likely to cause damage or harm to the person induced in body, mind, reputation or property.
17. A fraudulent or dishonest inducement is an essential ingredient of the offence. A person who dishonestly induces another person to deliver any property is liable for the offence of cheating.
18. Section 420 of the Penal Code reads thus:
"420. Cheating and dishonestly inducing delivery of property.--Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine."
19. The ingredients to constitute an offence under Section 420 are as follows:
19.1. A person must commit the offence of cheating under Section 415; and
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 19.2. The person cheated must be dishonestly induced to
(a) deliver property to any person; or
(b) make, alter or destroy valuable security or anything signed or sealed and capable of being converted into valuable security.
20. Cheating is an essential ingredient for an act to constitute an offence under Section 420.
... ... ... ...
28. The jurisdiction under Section 482 of the Code of Criminal Procedure has to be exercised with care. In the exercise of its jurisdiction, a High Court can examine whether a matter which is essentially of a civil nature has been given a cloak of a criminal offence. Where the ingredients required to constitute a criminal offence are not made out from a bare reading of the complaint, the continuation of the criminal proceeding will constitute an abuse of the process of the court."
(Emphasis supplied) The afore-quoted judgments of the Apex Court were also interpreting offences punishable for criminal breach of trust as obtaining in Section 406 of the IPC, cheating as obtaining in Section 420 of the IPC and offences punishable under Sections 409 and 418 of the IPC, which would be ancillary to Sections 406 and 420 of the IPC. Section 420 of the IPC is the offence alleged in the case at hand.
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13. Yet again, the Apex Court in the case of VIJAY KUMAR GHAI AND OTHERS v. STATE OF WEST BENGAL AND OTHERS7 reiterated the entire spectrum of law with regard to criminal breach of trust and cheating and has held as follows:
"54. Section 415 of IPC define cheating which reads as under:--
"415. Cheating.--Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat"."
55. The essential ingredients of the offense of cheating are:
1. Deception of any person
2. (a) Fraudulently or dishonestly inducing that person-
(i) to deliver any property to any person : or
(ii) to consent that any person shall retain any property; or
(b) intentionally inducing that person to do or omit to do anything which he would not do or omit if he were no so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property.7
2022 SCC OnLine SC 344
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024
56. A fraudulent or dishonest inducement is an essential ingredient of the offence. A person who dishonestly induces another person to deliver any property is liable for the offence of cheating.
57. Section 420 IPC defines cheating and dishonestly inducing delivery of property which reads as under:--
"420. Cheating and dishonestly inducing delivery of property.--Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine."
58. Section 420 IPC is a serious form of cheating that includes inducement (to lead or move someone to happen) in terms of delivery of property as well as valuable securities. This section is also applicable to matters where the destruction of the property is caused by the way of cheating or inducement. Punishment for cheating is provided under this section which may extend to 7 years and also makes the person liable to fine.
59. To establish the offence of Cheating in inducing the delivery of property, the following ingredients need to be proved:--
1. The representation made by the person was false
2. The accused had prior knowledge that the representation he made was false.
3. The accused made false representation with dishonest intention in order to deceive the person to whom it was made.
4. The act where the accused induced the person to deliver the property or to perform or to abstain from any act which the person would have not done or had otherwise committed.
60. As observed and held by this Court in the case of Prof. R.K. Vijayasarathy v. Sudha Seetharam,
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 the ingredients to constitute an offence under Section 420 are as follows:--
i) a person must commit the offence of cheating under Section 415; and
ii) the person cheated must be dishonestly induced to;
a) deliver property to any person; or
b) make, alter or destroy valuable security or anything signed or sealed and capable of being converted into valuable security. Thus, cheating is an essential ingredient for an act to constitute an offence under Section 420 IPC.
61. The following observation made by this Court in the case of Uma Shankar Gopalika v. State of Bihar with almost similar facts and circumstances may be relevant to note at this stage:--
"6. Now the question to be examined by us is as to whether on the facts disclosed in the petition of the complaint any criminal offence whatsoever is made out much less offences under Section 420/120- B IPC. The only allegation in the complaint petitioner against the accused person is that they assured the complainant that when they receive the insurance claim amounting to Rs. 4,20,000, they would pay a sum of Rs. 2,60,000 to the complainant out of that but the same has never been paid. It was pointed out that on behalf of the complainant that the accused fraudulently persuaded the complainant to agree so that the accused persons may take steps for moving the consumer forum in relation to the claim of Rs. 4,20,0000. It is well settled that every breach of contract would not give rise to an offence of cheating and only in those cases of 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 the present case, it has nowhere been stated that at the very inception that there was intention on behalf of the accused person to cheat which is a condition precedent for an offence under 420 IPC.
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 "7. In our view petition of complaint does not disclose any criminal offence at all much less any offence either under Section 420 or Section 120-B IPC and the present case is a case of purely civil dispute between the parties for which remedy lies before a civil court by filing a properly constituted suit. 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 to prevent the same it was just and expedient for the High Court to quash the same by exercising the powers under Section 482 Cr.P.C which it has erroneously refused."
62. There can be no doubt that a mere breach of contract is not in itself a criminal offence and gives rise to the civil liability of damages. However, as held by this court in Hridaya Ranjan Prasad Verma v. State of Bihar26, the distinction between mere breach of contract and cheating, which is criminal offence, is a fine one. While breach of contract cannot give rise to criminal prosecution for cheating, fraudulent or dishonest intention is the basis of the offence of cheating. In the case at hand, complaint filed by the Respondent No. 2 does not disclose dishonest or fraudulent intention of the appellants.
63. In Vesa Holdings Pvt. Ltd. v. State of Kerala27, this Court made the following observation:--
"13. 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 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 inception on behalf of an accused person to cheat which is a condition precedent for an offence u/s 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 mala fide or otherwise an abuse of the process of the courts. Superior courts while exercising this power should also strive to serve the
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 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 the court and the High Court committed an error in refusing to exercise the power under Section 482 Cr.P.C to quash the proceedings."
64. Having gone through the complaint/FIR and even the chargesheet, it cannot be said that the averments in the FIR and the allegations in the complaint against the appellant constitute an offence under Section 405 & 420 Penal Code, 1860. 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 promise being absent, no offence under Section 420 IPC can be said to have been made out. In the instant case, there is no material to indicate that Appellants had any mala fide intention against the Respondent which is clearly deductible from the MOU dated 20.08.2009 arrived between the parties."
(Emphasis supplied) In the light of the elucidation by the Apex Court as afore-
quoted and the facts obtaining in the case at hand, in the considered view of this Court, it would not meet the necessary ingredients of Section 415 of the IPC for it to become punishable under Section 420 of the IPC for permitting further proceedings to continue. Therefore, the offence under Section 420 of the IPC is loosely laid against these petitioners.
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024
14. The other offence alleged against the petitioners is under Section 66D of the Act. Section 66D of the Act reads as follows:
"66-D. Punishment for cheating by personation by using computer resource.-- Whoever, by means of any communication device or computer resource cheats by personation, shall be punished with imprisonment of either description for a term which may extend to three years and shall also be liable to fine which may extend to one lakh rupees."
Whoever, by means of any communication cheats by personation shall be punished with imprisonment for a period of three years and fine. Therefore, two of the ingredients that are found in Section 415 of the IPC should be found in Section 66D of the Act as well, cheating and personation. As observed hereinabove, there is no person who has complained against the petitioners, it is the GST Intelligence who are alleging GST tax violation. Therefore, offence under Section 66D of the Act also cannot be laid against the petitioners.
15. The other offence alleged against the petitioners is under Section 120B of the IPC. If the offences under Section 420 of the IPC and Section 66D of the Act are loosely laid for
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 wanting ingredients of the said offences, the offence under Section 120B of the IPC also would tumble down.
16. It is the categorical statement of the State who has investigated the matter for the last 42 months - three years and 6 months. No victim has come forward to complain or give evidence against these petitioners. The defence is that, the petitioners have managed. It is highly improbable that the petitioners can manage any persons, if they are aggrieved.
Therefore, if further proceedings are permitted to continue against these petitioners, it would become an abuse of the process of the law. It is apposite to refer to the judgment of the Apex Court in the case of STATE OF HARYANA V. BHAJAN LAL reported in (1992 Supp. 1 SCC 335). The Apex court holds as under:
"102. In the backdrop of the interpretation of the various relevant provisions of the Code under Chapter XIV and of the principles of law enunciated by this Court in a series of decisions relating to the exercise of the extraordinary power under Article 226 or the inherent powers under Section 482 of the Code which we have extracted and reproduced above, we give the following categories of cases by way of illustration wherein such power could be exercised either to prevent abuse of the process of any court or otherwise to secure the ends of justice, though it may not be possible to lay down any precise, clearly defined and
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 sufficiently channelised and inflexible guidelines or rigid formulae and to give an exhaustive list of myriad kinds of cases wherein such power should be exercised.
(1) Where the allegations made in the first information report or the complaint, even if they are taken at their face value and accepted in their entirety do not prima facie constitute any offence or make out a case against the accused.
(2) Where the allegations in the first information report and other materials, if any, accompanying the FIR do not disclose a cognizable offence, justifying an investigation by police officers under Section 156(1) of the Code except under an order of a Magistrate within the purview of Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR or complaint and the evidence collected in support of the same do not disclose the commission of any offence and make out a case against the accused. (4) Where, the allegations in the FIR do not constitute a cognizable offence but constitute only a noncognizable offence, no investigation is permitted by a police officer without an order of a Magistrate as contemplated under Section 155(2) of the Code. (5) Where the allegations made in the FIR or complaint are so absurd and inherently improbable on the basis of which no prudent person can ever reach a just conclusion that there is sufficient ground for proceeding against the accused.
(6) Where there is an express legal bar engrafted in any of the provisions of the Code or the concerned Act (under which a criminal proceeding is instituted) to the institution and continuance of the proceedings and/or where there is a specific provision in the Code or the concerned Act, providing efficacious redress for the grievance of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended with mala fide and/or where the
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 proceeding is maliciously instituted with an ulterior motive for wreaking vengeance on the accused and with a view to spite him due to private and personal grudge."
(Emphasis supplied) The Apex Court holds that the Court exercising jurisdiction under Section 482 of the Cr.P.C., can quash the FIR on certain circumstances. Three of the circumstances are undoubtedly present in the case at hand. Therefore, to prevent the proceedings becoming miscarriage of justice, I deem it appropriate to obliterate the crime. It is made clear that the observations made in the course of the order is for only consideration of the petition under Section 482 of the Cr.P.C.
and it would not influence or bind any pending proceedings.
17. For the aforesaid reasons, the following:
ORDER a. The criminal petition is allowed.
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NC: 2024:KHC:42404 CRL.P No. 7274 of 2024 b. The impugned Crime No.125/2021, pending on the file of the XXIX Additional Chief Metropolitan Magistrate, Bengaluru, stands quashed, qua the petitioners.
Sd/-
(M.NAGAPRASANNA) JUDGE NVJ List No.: 1 Sl No.: 10 CT:SS