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... A distinction has to be kept in mind between mere breach of contract and the offence of cheating. It depends upon the intention of the accused at the time of inducement. The subsequent conduct is not the sole test. Mere breach of contract cannot give rise to criminal prosecution for cheating unless fraudulent, dishonest intention is shown at the beginning of the transaction....
The substance of the complaint is to be seen. Mere use of the expression "cheating" in the complaint is of no consequence. Except mention of the words "deceive" and "cheat" in the complaint filed before the Magistrate and "cheating" in the complaint filed before the police, there is no averment about the deceit, cheating or fraudulent intention of the accused at the time of entering into MOU wherefrom it can be inferred that the accused had the intention to deceive the complainant to pay....
...It is clear from the allegations made in the complaint and the sworn statements that appellant 1-company entered into an agreement with respondent 2 on certain terms and conditions. It is alleged that appellant 7 went to Patna and contacted respondent 2 and induced him to enter into an agreement assuring him of huge profit. At the time of arriving at such an agreement, none of the other appellants either met respondent 2 or induced him to enter into any agreement with a view to cheat him. The agreement was further renewed for a period of one year. It is not the case that there was no supply of goods at all as it has come on record that there was supply of 400 tons of fertilizer, may be it was far less than the required quantity. The allegations made against the appellants other than appellant 7 are very vague and bald. From the material that was placed before the Magistrate, even prima facie, it cannot be said that there was conspiracy or connivance between the other appellants and appellant 7. If the appellants have committed breach of agreement, it is open to respondent 2 to seek redressal in a competent Court or forum to recover damages, if permissible in law in case he had sustained any loss, In order to constitute an offence of cheating, the intention to deceive should be in existence at the time when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise, to say that he committed an act of cheating. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating.
... 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 In determining the question it has to be kept in mind that the distinction between mere breach or 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 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.
xv. The accused were liable to be punished for their illegal acts towards the complainant;
xvi. The complainant had demanded payment eversince the date of stopping of business, but the accused dodged the matter on some pretext or the other with the intention to evade payment;
xvii. The complainant came to know about the malicious intention of the accused only on 26-6-2004 when the complainant discussed about it through phone at Nandyal and suspected their bona fides.
52. On a reading of the complaint as a whole, and accepting the allegations made therein as true, while supplies were effected by the complainant to the accused during the period 4-2-1997 to 6-3-1997, payments had already been made by the accused, for a major portion of the supplies, from 8-3-1997 onwards. The allegations, at items xiii to xvii above, are all events after the petitioners-accused had stopped carrying on business with the complainant. There is no allegation in the complaint that there was a fraudulent or dishonest intention at the beginning of the transaction i.e., at the time when the offence was committed. The complaint does not allege that the petitioners had a fraudulent or dishonest intention at the time when supplies, of cotton bales, were effected. There is no averment that the accused had made a representation to the accused at the time of or before the supplies of goods and that the accused knew the representation to be false. The complaint does not allege that the petitioners had a fraudulent or a dishonest intention at the time they had placed an order, for supplies of cotton bales, on 4-2-1997 or at any time prior thereto. The subsequent acts, much after they had stopped business with the complainant, of their changing the Board of Directors, screening away their properties and leaving their original place of business etc., would not attract the ingredients of Section 420, I.P.C., since the necessary postulate of an offence under Sections 418 and 420, I.P.C. is that the intention to cheat must have been in existence at the very inception and not subsequently. Mere failure on their part to keep up the promise subsequently will not give rise to the presumption of their culpable intention right at the beginning i.e., when they had made the promise. (Hridaya Ranjan Prasad Verma).