2025 (7) TMI 476 - HC - Indian Laws

Revision application dismissed for quashing Section 420 IPC and cheque dishonour charges involving loan payment dispute

Calcutta HC dismissed a revision application seeking to quash criminal proceedings under Section 420 IPC and dishonour of cheque charges. The petitioner ... Dishonour of Cheque - payment made by the accused was a part payment towards repayment of loan or payment of interest - Prayer for exercise of inherent jurisdiction - offence of criminal breach of trust - HELD THAT:- In order to attract the provisions of Section 420 IPC, the prosecution has to not only prove that the accused has cheated someone but also that by doing so, he has dishonestly induced the person who is cheated to deliver property. Therefore, this offence is committed when a person dishonestly induces another person to deliver any property to any person, ought 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 valuable security. It is well known that every deceitful act is not unlawful, just as not every unlawful act is deceitful. Some acts may be termed both as unlawful as well as deceitful, and such acts alone will fall within the purview of Section 420 IPC. It must also be understood that a statement of fact is deemed “deceitful‟ when it is false, and is knowingly or recklessly made with the intent that it shall be acted upon by another person, resulting in damage or loss. “Cheating‟ therefore, generally involves a preceding deceitful act that dishonestly induces a person to deliver any property or any part of a valuable security, prompting the induced person to undertake the said act, which they would not have done but for the inducement. It would be wise to remind one and all that the Hon‟ble Apex Court in various landmark decisions has made a very clear suggestion that the High Court‟s while exercising its power under Section 482 of the CrPC is not required to conduct a mini trial as this is not the stage where the prosecution/ investigating agency is required to prove the charges. The charges are required to be proved during trial on the basis of the evidence led by the prosecution - To exercise the inherent power under Section 482 of the Cr.P.C is not the rule but it is an exception which can be applied only if it appears to the Court that miscarriage of justice would be committed if the trial is allowed to proceed further. It is unable to interfere with impugned proceeding at this stage by invoking power under Section 482 of CrPC as all the material contradictions with regard to the alleged occurrence is a subject matter of trial and from careful perusal of the available evidence this Court cannot conclude that the allegations made in the complaint do not prima facie make out any offence as the petitioner on earlier occasion also issued cheques which were dishonoured due to insufficiency of funds and the ingredient of mens rea cannot be scrutinized at this juncture. Nor can it conclude that the allegations made therein are patently and inherently improbable which will make the instant revision application a fit case for quashing as per the exhaustive guidelines of the Hon‟ble Apex Court as this Court is not oblivious to the settled proposition of law that this Court cannot function here either as a Court of appeal or revision and this power can only be exercised to prevent abuse of the process of the Court. In addition to that, in the present case, the nature of allegation is not in respect to mere failure to repay loan amount between the parties simpliciter. The revision application is dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:(i) Whether the complaint filed under Sections 420 (cheating), 406 (criminal breach of trust), and 120B (criminal conspiracy) of the Indian Penal Code (IPC) against the petitioner discloses a prima facie case warranting trial;(ii) Whether the element of mens rea or dishonest intention existed at the inception of the transaction, which is essential to constitute offences under Sections 420 and 406 IPC;(iii) Whether the payments made by the petitioner towards the loan amount were part payments of principal or merely payments of interest, and the implications of such characterization;(iv) Whether the criminal proceedings instituted are a misuse of the criminal justice system, amounting to an abuse of process warranting quashment under the inherent powers of the Court under Section 482 of the Criminal Procedure Code (CrPC); and(v) The extent and limits of the Court's jurisdiction at the stage of quashing, particularly with regard to weighing evidence and deciding questions of fact.2. ISSUE-WISE DETAILED ANALYSISIssue (i): Prima facie case under Sections 420, 406, and 120B IPCThe Court examined the allegations in the complaint which stated that the petitioner had taken a loan of Rs. 15,00,000/- at 17% interest for a short term of 120 days from October 2011, which was repeatedly renewed. The petitioner had issued cheques towards repayment, but some were dishonored due to insufficient funds. The opposite party alleged refusal to repay the principal amount despite repeated demands and a legal notice. Proceedings under the Negotiable Instruments Act had been initiated and subsequently withdrawn following partial payments.The Court noted the necessity to establish the essential ingredients of cheating under Section 420 IPC, which include a dishonest inducement to deliver property and mens rea at the time of inducement. Similarly, criminal breach of trust under Section 406 IPC requires proof of dishonest misappropriation or conversion of entrusted property.The Court observed that the complaint prima facie alleges dishonor of cheques and refusal to repay the principal amount, which could constitute dishonesty and breach of trust. However, the Court emphasized that the existence of mens rea must be established from the inception of the transaction.Issue (ii): Existence of mens rea at inceptionThe petitioner argued that interest payments were made regularly until 2019, negating any fraudulent intention at the outset. The petitioner contended that mere inability or failure to repay a loan does not amount to cheating or criminal breach of trust without dishonest intention from the beginning.The Court referred to precedents which consistently held that criminal liability under Sections 420 and 406 IPC cannot be predicated on non-payment alone; there must be clear evidence of dishonest or fraudulent intention at the time of the transaction. The Court acknowledged this principle but noted that such intention is a question of fact to be determined at trial.Issue (iii): Characterization of payments as part payment of principal or interestThe dispute over whether payments made by the petitioner were towards principal or interest was identified as a pivotal factual question. The petitioner claimed payments totaling Rs. 8,27,115/- were made towards loan servicing, while the opposite party disputed this characterization.The Court held that this factual issue cannot be resolved in the quashing proceedings and must be adjudicated through the trial process. It emphasized that the revisional jurisdiction under Section 482 CrPC is not a forum for deciding disputed facts or conducting a mini-trial.Issue (iv): Allegation of abuse of process and malicious prosecutionThe petitioner contended that the complaint suppressed material facts, including prior payments and withdrawal of N.I. Act proceedings, and was instituted with malicious intent to harass. The petitioner sought quashment invoking the Court's inherent powers.The Court noted that while malicious prosecution is a relevant consideration, it is not ordinarily to be examined at the initial stage of proceedings. The Court reiterated that the existence of a prima facie case is the threshold for continuing criminal proceedings, and questions of malice or ulterior motive are to be addressed at trial.Issue (v): Scope of Court's jurisdiction under Section 482 CrPC at the quashing stageThe Court reviewed the settled legal position that the power to quash criminal proceedings under Section 482 CrPC is extraordinary and to be exercised sparingly to prevent miscarriage of justice or abuse of process. It is not a substitute for appeal or revision and does not permit the Court to delve into the merits or weigh evidence.The Court relied on authoritative precedents emphasizing that at the quashing stage, the Court's role is limited to determining whether the allegations, if taken at face value, disclose an offence and whether there is sufficient material to proceed with trial.3. SIGNIFICANT HOLDINGS'In order to attract the provisions of Section 420 IPC, the prosecution has to not only prove that the accused has cheated someone but also that by doing so, he has dishonestly induced the person who is cheated to deliver property. ... There are, thus, three components of this offence, i.e., (i) the deception of any person, (ii) fraudulently or dishonestly inducing that person to deliver any property to any person, and (iii) mens rea or dishonest intention of the accused at the time of making the inducement.''For the offence of cheating, fraudulent and dishonest intention must exist from the inception when the promise or representation was made.''Mere inability to return the loan amount cannot give rise to a criminal prosecution if there is no mens rea at the beginning of the transaction.''The High Court while exercising its power under Section 482 of the CrPC is not required to conduct a mini trial as this is not the stage where the prosecution/ investigating agency is required to prove the charges. The charges are required to be proved during trial on the basis of the evidence led by the prosecution.''At the initiation of the Criminal Proceedings, whether the criminal proceedings are malicious or not, is not required to be considered at the stage of quashing as it is required to be considered only at the conclusion of the Trial.''To exercise the inherent power under Section 482 of the Cr.P.C is not the rule but it is an exception which can be applied only if it appears to the Court that miscarriage of justice would be committed if the trial is allowed to proceed further.''The factual nomenclature of the case at hand, along with chronology of events squarely indicate that the main contentious issue involved in this revision application is that whether the payment made by the accused was a part payment towards repayment of loan or payment of interest. It is the touch stone of dispute related to question of facts which can only be ascertained after catering to due process of extensive trial.'The Court concluded that the allegations in the complaint disclose a prima facie case under Sections 420 and 406 IPC and that the ingredient of mens rea cannot be scrutinized at this stage. The Court dismissed the revision petition seeking quashment and directed the trial court to dispose of the matter expeditiously, clarifying that no observations made should influence the trial.