Cheating requires dishonest intent at inception; subsequent commercial default and settled insolvency dues cannot sustain criminal prosecution.

Cheating requires a fraudulent or dishonest representation, reliance by the complainant, and dishonest intention when the promise or representation is made. A subsequent default in a commercial or loan arrangement, including one arising from business difficulties after substantial repayments, does not by itself establish cheating. Where an insolvency resolution plan is approved with creditor participation, settlement dues are received, and a no-due certificate confirms that the corporate debtor has no outstanding liability, continued criminal prosecution lacks foundation if the ingredients of cheating are absent. Such continuation may constitute abuse of process and be quashed.

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Issues: (i) Whether the allegations disclosed the offence of cheating in the absence of dishonest or fraudulent intention at the inception of the credit transactions. (ii) Whether continuation of the criminal proceedings was impermissible after approval of the insolvency resolution plan, settlement of dues and issuance of a no-due certificate.

Issue (i): Whether the allegations disclosed the offence of cheating in the absence of dishonest or fraudulent intention at the inception of the credit transactions.

Analysis: Cheating requires a fraudulent or dishonest representation, reliance upon that representation by the complainant and the existence of dishonest intention at the time the promise or representation was made. A mere subsequent breach of a commercial or loan arrangement does not constitute cheating. The long-standing banking relationship, substantial repayments over several years and default arising subsequently from business difficulties did not establish dishonest intention at inception. The allegations therefore did not satisfy the essential ingredients of cheating.

Conclusion: The offence under Section 420 of the Indian Penal Code, 1860 was not made out.

Issue (ii): Whether continuation of the criminal proceedings was impermissible after approval of the insolvency resolution plan, settlement of dues and issuance of a no-due certificate.

Analysis: The resolution plan was approved after the creditor participated in and voted for its acceptance, the settlement amount was received and a no-due certificate was issued confirming that no dues were payable by the corporate debtor. In these circumstances, continuation of the prosecution, in the absence of the foundational ingredients of cheating, was held to constitute an abuse of the process of law.

Conclusion: Continuation of the criminal proceedings was impermissible and the proceedings were liable to be quashed.

Final Conclusion: The criminal proceedings arising from the impugned complaint were quashed on the grounds that cheating was not established at inception and that continuation of the prosecution after the insolvency resolution and settlement was an abuse of process.

Ratio Decidendi: A subsequent default in a commercial transaction does not constitute cheating unless fraudulent or dishonest intention existed at the inception, and criminal proceedings may be quashed where their continuation after an approved insolvency settlement lacks the necessary criminal foundation and amounts to abuse of process.

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