Case Title: M N G Bharateesh Reddy v. Ramesh Ranganathan
The Supreme Court observed that a breach of the contractual terms does not ipso facto constitute the offence of the criminal breach of trust without there being a clear case of entrustment.
The Court referred to and interpreted the relevant provisions and it observed that:-
The ingredients of the offence under Section 415, IPC emerge from a textual reading. Firstly, to constitute cheating, a person must deceive another.
Secondly, by doing so the former must induce the person so deceived to -
(i) deliver any property to any person; or
(ii) to consent that any person shall retain any property; or
(iii) intentionally induce 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 such an act or omission must cause or be likely to cause damage or harm to that person in body, mind, reputation or property.
Section 420 deals with cheating and dishonestly inducing delivery of property. It reads as follows:
“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 valuable security, or anything which is signed or sealed, and which is capable of being capable of converting 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.”
The Court also referred to Hridaya Ranjan Prasad Verma v. State of Bihar in which the Court has interpreted the meaning of the above-mentioned sections. It has laid down that-
“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 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.”
The Court, therefore, held that “Applying the above principles, the ingredients of Sections 415 and 420 are not made out in the present case…. At the most, the allegations allude to a breach of terms of the Consultancy Agreement by the Appellant, which is essentially in the nature of a civil dispute.”
The Court also referred to Section 405 of the IPC deals with criminal breach of trust and after an extensive reading of the provision and various precedents, it held that, “none of the ingredients of the offence of criminal breach of trust have been demonstrated on the allegations in the complaint as they stand…. Therefore, the ingredients of the offence of criminal breach of trust are ex facie not made out on the basis of the complaint as it stands.”