February 21, 2019
In this recent case, the Two-Judge Bench of the Supreme Court has ruled that 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.
Case name: Satishchandra Ratanlal Shah v. State of Gujarat & anr.
In the instant case, the appeal assailed High Court’s order, whereby the High Court had dismissed the Appellant’s application seeking quashing of the order framing the charges for cheating and criminal breach of trust. Here it would be relevant to mention that the dispute pertained to loan dealing between the parties, whereby the respondent had transferred funds as a loan, which was to be repaid by the appellant within a year with interest. However, the appellant failed to repay the amount back to respondent and subsequently the respondent had lodged FIR against the appellant.
The Supreme Court Bench in view of the facts of the case and ingredients of the offence of cheating under Section 420 of Indian Penal Code allowed the appeal and quashed criminal charges against the appellant. The Court made the following observations in the case:
Quashing of Criminal Charges- While deciphering this aspect of the case, the Apex Court noted that the High Court shall quash the criminal charges in exceptional cases only. It was also observed by the Apex Court that the framing of charges being initial stages in the trial process, the Court therein cannot base the decision of quashing the charge on the basis of the quality or quantity of evidence rather the enquiry must be limited to a prima facie examination.
Mere Failure to Repay Loan is not Cheating- In this context, the Supreme Court observed while referring to it’s verdict in the case of Hridaya Ranjan Prasad Verma v. State of Bihar, that in the context of contracts, the distinction between mere breach of contract and cheating would depend upon the fraudulent inducement and mens rea.
While referring to the facts of the present case, the Court was of the view that the appellant was trapped in economic crisis and therefore, he had approached the respondent to ameliorate the situation of crisis. Further, in order to recover the aforesaid amount, the respondent 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.
In view of the aforesaid, the Apex Court was of the opinion that 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.
The entire case can be accessed here.
 (2000) 4 SCC 168