Supreme Court Distinguishes Cheating and Criminal Breach of Trust; Clarifies Section 202 of CrPC.

In a recent Supreme Court ruling, the Hon’ble Apex Court examined in detail how civil cases should be distinguished from criminal cases, specifically differentiating criminal breach of trust from cheating. The Supreme Court also clarified the scope for a Magistrate to issue summons or process, analyzing the extent of Section 202 of the Code of Criminal Procedure (CrPC).

Summary of the Case:

The case revolves around an accused who had been summoned in a complaint case for offences under Section 406 of the Indian Penal Code (IPC). The Supreme Court heard an appeal arising from a petition filed by the accused under Section 482 CrPC to quash the summons issued against him. In this appeal, the Court underscored why civil cases should not lead to criminal proceedings unless warranted. The Supreme Court granted relief to the accused, concluding that the complaint was a simple breach of trust for non-payment of money, which warrants only a civil case and is unrelated to cheating.

Case Details:

• Case Name/No: Delhi Race Club (1940) Ltd. & Ors. v. State of Uttar Pradesh & Anr., Criminal Appeal No. 3114 of 2024.
• Judges: Justice J.B. Pardiwala and Justice Manoj Misra.

Where can this judgment be used:

This case can serve as a precedent for professionals in situations where a civil dispute is incorrectly charged under criminal law. It also clarifies the scope of Section 202 of the CrPC.

Brief Facts:

At the outset, this case involves a private complaint filed by the complainant before the Additional Chief Judicial Magistrate. The Magistrate took cognizance and initiated an inquiry under Section 202 of the CrPC. It appears the Magistrate also recorded the complainant’s statement under Section 202 of the Code. The summary of the facts and proceedings is as follows:

1. The complainant, Vipin Kumar Agarwal, had been supplying horse feed to Delhi Race Club (1940) Ltd. since 1990.
2. In 1995, he was asked to raise invoices in the name of the Delhi Horse Trainers Association.
3. Payments were regular until 2017, after which an amount of Rs. 9,11,434 became due.
4. The complainant filed a criminal complaint for cheating and criminal breach of trust against Delhi Race Club and its officials before the ACJM.
5. The ACJM took cognizance of the case and initiated an inquiry under Section 202 of the CrPC, during which statements were recorded from the complainant and others.
6. After the inquiry under Section 202, the Additional Chief Judicial Magistrate issued process/summons for trial of the offence of criminal breach of trust (Section 406 IPC).
7. The appellant, Delhi Race Club, then filed a petition under Section 482 CrPC seeking to quash the summons before the High Court, which was subsequently rejected.
8. Aggrieved by the High Court’s decision, the complainant filed an appeal before the Hon’ble Supreme Court.

Analysis by the Supreme Court:

The Supreme Court addressed two primary questions in this judgment:

1. What is the scope of an inquiry under Section 202 of the CrPC, and to what extent can the Magistrate exercise their power during this inquiry?
2. What is the difference between Criminal Breach of Trust and Cheating?

Scope of Inquiry Under Section 202 of CrPC:

The Hon’ble Supreme Court, while addressing this question, emphasized the importance of the Magistrate applying their judicial mind judiciously during an inquiry under Section 202 of the CrPC. This inquiry serves as a critical step to filter out cases that do not warrant criminal prosecution, ensuring that the criminal process is not misused for civil disputes or frivolous complaints.

The Court made several points regarding the scope of an inquiry under Section 202 of the CrPC for the Magistrate. The analysis provided certain judicial safeguards to the accused, complainants, and discretionary powers to the Magistrate, summarized as follows:

1. Objective of Section 202 CrPC: The Supreme Court emphasized that the purpose of an inquiry under Section 202 CrPC is to determine whether there is sufficient ground to proceed with a complaint. This provision is not meant to assess whether the evidence will lead to a conviction or acquittal; rather, it serves as a preliminary filter to decide if the allegations made in the complaint require further judicial scrutiny.
2. Limited Scope and Nature of Inquiry: The Court clarified that the scope of an inquiry under Section 202 CrPC is limited to verifying the truthfulness or falsity of the allegations made in the complaint. At this stage, the Magistrate is primarily concerned with the evidence presented by the complainant and must evaluate whether it prima facie establishes the commission of an offence. The Magistrate should not engage in a detailed examination of the case’s merits or demerits.
3. Role of the Magistrate: The Magistrate’s role under Section 202 is to carefully examine the complaint and the evidence presented to determine whether a prima facie case exists. The Magistrate is not required to weigh the evidence to assess its potential for conviction but to ensure that, if proven, the allegations would constitute an offence. The Magistrate should not consider potential defences that the accused might raise at this stage.
4. Exclusion of the Accused’s Role: The accused has no role or locus standi during the inquiry under Section 202 CrPC. The inquiry is conducted solely to assess the materials placed by the complainant before the Court. The Magistrate should make a determination without any input from the accused, as the accused does not have a right to be heard at this preliminary stage.

Citations Relied Upon Regarding Section 202 CrPC:

a) D.N. Bhattacharjee v. State of West Bengal [(1972) 3 SCC 414]: The Court cited this case to emphasize that at the stage of issuing process, the Magistrate’s duty is to determine whether there are sufficient grounds to proceed further, not to evaluate the probability of conviction or acquittal. It reinforced the principle that the inquiry under Section 202 is to ascertain the truthfulness of the allegations made in the complaint, purely from the complainant’s perspective.
b) Smt. Nagawwa v. Veeranna Shivalingappa Kanjalgi [(1976) 3 SCC 736]: This judgment outlined the conditions under which the issuance of process could be quashed, listing four scenarios:

• Where the allegations in the complaint or the statements of the witnesses, taken at face value, do not make out any case against the accused.
• Where the allegations are patently absurd and inherently improbable, making it impossible for any prudent person to conclude that there is sufficient ground for proceeding against the accused.
• Where the Magistrate’s discretion in issuing process is capricious and arbitrary, based on no evidence or on materials that are wholly irrelevant or inadmissible.
• Where the complaint suffers from fundamental legal defects, such as the absence of a sanction or a complaint by a legally competent authority.

Findings of the Court: Difference Between Criminal Breach of Trust and Cheating.

The Supreme Court thoroughly analyzed the distinction between criminal breach of trust under Section 406 of the IPC and cheating under Section 420 of the IPC. The Court highlighted that while both offences involve dishonest intent, they differ in their basic elements and nature.

Key Distinctions Between the Two Offences:

1. Entrustment vs. Deception: Criminal breach of trust involves entrustment of property, where the accused has control or possession of the property with an obligation to manage or dispose of it as directed. The breach occurs when the property is misappropriated. Cheating, on the other hand, involves deception from the beginning, where the accused deceives the complainant into parting with property or taking an action that causes harm.
2. Nature of the Act: In criminal breach of trust, the accused initially has lawful possession of the property, which they later misuse or misappropriate. In cheating, the accused gains possession or induces an action based on a false representation or deceitful act.
3. Timing of the Dishonest Intention: For criminal breach of trust, the dishonest intention arises after the property is entrusted to the accused. For cheating, the dishonest intention must exist from the inception of the transaction.

Citations Relied Upon Regarding the Difference Between Criminal Breach of Trust and Cheating:

i. S.W. Palanitkar & Ors. v. State of Bihar & Anr. [(2002) 1 SCC 241]: This case highlighted the specific ingredients required for criminal breach of trust and cheating, emphasizing the need for a fraudulent or dishonest inducement to deliver property in the case of cheating.
b) State of Gujarat v. Jaswantlal Nathalal [(1968) 2 SCR 408]: This case explained that for criminal breach of trust, there must be “entrustment” of property, meaning the property must be given to the accused with an obligation to use it in a particular manner.

ii. State of Gujarat v. Jaswantlal Nathalal [(1968) 2 SCR 408]:
In this case, the Court explained that for a charge of criminal breach of trust to be valid, there must be an “entrustment” of property. This means that the property must have been given to the accused with a specific obligation to use it in a particular way. The term “entrusted” suggests that the accused had a fiduciary relationship with the complainant regarding the property.

iii. Central Bureau of Investigation v. Duncans Agro Industries Ltd. [(1996) 5 SCC 591]:
The judgment in this case was used to further clarify the requirement of “entrustment” and the existence of a fiduciary relationship under Section 405 of the Indian Penal Code (IPC). It was clarified that for criminal breach of trust to occur, the property in question must belong to someone other than the accused, or the beneficial interest in its ownership must rest with the complainant, with the accused holding the property in trust.

iv. Harmanpreet Singh Ahluwalia v. State of Punjab [(2009) 7 SCC 712]:
This case was referenced to clarify that in cheating, the deceit must induce the person to deliver property or take an action they would not have otherwise taken. Moreover, the deceit must be coupled with a fraudulent intention from the very beginning.

v. Hari Prasad Chamaria v. Bishun Kumar Surekha & Ors. [(1973) 2 SCC 823]:
The Court relied on this case to state that not every breach of trust constitutes a criminal breach of trust unless there is a fraudulent act of misappropriation. Merely failing to fulfill a promise or breaching a contract does not amount to cheating unless there is evidence of dishonest or fraudulent intent from the outset.

Conclusion of the Court’s Analysis:

The Court concluded that the offences of criminal breach of trust and cheating are distinct and cannot coexist in the same factual scenario because they involve different elements and intentions. Criminal breach of trust involves a violation of a fiduciary relationship, while cheating involves fraudulent inducement from the start.

In the present case, the Court observed that there was no entrustment of property that would amount to a criminal breach of trust. The dispute was essentially civil in nature, concerning non-payment of dues, and did not attract criminal liability under Sections 406 or 420 of the IPC. As a result, the order for taking cognizance by the magistrate was quashed.

Supreme Court’s Recommendations to the Lower Courts and Police Officers:

i. Guidance to Magistrates:
The Supreme Court recommended that Magistrates should exercise greater caution and discretion when deciding whether to issue process in criminal cases. It is crucial for Magistrates to distinguish between civil disputes and criminal offences, ensuring that criminal proceedings are not initiated in matters that are essentially civil, such as disputes over non-payment of dues. Magistrates should thoroughly examine the allegations in the complaint to determine whether they genuinely disclose the commission of a criminal offence.

ii. Recommendations to the High Court:
The Court suggested that High Courts must carefully review decisions made by subordinate courts to ensure that legal principles are correctly applied. In cases where the Magistrate has wrongly issued process, the High Court should intervene to quash such orders to prevent the misuse of the criminal justice system. The Supreme Court criticized the High Court in this case for failing to correct the Magistrate’s error and stressed the need for appellate courts to be vigilant in ensuring the proper use of criminal law.

iii. Guidance to Police Officers:
The Supreme Court emphasized the need for proper training and awareness among police officers regarding the distinction between civil disputes and criminal offences. The Court noted that police officers should not automatically register First Information Reports (FIRs) for both criminal breach of trust and cheating when the underlying issue is a civil dispute, such as non-payment of money. The Court called for more careful consideration by the police to avoid inappropriately initiating criminal proceedings.

FAQs:

Can the power of issuing summons be interfered with under Section 482 of the CrPC?
Answer:
Yes, the power of issuing summons can be interfered with under Section 482 of the CrPC. The Supreme Court, in this judgment, reiterated that the High Court has the authority under Section 482 to quash an order issuing summons if it finds that the Magistrate did not properly apply their mind or if the issuance of summons is based on frivolous, vexatious, or legally untenable grounds. Summoning an accused is a serious matter, and if the Magistrate’s order lacks sufficient reasoning or there is a misuse of the judicial process, the High Court can intervene to prevent an abuse of the process of law.

What are the key principles for the Magistrate while issuing process under Section 202 CrPC?
Answer:
The key principles for a Magistrate while issuing process under Section 202 CrPC include:
i. Determination of Prima Facie Case: The Magistrate must determine whether there is a prima facie case to proceed based on the complaint and evidence presented by the complainant.
ii. Limited Scope of Inquiry: The inquiry is not to determine guilt but to establish whether there is sufficient ground to proceed. The Magistrate should not consider any potential defence by the accused at this stage.
iii. Application of Mind: The Magistrate must apply their mind to the facts and legal aspects of the case. A mechanical or automatic issuance of summons without proper scrutiny is improper.
iv. Avoidance of Frivolous Proceedings: The Magistrate should avoid proceeding with cases where the allegations are patently absurd, inherently improbable, or where the dispute is clearly civil in nature.

What are the equivalent provisions in the BHARATIYA NYAYA SANHITA, 2023, and BHARATIYA NAGARIK SURAKSHA SANHITA, 2023 for the above-referred provisions?

Answer:
i. S.202 of CrPC – Postponement of issue of process – S.225 of BNSS, 2023.
ii. S. 406 of IPC – Punishment for criminal breach of trust – S.316(2) of BNS, 2023.
iii. S. 420 of IPC – Cheating and dishonestly inducing delivery of property – S.318 (4) of BNS, 2023.

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