Tuesday, 10 April 2012

Sections 415, 417, 420 CHEATING


Section 415. Cheating:
Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces 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 which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to "cheat".

Explanation- A dishonest concealment of facts is a deception within the meaning of this section.

Illustrations
(a) A, by falsely pretending to be in the Civil Service, intentionally deceives Z, and thus dishonestly induces Z to let him have on credit goods for which he does not mean to pay. A cheats.

(b) A, by putting a counterfeit mark on an article, intentionally deceives Z into a belief that this article was made by a certain celebrated manufacturer, and thus dishonestly induces Z to buy and pay for the article. A cheats.

(c) A, by exhibiting to Z a false sample of an article, intentionally deceives Z into believing. that the article corresponds with the sample, and thereby, dishonestly induces Z to buy and pay for the article. A cheats.

(d) A, by tendering in payment for an article a bill on a house with which A keeps on money, and by which A expects that the bill will be dishonoured, intentionally deceives Z, and thereby dishonestly induces Z to deliver the article, intending not to pay for it.A cheats.

(e) A, by pledging as diamonds article which he knows are not diamonds, intentionally deceives Z, and thereby dishonestly induces Z to lend money. A cheats.

(f) A intentionally deceives Z into a belief that A means to repay any money that Z may led to him and thereby dishonestly induces Z to lend him money. A not intending to repay it. A cheats.

(g) A intentionally deceives Z into a belief that A means to deliver to Z a certain quantity of indigo plant which he does not intend to deliver, and thereby dishonestly induces Z to advance money upon the faith of such delivery. A cheats; but if A, at the time of obtaining the money, intends to deliver the indigo plant, and afterwards breaks his contract and does not deliver it, he does not cheat, but is liable only to a civil action for breach of contract.

(h) A intentionally deceives Z into a belief that A has performed A’s part of a contract made with Z, which he has not performed, and thereby dishonestly induces Z to pay money. A cheats.

(i) A sells and conveys an estate to B. A, knowing that in consequence of such sale he has no right to the property, sells or mortgages the same to Z, without disclosing the fact of the previous sale and conveyance to B, and receives the purchase or mortgage money for Z. A cheats.


Section 417: Punishment for cheating
Whoever cheats shall be punished with imprisonment of either description for a term which may extend to one year, or with fine, or with both.


Section 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 a valuable security, or anything which is signed or sealed, and which is capable of being converted 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 word property may simply be defined as all things which can be measured in value in money terms, including the money itself, and the said thing capable of being possessed by a person, to the exclusive use/ enjoyment as owner of that thing from rest of the world.

Section 24 defines what is “acting dishonestly”. When the doing of any act or not doing of any act causes wrongful gain of property to one person or a wrongful loss of property to a person, the said act is done dishonestly. Wrongful means unlawfully. See section 471.

Section 23 defines what is Wrongful loss and Wrongful gain. The Wrongful means affecting a person of his legal right. For Wrongful loss or gain, any property, movable or immovable must be lost to the owner, or the owner must be, without any reason, is deprived of its beneficial use.

Wrongful gain occurs when a person who is not entitled to property acquires it through unlawful means, or wrongful loss is loss of property caused to the person by unlawful means, and it is sufficient to establish the existence of any one of them. [AIR 1963 SC 666]

Section 25: "Fraudulently"
A person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise.


In cheating, first of all there should be deception by the accused; and by playing this deception, a person may be cheated in two ways –

(1) The Person is induced to deliver the property. This delivery of property is secured by fraudulent and dishonest means; or the Person is induced, fraudulently and dishonestly, to consent that any person shall retain any property. [AIR 1974 SC 1811;

(2) There is no delivery of property, but the Person is intentionally induced, to do or omit to do, something, which the said Person would not do, or he would omit to do, if he were not so induced; and his said act or omission caused or would have caused damage or harm to that person, in body, mind, reputation or property. [AIR 1970 SC 843; (2000) 4 SCC 168; AIR 1960 Bom 268; AIR 1934 Lah 833; AIR 1925 Cal 100; AIR 1970 SC 843;

It is not necessary that deception should always be by express words, but it may be by conduct or implied in the transaction itself. [(2003) 3 SCC 641; (2003) 3 SCC 1121 Hira Lal Hari Lal versus CBI]

Deception is one of the primary ingredient which should be proved / established. Deceiving is to lead into error by causing a person to believe what is false or disbelieve what is true, and such deception may be by words or conduct. The explanation appended to section 415 says that concealment of a fact is akin to deception. [1995 CrLJ 1810 Del; (1994) CrLJ 2238 Mad;

The second essential ingredient of the offence of cheating is element of inducement leading to either the delivery of property, or leading to the doing of any act or omission, as stated hereinbefore. [AIR 1999 SC 2332; (1998) 8 SCC 745]

The crux of the situation is, the intention of the person who induces the victim by his representation, and not the nature of the transaction, which would be decisive in discerning whether there was an intention to cheat or the inducement was bonafide. [AIR 1999 SC 1216]

What is important, is to prove that, at the time the inducement was offered or played, the accused ought to have known that the representation he is making is false, and the representation was made with the intention of deceiving the Person. [AIR 1974 SC 301; AIR 1957 SC 857; AIR 1954 SC 724]

False pretence need not be in express words, and it can be inferred from the circumstances, including the conduct of the accused. [AIR 1967 SC 986]

Section 417 and 420 provides punishment for the offence of cheating. Section 417 provides a much lesser punishment, i.e. a year or fine or both; however, 420 provides a much stringent punishment, which may extend to 7 years imprisonment and fine both.

According to rulings of the Court, section 415 contemplates a simple cheating, wherein, the victim of the offence is “injured” otherwise than being induced to deliver the property [AIR 1951 Assam 122]; whereas section 420 deals with aggravated forms of cheating involving parting of valuable properties. [1994 CrLJ 370 Ori; 1995 CrLJ 3663 SC; 1998 CrLJ 1430 Raj


1989 CrLJ 443


Para 7: A Magistrate owes a duty to the complainant as well as to the absentee accused. It is his duty to see that criminals are brought to book but it is also his duty to ensure that innocent persons are not harassed with ulterior motive through the process of criminal court. The decision in Vadilal Parichat's case AIR 1960 SC 1113 : (1960 Cri LJ 1499) may usefully he perused. It is true that care has to be taken to ensure that a party does not succeed in using the machinery of criminal law for enforcement of civil rights. However, it has to be remembered that a transaction may give rise to civil as well as criminal liability. In a given case the dividing line between the two liabilities may be very thin but the distinction is real and cannot lie ignored.

Para 8: Exceptions apart, actus reus and mens rea (guilty intention) both must concur to constitute a crime. Mens rea precedes the act. Whether the act is coupled with the preexisting mens rea, a crime is properly constituted. Where there is no pre-existing mens rea and there is subsequent inability to perform the promise, only civil liability is incurred. As pointed out in the decision in Shantilal's case (1956 Cri LJ 68) (Madh Bha) (supra) a distinction must be drawn between a case where a post-dated cheque is given to discharge the existing liability and a case where it is issued against delivery of goods, property or cash with an assurance implied or otherwise that it will he met on being presented to the bank on the due date and in due course. In the first case the failure to provide the balance is merely a breach of promise whereas in the latter it may have different consequences. It is the intention of the drawer at the time when the cheque is issued which constitutes the material test and if it appears from the circumstances of the drawer that he did not expect that the cheque would be cashed in normal course, it would be prima facie proof of the intention to cheat as is clear form Illustration (f) to S.415 of the I.P.C. which is as under :-

"A intentionally deceives Z into a belief that A means to repay any money that Z may lend to him and thereby dishonestly induces Z to lend him money. A not intending to repay it. A cheats."

Para 9: It may be pointed out that direct proof of mens rea is seldom available and it has often to be inferred from the surrounding circumstances. If form the facts it is established that failure to meet the cheque was not accidental but a consequence expected by accused, the presumption would be that the accused intended to cheat. Where prosecution establishes facts which lead prima facie to the conclusion that failure to meet the cheque was not accidental but was consequence expected and, therefore, intended by the accused it will then be for the accused to establish any fact which may be in his favour which was especially within his knowledge and of which the prosecution could not be expected to have any information. In this connection the provision is S.116 of the Evidence Act may usefully be perused.

Para 10: In cases of complaints, S.204 of the Code must be read as supplemental to S.203 ibid and the admissible material therein referred to constitutes the basis for the opinion pertaining to process. It may be noted that an accused in a Criminal trial has the protective should of presumptive innocence. Legislature has prescribed different standards for evaluating the material on record at different stages of a criminal case. At the stage of taking cognizance and issue of process under S.204 of the Code, considering also the question of probable defence (vide Vedilal Panchal's case AIR 1960 SC 1113 : (1960 Cri LJ 1499)), the material must be such as to enable the Magistrate to form an opinion that there are sufficient grounds for proceeding, that is, sufficient ground for issuing process against the accused in respect of an offence.

Thus at this stage a court is concerned merely with the existence of prima facie case for that limited purpose. All that has to be seen is that the complaint and the statements of witnesses create a situation where there appears to be truth in the allegation and the necessity of further probe in the matter is indicated in the interest of justice. Reference in this connection may be made to the decision in Saurendra Mohan Basu case AIR 1961 Cal 461 : (1961 (2) Cri LJ 204 (FB)). However, at the subsequent stage of charge, the material has to be such as to satisfy a more rigorous test. At that stage it must be such as to sustain an opinion that it raises not merely a suspicion but a positive presumption of guilt. Reference in this connection may usefully be made to the provisions embodied in S.211(5) and S.246(1) of the Code.

The material on which charge is framed need not be fully worthy of credit but must be such as to carry a reasonable degree of credit. It must be remembered that at this stage it is not necessary that the evidence must be sufficient to sustain conviction and though the Section contemplates framing of charge only when a prima facie case is made out, the Magistrate, even in the absence of rebuttal by the accused against whom he has framed charge, is free to test the evidence more closely in the crucible of probabilities for the final verdict. It may be pointed out that in order to sustain the finding of guilt at the conclusion of a trial, the material must stand the most rigorous test of proof beyond reasonable doubt. In this connection the decision in Kewal Krishna's case AIR 1980 SC 1780 : (1980 Cri LJ 1271) may usefully be perused.

Para 11: Relating to the offence of cheating punishable under S.420 of the I.P.C. it has been stated thus S.L. Savani's case (1988) I MPWN 42 :-
"Legislative definition of the offence of cheating as embodied in S.415, I.P.C. though not so vide as moralists would like it to be, is none-the-less wide enough to bring within its coverage a large Section of the wrong-doers. It may be noted that the definition of cheating consists of two parts - each independent of the other. First part pertains to delivery or retention of property. In order to establish the offence of cheating as contemplated under the second part it has to be shown that not only that person deceived was induced to do or not to do something but this act or omission on his part caused or is likely to cause damage or harm in body, mind, reputation or property which are presumed to be the four cardinal assets of humanity. A transaction may give rise only to civil liability or to criminal assets of humanist. A transaction may give rise only to civil liability or to criminal liability or to both. It may be noted that S.415, I.P.C. does not in any manner limit the mode in which deception may take place or is it necessary that the deception should be by express words. It may be by conduct or implied in nature o1 the transaction itself."
The decision in Ajit Kumar's case (1988) I MPWN 18 may also be usefully perused.

Para 12: As already pointed out dishonest intention at the inception of delivery of retention of property is the gist of the offence of cheating punishable under S.420, I.P.C. and, therefore, every subsequent non payment, in the transaction of sale on credit, is not within its ambit. In a given case subsequent act in conjunction with other circumstances may properly be considered in determining whether or not there was guilty mind in the very beginning of the bargain. In the instant case on a careful consideration of the facts and circumstances and looking to the course of events in the light of the law discussed above, it cannot be said that the transaction in question constitutes merely a civil wrong and that there was no fraudulent representation as to payment for getting delivery of the valued goods. The transaction has a criminal tinge and the material is sufficient for an inference of mens rea of dishonest intention at the time of promise. The decision in Daulatram's case 1982 MPWN 88 may usefully be perused.


1982 CrLJ 2266

Para 6: What are the essential requisites of the offence u/s. 420 I.P.C. ? A trite question but it needs reiteration. Failure to honour a promise does not by itself amount to an offence u/s. 420 read with S.415, I.P.C. The essential requisites of the offence are - (1) Deception of any person, (2) (a) fraudulently or dishonestly inducing that person (i) to deliver any property to any person, or, (ii) to consent that any person should retain any property, or (b) intentionally inducing that person to do or omit to do anything which that person would not do or omit to do but for the deception, and which act or omission causes damage or harm to that person in body, mind or property.

Para 7: Is there any allegation that the petitioner caused any deception ? Is there anything in the complaint to show that the petitioner caused the complainant to believe what was false or misleading as a matter of fact or lead him into error ? Deception is the quintessence of the offence. It must be caused by the accused to generate inducement in the mind of the complainant. It may be caused by express words or by conduct. The false representation must relate to a certain future event, it must be deceptive in nature and character and the accused must know it to be fake or false at the time when it was made. To hold a person guilty of the offence of swindling or cheating, it has to be shown that his intention was dishonest at the time of making the representation. Such a dishonest intention cannot be drawn from the mere fact that he could not subsequently fulfil his promise due to some change of events, unforeseen circumstances, etc.


AIR 1954 SC 724

Para 4: The High Court observed rightly that if the Appellant had at the time he promised to pay cash against delivery an intention to do so, the fact that he did not pay would not convert the transaction into one of cheating. But if on the other hand he had no intention whatsoever to pay but merely said that he would do so in order to induce the complainant to part with the goods then a case of cheating would be established. It was common ground that the market of tin was rapidly declining and it went down from Rs. 840.00 per cwt. in about April 1951 to Rs. 540.00 per cwt. in about August 1951. Even between the 3.05.1951 and the 5.05.1951 the two dates when the negotiations for the transaction took place between the parties and the contract was actually entered into, the market declined from Rs. 778.00 per cwt. to Rs. 760.00 per cwt. It was therefore urged on behalf of the Appellant that the complainant would be anxious to sell the goods to the Appellant and there would be no occasion for the Appellant to induce the complainant to part with the goods on a false promise to pay cash against delivery.
It was further urged that the Appellant was not shown to have had no other resources except his overdraft account with the Bank of Bankura Ltd., that he had miscalculated his capacity to pay the price against delivery and that therefore there was no justification for holding that he had initially no intention to pay for the ingots when they would be delivered to him. It was also urged that the bill (Ex. No. 1) which was given by the complainant to the Appellant stipulated that interest at the rate of 12 per cent per annum would be charged on the price of goods which was not paid in cash against delivery and this stipulation went to show that it was only a case of civil liability and did not import any criminal liability on the part of the Appellant.
It was lastly urged that the Appellant was anxious to arrive at a settlement with the complainant and actually went to his shop and was arrested there while negotiating a settlement and this showed that he had harboured no fraudulent intentions against the complainant when he had taken delivery of the ingots.

Para 5: All these contentions which have been urged on behalf of the Appellant however are of no avail. The complainant had never known the Appellant and had no previous dealings with him prior to the transaction in question. The complainant could therefore not be anxious to sell the goods to the Appellant either on credit or even in a falling market except on terms as to cash against delivery. Whatever be the anxiety of the complainant to dispose of his goods he would not trust the Appellant who was an utter stranger to him and give him delivery of the goods except on terms that the Appellant paid the price of the ingots delivered to him in cash and that position would not be affected by the fact that the market was rapidly declining.

There was no question of any miscalculation made by the Appellant in the matter of his ability to pay the cash against delivery. He knew fully well what his commitments were, what moneys he was going to receive from outside parties and what payments he was to make in respect of his transactions upto the 4.05.1951. The position as it obtained on the evening of the 4.05.1951 was that he had not with him any credit beyond a sum of Rs. 3,303-3-3 as above and there is nothing on the record to show that he expected any further payments by the 5.05.1951 to enable him make the payment of the price against delivery of these ingots. The stipulation as to payment of interest indorsed on the bill would not militate against an initial agreement that the price of the ingots should be paid in cash against delivery. It would only import a liability on the part of the purchaser to pay 12 per cent interest on the price of the goods sold and delivered to him if he did not pay cash against delivery. That would indeed be a civil liability in regard to the payment of interest but would certainly not eschew any criminal liability of the purchaser if the circumstances surrounding the transaction were such as to import one.

The anxiety to arrive at a settlement could easily be explained by the fact that the Appellant knew that he had taken delivery of the ingots without payment of cash against delivery and the only way in which he would get away from the criminal liability was to arrive at a settlement with the complainant. The state of the overdraft account of the Appellant with the Bank of Bankura Ltd., the evidence of the complainant as well as the evidence of the complainant as well as the Jamadar, the hypothecation of 70 ingots of tin by the Appellant with the Bank of Bankura Ltd. on the very 5.05.1951 and the whole of the conduct of the Appellant is sufficient in our opinion to hold that at the time when he took delivery of the 25 ingots of tin, the Appellant had no intention whatsoever to pay but merely promised to pay cash against delivery in order to induce the complainant to part with the goods.

The Appellant was therefore rightly convicted of the offence u/s. 420 of the Indian Penal Code, 1860 and both the Courts below were right in holding that he was guilty of the said offence and sentencing him to one year's rigorous imprisonment as they did. The appeal therefore is without any merits and must stand dismissed.


AIR 1983 SC 1149

Para 1: In this matter as far back as 28th of Oct., 1980 the respondents (the accused) were granted 4 weeks' time to pay a sum of Rs. 19,407-46 P. to the appellant (complainant) with a view to compound the matter and though further extensions of time were granted the respondents have not paid or deposited the said amount for being paid over to the appellant till this day. We therefore, reject a further request for extension to deposit the a mount and proceed to deal with the matter on merits.

Para 2: A complaint under Secs. 420, 467, 468, 34 and 120B, I. P. C. was filed by the appellant (Manager of Transport Corporation of India) against the respondents who are partners of M/s. Badridas Jagdish Kumar, of Hathras (the consignees ), in the Court of Judicial Magistrate, Khair, Aligarh. It appears that a consignment of 101 bags of copra valued at Rs. 22,620/- was despatched by M/s. Jagannath & Sons, Mysore (consignor) to M/s. Badridas Jagdish Kumar of Hathras (consignee) in respect where of Transport Corporation of India were the carriers. The bill in respect of that consignment was negotiated by the State Bank of India, Mysore for payment at Hathras in favour of State Bank of India, Hathras and the consignee was supposed to retire the transport receipt and other documents from the State Bank of India, Hathras by making payments of the price of the goods enabling them to take delivery of the consignment. The case of the complainant (the carriers) was that by misrepresentation and deceit the respondents (partners of the consignee) induced the complainant to deliver the consignment to them without retiring the T. R. from the State Bank of India, Hathras and without making payment to the Bank. It appears that the respondents merely paid the freight (Rs. 1,400) and later on made a part payment of Rs. 3,600.00 towards the price of the consignment. So at the insistence of the consignors the complainant (the carriers) settled the dues of the consignors by paying to them Rs. 19,407 and odd. The learned Magistrate framed a charge against the respondents u/s. 420 r/w. 34, I. P. C. The respondents went in revision to the Court of Additional Sessions Judge. Aligarh for quashing the charge on the ground that no offence was disclosed, but learned Additional Sessions Judge dismissed the revision. The respondents invoked the inherent jurisdiction of the High Court u/s. 482, Code of Criminal Procedure by preferring Criminal Misc. Application No. 788/79 challenging the order of the Additional Sessions Judge and the High Court by its order dated 19.9.1979 quashed the criminal case. The appellant (complainant) has challenged the High Court's order in this appeal.

Para 3: The principal reason why the High Court was inclined to quash the criminal proceedings was that it felt that after all in respect of the concerned consignment the respondents had paid three sums of Rs. 1,400.00 (towards the freight), Rs. 6,000.00 and Rs. 19,000.00 and odd (the last 2 towards the price) and as such it was a case of mere delay on the part of the respondents in discharging their monetary liability and the High Court has observed thus : "the mere fact that there was delay on the part of the applicants (respondents) in paying the price of the goods will not necessarily amount to the dishonest intention on their part" and it quashed the charge u/s. 420/34, I. P. C. on the ground that it would be sheer abuse of the process of the court if the trial were allowed to proceed.

Para 4: On admitted facts as indicated earlier the respondents had merely paid a total sum of Rs. 5,000.00 (Rs. 1,400/- towards freight and Rs. 3,600.00 towards the price) and no further amount whatsoever was at all paid by them either to the complainant or to the consignors. In fact it was the complainant (carriers) who settled all the dues of the consignors by paying to them Rs. 19,400.00 and odd. In other words the respondents even after getting delivery of consignment from the carriers allegedly by making misrepresentation and practising deceit have failed to make good a substantial part of the price of the goods even up to this day. It is therefore, not a case of delayed payment at all but a case of no substantial payment. We are satisfied that if the High Court had not fallen into the error of thinking that the amount of Rs. 19,000.00 and odd had been paid by the respondents it would not have reversed the Sessions Court's order. We accordingly set aside the High Court's order and direct that the learned Judicial Magistrate, Khair, Aligarh will proceed with a criminal case against the respondents and dispose it of according to law.


Sr. No.
Ingredients of the offence / Facts to be Proved
The facts of the case
1
The Person accused has made false representation;

2
The said Person was fully aware that he was making a false representation;

3
The said Person, by making such false representation,

induces the other person, to deliver his property to any person;

or

induces the other person to consent that any person shall retain any property;

or

induces the other person, to do some act or omit to do some act, which the said Person would not do, or would have omitted to do, if said false representation were not so made; and the doing of such act or omission had caused or had likely to caused damage or harm to that other person in body, mind, reputation or property.

Inducement will entail such a nature of proposal / incentive being offered which any prudent person would readily entertain.



The offence is Non cognizable and Bailable; and triable by any Magistrate; and therefore Application u/s 156(3) or Private Complaint u/s 200 may be preferred.


Sr. No.
Ingredients of the offence / Facts to be Proved
The facts of the case
1
The Person accused has made false representation;

2
The said Person was fully aware that he was making a false representation;

3
The said Person, by making such false representation,

induces the other person, to deliver his property to any person;

or

induces the other person to make, alter or destroy the whole or any part of a valuable security;

or

induces the other person to make, alter or destroy anything which is signed or sealed, and which is capable of being converted into a valuable security.



The offence is cognizable and Non Bailable; and triable by Magistrate of the First Class; and therefore FIR or Application u/s 156(3) or Private Complaint u/s 200 may be preferred.


CHEATING – (2009) 3 SCC 78
Section 415 to 420 – (2003) 5 SCC 257
Section 420 – AIR 1957 SC 857
Sections 415, 420 – cheating – (2011) 1 SCC 74 – Paras 68, 72, 75
(2010) 8 SCC 383
Ram Chandra Singh V Savitri Devi and Ors 2003 8 SCC 319
Santosh V Jagat Ram and Anr MANU SC 0097 2010
SP Chengalvaraya naidu vs Jagannath AIR 1994 SC 853


Cheating –
AIR 1986 SC 2045;
(1970) 2 SCC 740;
AIR 1965 SC 333;
(1998) 5 SCC 694;
(2006) 6 SCC 736 Para 32;
(2007) 5 SCC 228, Para 8;
AIR 1961 Andh Pra 266.

I say that the said ______ made fraudulent representation to me and further induced me to cause the delivery of goods to him on the premise of purported bonafide cheques which would be given by him, and all the cheques given by said ___________ have dishonoured.

I say that the offence of cheating contemplated u/s 420 of IPC, 1860, involves fraudulent representation, inducement and delivery of property, and all these three ingredients are present in the existing facts of the case.

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