Mere Breach Of Contract Cannot Amount To Cheating In Absence Of Dishonest Intention At Inception: Supreme Court

The Court was hearing an appeal arising out of the order of the Jharkhand High Court, which had dismissed a petition under Section 482 CrPC filed by the appellant seeking quashing of criminal proceedings, in relation to a property transaction.

A Bench comprising Justice B.V. Nagarathna and Justice R. Mahadevan, while deciding the matter, observed: “Mere allegations by the complainant/respondent No.2 that the appellant failed to execute the agreement for sale and failed to refund the money paid by the complainant/respondent No.2 does not satisfy the test of dishonest inducement to deliver a property or part with a valuable security as enshrined under Section 420 IPC.”

Such a culpable intention right at the beginning when the promise was made, the Bench clarified, “cannot be presumed but has to be made out with cogent facts.”

Advocate Srija Choudhury represented the petitioner, while Advocate Rajiv Shankar Dwivedi appeared on behalf of the respondents.

Background

The appellant, owner of certain properties, had entered into an agreement for sale with the complainant in 2013 for a total consideration of ₹43,00,000/-, of which ₹20,00,000/- was paid in advance. However, the sale deed was never executed, leading to the complainant filing a criminal complaint and an FIR in 2021, nearly eight years after the agreement. The complaint alleged offences under Sections 406, 420, and 120B IPC.

During the proceedings, the parties attempted a settlement through mediation, with the appellant agreeing to repay a portion of the amount. On failure to adhere to the repayment schedule, his anticipatory bail was cancelled, which subsequently led to the filing of a petition before the High Court seeking the quashing of the proceedings. The High Court refused to quash the proceedings, prompting the appeal before the Supreme Court.

Court’s Observations

The Supreme Court, at the outset, held that fraudulent or dishonest intention at the inception of the agreement is a necessary ingredient for the offence of cheating. The Bench referred to Inder Mohan Goswami v. State of Uttaranchal, in which the Apex Court had ruled that, “…to hold a person guilty of cheating it is necessary to show that he had a fraudulent or dishonest intention at the time of making the promise”

The Court, while taking note of the absence of any such fraudulent or dishonest intention in the present case, observed that “…there is no allegation in the FIR or the complaint indicating either expressly or impliedly any intentional deception or fraudulent/dishonest intention on the part of the appellant right from the time of making the promise or misrepresentation.”

The Bench further observed that the essential ingredients of criminal breach of trust were not satisfied. It was stressed that entrustment of property and dishonest misappropriation or conversion are prerequisites under Section 406 IPC, none of which were established by the complainant.

Furthermore, while explaining the distinction between cheating and criminal breach of trust, the Bench remarked: “For cheating, criminal intention is necessary at the time of making false or misleading representation i.e. since inception. In criminal breach of trust, mere proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriates the same. Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver a property.”

The Bench clarified that cheating and criminal breach of trust are distinct offences and cannot co-exist simultaneously on the same set of facts, since they are antithetical to each other.

The Supreme Court also pointed out that the complaint had been filed after an inordinate delay of nearly eight years, which raised doubts regarding the bona fides of the complainant, adding that the complainant had an alternative remedy in civil law but had chosen to pursue criminal proceedings instead. “Criminal law ought not to become a platform for initiation of vindictive proceedings to settle personal scores and vendettas,” the Court remarked.

Referring to its decision in State of Haryana v. Bhajan Lal, the Court held that the present case fell squarely within the categories where quashing is justified, particularly where allegations are manifestly attended with mala fides or are inherently improbable.

The Bench also cited Vishal Noble Singh v. State of Uttar Pradesh (2024), cautioning against the misuse of criminal justice machinery for oblique motives, and emphasised the need for courts to remain vigilant against such tendencies.

Conclusion

Setting aside the High Court’s order, the Supreme Court quashed the criminal proceedings, FIR, and complaint, holding that no prima facie case was made out against the appellant under Sections 406, 420 or 120B IPC.

Cause Title: Arshad Neyaz Khan Vs The State of Jharkhand And Another (Neutral Citation: 2025 INSC 1151)

Appearances

Petitioner: Advocate Srija Choudhury, AOR

Respondents: Advocates Rajiv Shankar Dvivedi, Madhusmita Bora, and Pawan Kishore Singh.

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