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Synopsis

The Kerala High Court has held that the mere use of the words “defraud” and “cheat” in a complaint is insufficient to constitute an offence under Sections 415 or 420 of the Indian Penal Code (IPC) unless a fraudulent or dishonest intent at the inception of the agreement is established.

The court, presided over by Justice G. Girish, made the observation while quashing criminal proceedings against the petitioner, deeming the case a civil dispute framed to appear as a criminal offence.

The case originated from a complaint by Friends Veneers, alleging that Sujatha Aggarwal (petitioner), proprietor of Agarwal Plywood Industries, committed cheating under Section 420 IPC by failing to pay ₹12,51,640 for 39 consignments of veneer supplied under an agreement. The complainant claimed that the petitioner initially accepted the deliveries but failed to make the agreed payments despite repeated demands. To address the outstanding liability, the petitioner issued two post-dated cheques on August 12, 2002, and August 16, 2002. However, when the cheques were presented for payment, they were dishonored by the bank with the endorsement, “funds expected, please present afterwards.”

The petitioner argued that the dispute was civil in nature, citing substandard veneer supplied by Friends Veneers as a breach of the agreement. It was submitted that a notice detailing her grievances and claimed to have sent a ₹3,00,000 demand draft as partial payment to resolve the issue. The complainant did not appear in court to oppose petitioner's petition, leaving the allegations unchallenged.

The court noted the lack of evidence to demonstrate that the petitioner had a dishonest or fraudulent intent at the inception of the agreement. “It is well settled that the mere failure to perform a promise on the part of one of the parties to an agreement will not give rise to the offence of cheating as envisaged under Sections 415 & 420 IPC in the absence of materials to show that at the time of making the promise the accused had the fraudulent and dishonest intention to deceive the complainant or to induce him to do something which he would not otherwise do, and that such culpable intention right at the time of entering into an agreement cannot be presumed merely from his failure to keep the promise subsequently. So also, the mere mention of words ‘defraud’ and ‘cheat’ in the complaint is not sufficient to infer that the accused had dishonest intention right from the very beginning,” observed the court.

Citing the Supreme Court’s ruling in the case of V.P. Shrivastava v. Indian Explosives Ltd. (2010), the court emphasised that subsequent failure to honour a promise or fulfill an agreement cannot be presumed to be criminal intent.

Consequently, the court quashed the proceedings against the petitioner, stating that “from the nature of the contentions raised by the parties, as well as from the facts and circumstances borne out of the records that an issue of purely civil nature has been stretched and moulded to make it appear that the offence of cheating is involved.”

 

Cause Title: Sujatha Aggarwal v State of Kerala [Crl.M.C.No.4078/2019]