Delhi Race Club (1940) Ltd. & Ors. vs State of Uttar Pradesh & Anr.

Held: There was total non-application of mind by the High Court – Magistrate failed to pose unto himself the correct question as to whether the appellant Nos. 2 and 3-office bearers of the appellant No. 1 Company, were personally liable for any offence – Penal Code does not contain any provision for attaching vicarious liability on the part of the appellant Nos. 2 and 3 – Vicarious liability of the office bearers would arise provided any provision exists in that behalf in the statute – Furthermore, at the stage of pre-cognizance, the Magistrate is obliged to look into the complaint threadbare so as to reach to a prima facie conclusion whether the offence is disclosed or not, then he is expected to be more careful when he is actually taking cognizance upon a private complaint and ordering issue of process – High Court completely lost sight of the said aspect while rejecting the application u/s.482 CrPC – Issuance of summons is a serious matter and, thus, should not be done mechanically and it should be done only upon satisfaction on the ground for proceeding further in the matter against a person concerned based on the materials collected during the inquiry – Plain reading of the complaint fails to spell out any of the ingredients of ss. 406 and 420 – At the most, the Magistrate could have issued process for the offence punishable u/s.420-cheating but in any circumstances no case of criminal breach of trust made out, because there was no entrustment of any property – Not even the case of the complainant that any property was lawfully entrusted to appellants and that the same has been dishonestly misappropriated – Case of the complainant is that the price of the goods sold by him has not been paid – Once there is a sale, s. 406 goes out of picture – Even if the Magistrate would have issued process for the offence punishable u/s.420-cheating the same would have been liable to be quashed and set aside, as none of the ingredients to constitute the offence of cheating disclosed from the materials on record – If it is the case of the complainant that a particular amount is due and payable to him then he should have filed a civil suit for recovery of the amount against the appellants – But he could not have gone to the court of the Judicial Magistrate by filing a complaint of cheating and criminal breach of trust – Till date, the complainant has not filed any recovery suit – Continuation of the criminal proceeding nothing but abuse of the process of law – Thus, the impugned order passed by the High Court as also the order passed by the Additional Chief Judicial Magistrate taking cognizance upon the complaint, set aside. [Paras 11, 12, 14, 18, 19, 21, 26, 27, 31, 32, 39, 40, 45]

Penal Code, 1860 – u/ss.406, 420 – Criminal breach of trust and cheating – Specific ingredients – Difference between: Held: In both the sections, ss. 406 and 420, mens rea-intention to defraud or the dishonest intention must be present, and in the case of cheating it must be there from the very beginning or inception – Distinction between mere breach of contract and the offence of criminal breach of trust and cheating is a fine one – In case of cheating, the intention of the accused at the time of inducement should be looked into which may be judged by a subsequent conduct, but for this, the subsequent conduct is not the sole test – Mere breach of contract cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right from the beginning of the transaction i.e. the time when the offence is said to have been committed – Thus, it is this intention, which is the gist of the offence – Whereas, for the criminal breach of trust, the property must have been entrusted to the accused or he must have dominion over it – Said property must be either of some person other than the accused or beneficial interest in or ownership’ of it must be of some other person – Accused must hold that property on trust of such other person – Although the offence of breach of trust and cheating involve dishonest intention, yet they are mutually exclusive and different in basic concept – There is a distinction between criminal breach of trust and cheating – For cheating, criminal intention is necessary at the time of making a false/misleading representation since inception – In criminal breach of trust, mere proof of entrustment is sufficient – Thus, in case of criminal breach of trust, offender is lawfully entrusted with the property, and he dishonestly misappropriates the same, whereas, in case of cheating, offender fraudulently or dishonestly induces a person by deceiving him to deliver any property – In such a situation, both the offences cannot co-exist simultaneously. [Paras 25, 26, 30]

Code of Criminal Procedure, 1973 – s.202 – Magistrate issuing process – Inquiry under – Scope and ambit of – Discussed. [Paras 6, 7]

Judicial deprecation – Offences of criminal breach of trust and cheating – Courts below not been able to understand the fine distinction between criminal breach of trust and cheating: Held: IPC remained in force for almost a period of 162 years until it was repealed and replaced by the Bharatiya Nyaya Sanhita-BNS in December 2023 which came into effect on 01.07.24 – Even after these many years, the courts below have not been able to understand the fine distinction between criminal breach of trust and cheating – Casual approach has been adopted by the courts below – In contrast, when a case arises from a FIR, responsibility is of the police to thoroughly ascertain whether the allegations levelled by the informant indeed falls under the category of cheating or criminal breach of trust – Unfortunately, it has become a common practice for the police officers to routinely and mechanically proceed to register FIR for both the offences, criminal breach of trust and cheating on a mere allegation of some dishonesty or fraud, without any proper application of mind – Police officers across the country to be imparted proper training in law so as to understand the fine distinction between the offence of cheating viz-a-viz criminal breach of trust – Both offences are independent and distinct – Two offences cannot coexist simultaneously in the same set of facts – They are antithetical to each other – Two provisions of the IPC (now BNS, 2023) are not twins that they cannot survive without each other. [Paras 41-43]