The Offence Of Cheating And Rapidly Emerging Defence Of Part-Payment - An Ambiguity In Law?

Cheating is an act of deception which causes loss, damage or harm to the person who is deceived, in body, mind, reputation or property and in which the deceiver's object is fraudulent and dishonest right from the very beginning. It is a criminal offence and contains numerous ingredients. Section 415 of the Indian Penal Code, 1860 defines cheating as: -

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".

In the case of Dalip Kaur V. Jagnar Singh,^[1] it was held by the Hon'ble Supreme Court: -

"8. ……An offence of cheating would be constituted when the accused has fraudulent or dishonest intention at the time of making promise or representation………."

It would be apt to discuss the ingredients of cheating which have been discussed by the Supreme Court and various High Courts. In the case of Harmanpreet Singh Ahluwalia v. State of Punjab,^[2] the Hon'ble Supreme Court held: -

"25. An offence of cheating cannot be said to have been made out unless the following ingredients are satisfied:

"(i) deception of a person either by making a false or misleading representation or by other action or omission;

(ii) fraudulently or dishonestly inducing any person to deliver any property; or

(iii) to consent that any person shall retain any property and finally intentionally inducing that person to do or omit to do anything which he would not do or omit."

For the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation. Even in a case where allegations are made in regard to failure on the part of the accused to keep his promise, in the absence of a culpable intention at the time of making initial promise being absent, no offence under Section 420 of the Penal Code can be said to have been made out. We may reiterate that one of the ingredients of cheating as defined in Section 415 of the Penal Code is existence of an intention (sic a fraudulent or dishonest intention at the time) of making initial promise or existence thereof from the very beginning of formation of contract."

Hence, intent to cheat from the very inception is also one of the fundamental ingredients of cheating. In the case of Vesa Holdings (P) Ltd. v. State of Kerala,^[3] the Hon'ble Supreme Court held:

"12. ……………… In other words, for the purpose of constituting an offence of cheating, the complainant is required to show that the accused had fraudulent or dishonest intention at the time of making promise or representation………"

The fraudulent or dishonest intention at the time of making a promise must be present which is very important for the offence of cheating to be constituted.

INTENT TO CHEAT FROM THE VERY INCEPTION

Therefore, an essential ingredient of the offence of cheating is the intent to cheat from the very inception or presence of a dishonest intention at the time of making a promise. In the case of Samir Sahay v. State of U.P.,^[4] the Hon'ble Supreme Court held: -

"21. ………………This Court in Arun Bhandari v. State of U.P. [Arun Bhandari v. State of U.P., (2013) 2 SCC 801 : (2013) 2 SCC (Cri) 21] , has held that it is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating.

'16………..To hold a person guilty of the offence of cheating, it has to be shown that his intention was dishonest at the time of making the promise [and] such a dishonest intention cannot be inferred from [a] mere fact that he could not subsequently fulfil the promise.'

22. In G.V. Rao v. L.H.V. Prasad [G.V. Rao v. L.H.V. Prasad, (2000) 3 SCC 693 : 2000 SCC (Cri) 733] , this Court has held thus: (SCC pp. 696-97, para 7)

'7…………a guilty intention is an essential ingredient of the offence of cheating. In order, therefore, to secure conviction of a person for the offence of cheating, "mens rea" on the part of that person, must be established. It was also observed in Mahadeo Prasad v. State of W.B. [Mahadeo Prasad v. State of W.B., AIR 1954 SC 724 : 1954 Cri LJ 1806] , that in order to constitute the offence of cheating, the intention to deceive should be in existence at the time when the inducement was offered.'

23. In S.W. Palanitkar v. State of Bihar [S.W. Palanitkar v. State of Bihar, (2002) 1 SCC 241 : 2002 SCC (Cri) 129] it has been laid down that: (SCC p. 250, para 21)

'21. … In order to constitute an offence of cheating, the intention to deceive should be in existence at the time when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise, to say that he committed an act of cheating. A mere failure to keep up promise subsequently cannot be presumed as an act leading to cheating.' "

The Supreme Court has time and again held that a fraudulent intention at the time of making a promise is one of the fundamental ingredients for the purpose of constituting an offence of cheating. To hold a person guilty of cheating, it is necessary to show that he had fraudulent or dishonest intention at the time of making the promise. From his mere failure to keep up the promise subsequently such a culpable intention right at the beginning, that is, when he made the promise cannot be presumed.^[5]

INTENTION TO CHEAT FROM THE VERY INCEPTION IN CASES OF PART PAYMENT– PRE-COGNIZANCE OR A POST COGNIZANCE DECISION?

Section 417 of the Indian Penal Code, 1860, enunciates the punishment for the offence of cheating which is reproduced as under: -

"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."

The offence of cheating is a cognizable and non-bailable offence triable by a Magistrate of the first class.^[6] The lower courts of our country have vehemently propounded some pre-cognizance decisions in the cases alleging the offence of cheating where part-payments have been made. There is a growing trend to dismiss criminal complaints (alleging the offence of cheating) at the very threshold where-in part-payments have been made by the Accused persons. The Courts seem inclined to dismiss these complaints (without trial) on the simple premise that part-payment having been made indicates non-existence of an essential ingredient of the offence of cheating, i.e., absence of the intent to cheat from the very inception. The defence of part payment has been used by the accused time after time as a substantial defence to get away with the offence of cheating. By way of this article, we intend to show that the mere fact of part-payment having been made cannot give credence to the fact that the accused had no fraudulent or dishonest intention from the very beginning and how such an understanding of the law ends-up giving a fresh lease of life to the Accused person and would also (unwittingly) culminate into a rise in cases of cheating where-in the Accused person would know that he could escape criminal liability by merely making a part-payment.

ILLUSTRATION - A intends to cheat B and borrows Rs 10 Crores from B. A (very well knowing that making a part-payment will help him get away with an essential ingredient which forms the offence of cheating i.e., intent to cheat from the very beginning) returns only Rs 1 Crore out of the 10 Crores that he borrowed.

Even though this would be a clear case of dishonest and fraudulent intention right from the outset, an essential ingredient to constitute an offence of cheating, the growing precedence that the mere fact of a part-payment having been made shows an absence of the intention to cheat from the very inception would help the Accused get-away. The making of a part-payment may not necessarily connote that the intention to cheat from the beginning was nowhere to be found and the same can only be a matter of trial. In the case of Arun Bhandari v. State of U.P.,^[7]the Supreme Court held: -

"16. … To hold a person guilty of the offence of cheating, it has to be shown that his intention was dishonest at the time of making the promise..."

As illustrated above, such an intention to cheat can very well be there at the time of making the promise even in cases where the Accused goes-on to make part-payment and the factum of such part-payment having been made can never be the sole factor for dismissing the complaint without going into the trial. Such a view from the Courts can in-fact become a precipitating factor for those looking to make illegal gains at somebody else's expense as they would very well know that returning a negligible amount out of the total amount borrowed could rid them of the offence of cheating.

Therefore, pre-cognizance decisions in the offences of cheating related to part-payments will open up the gates for the potential accused persons to catapult the defence of part-payment to evade the offence of cheating. A post-cognizance decision will foster the non-misuse of law and help in nabbing the culprits who bring into play the defence of part-payments to run away from the offence of cheating.

The Authors of the Indian Penal Code, 1860 had observed^[8]: -

"………………..We propose to punish as guilty of cheating a man who, by false representations, obtains a loan of money, not meaning to repay it; a man who, by false representations, obtains an advance of money, not meaning to perform the service or to deliver the article for which the advance is given; a man who, by false pretending to have performed work for which he was hired, obtains pay to which he is not entitled. In all these cases, there is deception. In all, the deceiver's object is fraudulent…………"

The intention of the authors of the code is pretty clear that the offence of cheating involves deception and the deceiver's object has to be fraudulent. The offence of cheating has been well-defined in the Indian Penal Code, 1860, and the object of the punishment for the offence of cheating is that the offenders do not misemploy it. The defence of part-payment gives the offenders a solid way to make full use of the ambiguity in the law.

DEFENCE OF PART-PAYMENTS – A PRECARIOUS PRECEDENT

In the case of Bellary Steels and Alloys Limited v. Man Takraf (India) Pvt. Ltd.,^[9] the Court observed:

"13…………. If there was any fraudulent intention to deceive the respondent, the Petitioners would not have made any payment towards the supply of machineries."

Now, in the aforementioned case, the Court has clearly held that, if there was any fraudulent intention of the accused, then, he would not have made a part-payment or any payment. This conclusion by the Court is without any rationale or reason. Part-payment cannot be considered a ground to conceal the dishonest intention of the accused right from the very inception. As pointed out earlier, in such a scenario, the loophole in the law will be profusely exploited by the potential accused persons who had fraudulent intention to cheat right from the very beginning but knowing that part-payment will assist them in evading the clutch of law, will make a part-payment and break out comfortably. This can set a very dangerous precedent where an inadequacy in law will be used to a good advantage.

The Courts must rise to the occasion and set clear precedents as far as making part-payments in cases of cheating are concerned. The intention to cheat from the very inception may or may not be there when a person makes a part-payment, however, the same can only be decided at the trial. Dismissing a Complaint at the threshold simply because a part-payment has been made cannot be allowed to continue. The Courts cannot contribute to such a discrepancy in law but have to step-up and cure the loopholes of the law.

CONCLUSION

The rapidly emerging defence of part-payment in the offence of cheating has to be interpreted by the Courts reasonably and rationally depending upon the facts and circumstances of each case. The Courts would only be perpetuating a fallacy by holding that there can be no intention to cheat from the very inception simply because the Accused has made a part-payment. This view is being strongly endorsed by the lower Courts and is fast becoming a precedent and the wrongdoers have started taking refuge under this loophole in the law by putting forth the defence of part-payment having been made. Part-payments should never be encouraged as a substantial defence in cases where the dishonest and fraudulent intention to cheat could not only be present from the very inception but the availability of such a defence may in-fact end-up being the precipitating factor for people committing the offence.