Mere Failure To Repay Loan Not Cheating Or Criminal Breach Of Trust: Rajasthan High Court Reiterates

Rajasthan High Court has reiterated that no criminal case for breach of trust (Section 405, IPC) and/or cheating (Section 415, IPC) lies against someone who failed to repay loan amount, in absence of any other fact for attracting the offences.

The bench of Justice Rajendra Prakash Soni was hearing a quashing petition filed by the accused charged under Sections 405 and 415, IPC, pursuant to an FIR lodged on the basis of a complaint that the accused took a loan from the complainant on interest and failed to repay the same.

Counsel for the petitioner argued- firstly, the dispute was purely civil in nature for which instead of filing a money recovery suit, attempt was made to give it a colour of criminal offence; and secondly, the FIR was just a device to arm-twist and harass the petitioner to recover the loan amount.

The Court highlighted that the sole foundation of the FIR against the petitioner was recovery of money advanced as loan and agreed with both the arguments of petitioner's counsel.

It pointed that for the offence of criminal breach of trust, there should be an entrustment, and there is a difference between simple advancement or investment of money and "entrustment" of money.

“In a case of advancement of money as a loan for consideration of interest, there is no question of entrustment and therefore, there would be no question of criminal breach of trust.”

The Court held that mere breach of promise, agreement or contract did not ipso facto constituted the offence of criminal breach of trust under IPC without there being a case of entrustment which did not happen by simply lending money as loan. Hence, the offence of criminal breach of trust was not attracted.

On the count of Cheating, Court observed that the difference between mere breach of contract and cheating was presence of "fraudulent inducement" and mens rea leading to the complainant parting away from the property.

The Court opined that mere inability of the petitioner to return the loan amount simpliciter could not fulfil the ingredients of this offence until fraudulent or dishonest intention was shown since the beginning of the transaction that resulted in involuntary transfer of money by the complainant.

“The legislature intended to criminalise only those breaches which are accompanied by fraudulent, dishonest or deceptive inducements, which resulted in involuntary and in-efficient transfers, under Section 415 of Indian Penal Code.”

In the background of this analysis, Court quashed the FIR against Petitioner.

Title: Madanlal Pareek v State of Rajasthan & Anr.

Citation: 2024 LiveLaw (Raj) 267

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