Case Study On Cheating

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Sunday, August 29, 2010
Criminal Law - A Case Study on Cheating
INTRODUCTION
Section 415 of the Indian Penal Code deals with cheating. To hold a person guilty of cheating as defined under Section 415 of the
Indian Penal Code, it is necessary to show that he has fraudulent or dishonest intention at the time of making the promise with an
intention to retain the property. In other words, Section 415 of the Indian Penal Code which defines cheating, requires deception of
any person (a) inducing that person to : (i) to deliver any property to any person, or (ii) to consent that any person shall retain any
property or (b) intentionally inducing that person 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, anybody's mind, reputation or
[1]
property
Cheating can be done by various ways. Some of them are given here:-
[2]
Misrepresentation as to caste - A offence of cheating is ddeemed to be done if a person is represented as a
person of some other caste then the caste to which that person belongs actually.
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[3]
Making false entries in book of accounts :- if some person make some false entries in books of accounts of
some other person or himself to give effect to any debt or its repayment then it would amount to offence of cheating.
[4]
Attempt to create false evidence :- If accused gives false evidence regarding some event then he can be held
guilt of the offence of cheating as it is taken as to induce the court to believe that event.
[5]
Showing False professional qualifications :- if some person gives some false representation with regard to any professional
qualification which he actually does not posses the it amounts to cheating.
Cheating Can Also Be By Personation Section 416 of the Indian penal code give some more dimension of cheating i.e., cheating
by personation. A person is said to have a offence of cheating by personation when he impersonate some real or imaginary person
then he really is. Such personation may be to induce that person to do some act or omission or to induce him to deliver some
property.
This Section can be divided in three parts which are:-
(1) Presentation by the person to be some other person
(2) Knowingly substituting one person for another.
(3) Representation that he or any other person is a person other than he or such other person really is.
This also constitutes false representation as to caste, as to be bachelor or to be any professional.
The punishment for cheating is defined under section 417 which provides for a imprisonment extending to one year or fines
or both.
Cheating is also considered as a grave offence if it is done by a person who holds certain duty by law or relationships or any
other way to protect the interests of the complainant. E.g., Guardians, trustee, solicitor, agents, managers etc. Offence of such
person is treated as grave because this person normally enjoy trust more then any other person so it is not expected out of them to
cheat.
CHEATING A CONCEPTUAL ANALYSIS
In cheating, there should be first of all deception. By means of this deception, a man is deceived or cheated in two ways as
indicated in code itself. In first case victim is induced to deliver property. This delivery is indeed brought about as the result of
fraudulent and dishonest means used by the accused. In second part there is no delivery of property, but victim is intentionally
induced to do or omit to do anything which he would not do or omit if he was not induced. In short he is induced to do something to
his own prejudice.
Essential ingredients for Cheating

Under Sec. 415 A person is said to cheat when he by deceiving another person fraudulently or dishonestly induces the person so
deceived to deliver any property to him or to consent that he 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 was not so deceived and which act or omission causes or
[6]
is likely to cause damage or harm to that person in body mind reputation or property. .
Main ingredients for the first part.

1.The accused deceived some person.
2.By deception he induced that person.
3. The above inducement was fraudulent and dishonest.
4.The person so induced delivered some property to or consented to the retention of some property by any person.
Main ingredients for the second part

1.The accused deceived some person
2.The accused thereby induced him
3.Such inducement was intentional
4. The person so induced did or omitted to do something
5.Such act or omission caused or was likely to cause damage or harm to the person induced in body, mind, reputation or property.
DECEPTION
One of the initial ingredients of Cheating which has to be provided to establish the offence of cheating is deception, which
must precede ant thereby induce the other person to either (a) deliver or retain property ; or (b) to commit the act or omission as
referred in sec 415 of the code. Deceiving can be said as making a person believe what is false or not letting him believe what is
true, and either words or actions may represent such deception.
As to what constitutes deception has been held by the courts to be a matter of evidence in each case and dependent upon
the facts and circumstance of each case. But nevertheless it is the first stage of cheating. So it can be said that if the deception is not
proved then it becomes hard for the prosecution to prove the offence of cheating
INDUCEMENT
The second essential ingredient of cheating can be said as inducement which leads to either delivery of the property or any
act or omission. Mere deceit is not sufficient to prove the offence of guilt but also its effect on the person is also to be take care of.
Similarly just frauding or doing something dishonestly does not in itself suffice the offence but also the its after effects has to be seen
while framing the charges.
[7]
Introduction To The Case: Bhola Nath v. State
This case is regard to deception being done by the petitioner regarding the payment of a cheque given by them to
complainant for the purpose of inducing them to deliver certain property to the petitioner. The Cheques given were
post dated and were not cleared by the bank for lack of funds in the particular account on which cheques were
drawn. That bank account was opened by the petitioner for that business deal only which clearly shows their
intention to deceive the complainant. The court emphasize on harmonious construction of the various statues ton
derive the true meaning out of them. Also the matter of jurisdiction was being looked into by the court.
This case was more near to English cases in its approach as it stresses on the point of unwillingness to pay
amount in bank then on the mere argument that dispute was there with regard to quality of the goods.
This was a revision petition in front of Delhi High Court to again see in the decision of lower court.
FACTS OF CASE AND QUESTION RAISED

FACTS
M/s. Bhagat Industrial Corporation Limited has its register office at Khasa, District Amritsar and its Head
Office is situated at 54, Janpath, New Delhi. It deals in Indian manufactured foreign liquor and had wholesale
licence for the same in Uttar Pradesh uptill 31st March, 1976. The wholesale business of liquor in Uttar Pradesh
was being managed from its Branch at Kanpur Cantonment. Since the company was left with huge quantities of
unsold stock by end of the term of its licence, the licence was extended up to 30th April, 1976 and as per terms of
the licence the Complainant was required to sell the unsold quantity to a wholesale merchant only after obtaining
prior permission of the District Excise Authorities, Kanpur. On 1st November 1976, the Complainant lodged a
report through Mr. O. N. Seth, their Export Manager, with Police Station Cannaught Place, New Delhi, contending
that some time in the last Week of April, 1976, S/Shri Bhola Nath Arora and Raman Arora , who described
themselves as partners of M/s. B. D. Raman Arora, Varanasi, contacted them through Mr. Seth at their Head Office
at 54, Janpath. New Delhi and expressed a desire to lift the unsold liquor of various brands lying with them at
Kanpur. Since the financial position of the Bhola Nath Arora was not known to them, they were reluctant to agree to
the said proposition except against payment in cash. However, the Bhola Nath Arora and others represented that
they were men of lakhs and would make part payment by means of bank draft and the balance by installments
through post-dated cheques to be issued by them. Since the unsold quantity as on 30th April, 1976 could be sold to
a wholesale dealer in Uttar Pradesh only, necessary permission was obtained by the Bhagat industries from the
Excise Department, Kanpur, on 7th May, 1976 and the Bhola Nath Arora and others took delivery of the goods
covered under invoice Nos. 1560, 1561 & 1562, all of even date of 9th May, 1976. They assured Mr. Seth that
payment would be made and thus they induced Mr. Seth to accept part payment by bank draft and balance payment
by post-dated cheques and to effect delivery. The total value of the goods thus delivered to the petitioners on 9th
May, 1976, came to Rs. 1,44,252/36 p. out of which a sum of Rs. 27,000/- was paid by the petitioners by means of
a demand draft and for the balance amount four cheques dated 5th June, 1976, dated 24th June, 1976, 19th July,
1976 and 14th August 1976, in the sums of Rs. 29,313/36, Rs. 29,313/-, Rs. 29,313/- and Rs. 29,313/- respectively
were delivered by them to Mr. Seth. The said cheques were presented on the due dates to the Bankers of the Bhola
Nath Arora and others but the same were returned unpaid with the endorsement "refer to drawer" on two cheques
and "not arranged for" on the other two cheques. The Bhagat corporations further said that after the removal of the
goods and subsequent to the dishonour of the cheques, the Bhola Nath Arora and others did not at all contact the
Bhagat corporations and inform them as to why the cheques had been dishonoured. Thus, it was alleged that the
Bhola Nath Arora and others had dishonest intention right form inception and with intent to cheat the Bhagat
corporations and cause wrongful loss to them and wrongful gain to themselves they did all this. The Bhagat
corporations asserted that the conduct of the Bhola Nath Arora and others proved their dishonest and fraudulent
intention from the very beginning and even when they were contacted personally they told them that they had
succeeded in obtaining the goods worth Rs. 1,44,252/36 P. for just Rs. 27,000/-.
Proceedings in the lower court.
After entering appearance the Bhola Nath Arora and others moved an application purported to be under S.
239/294 of the Code, contending that the subject matter of the challan was just a business transaction between the
parties and at best it gave rise to civil liability. They also sought permission to produce certain documents in order
to demolish the allegations of the prosecution : in regard to the ingredients of cheating. Further they expressed a
desire to be examined before framing of the charge and contended that the investigation agency has manoeuvred
and twisted the facts in order to usurp jurisdiction at Delhi for investigation even though no part of the cause of
action had arisen at Delhi and the goods were delivered as well as received in the State of Uttar Pradesh.
Vide impugned order dated 4th August 1980, the learned Magistrate of the sessions court while rejecting their
aforesaid prayer found that the facts disclosed prima facie a case under S. 420, I.P.C. and that the Court at Delhi
had jurisdiction to try the same.
It was submitted that the Bhagat corporations would not have delivered the goods but for the inducement that
the delivery was being effected against post-dated cheques with the assurance that the same would be honoured
on presentation on due dates.
QUESTION RAISED
Main question in front of the court was that will dishonour of cheque would come under the definition of cheating.
Second question in which the court looked upon was the jurisdiction of the court of Delhi to hear the matter as petitioner
said that as place of transaction was so the court has no jurisdiction.
REASONING & JUDGMENT IN CASE
REASONING
In the Indian judicial system always the burden of proof lies on the complainant and not the accused. But in this case the
major thing taken up by court was that mere no efforts being done by the accused regarding payment of post dated cheque was
enough to show that they were guilty of the offence. This approach of the court can be rather seen as more near to the English
courts. English courts follow a system in which jury itself tries to find out that what is the true situation and conditions in which
offence was committed whereas in our system it is burden of the complainant to show that other party has an dishonest intention.
But this some times may become hard for the precaution to do so. The prosecution can only establish some objective facts as to
warrant an inference of fraudulent intention on the part of the accused and it is them for the accused and it is then for the accused to
come forth with facts within his special knowledge to show that despite reasonable precautions taken by him he could not prevent
the cheques being dishonoured. In other words, dishonour of cheques was accidental and not known and expected consequence of
his conduct. In the instant case as many as four cheques were dishonoured on different dates. The bank account shows that at no
stage any attempt was made by the petitioners to pay in sufficient amount for encashment of the cheques.
No doubt, the drawing up of a cheque does not imply any representation that the drawer has money in the
Bank to the amount shown in the cheque, for he may either have authority to over-draw or have an honest intention
of paying in the necessary money before the cheque can be presented. In this context a post-dated cheque is a
mere promise to pay on a future date and the mere facts that the cheque is dishonoured may not in itself give rise to
a criminal offence. However, the position is different where the property is purchased by the accused and the price
is paid by cheque. In such a case there is an implied representation that (i) the cheque is a good and valid order for
payment of the amount and, (ii) that the cheque would be paid when presented for payment. Illustration (f) to S. 415,
Indian Penal Code, provides a clue to the mind of the legislature in such matters. The said illustration is as under :-
"A intentionally deceives Z into a belief that A means to repay any money that Z may lend to him and thereby
dishonestly induces Z to lend him money. A not intending to repay it. A cheats."
On its plain language it is manifest from this illustration that what is material is the intention of the drawer at
the time the cheque is issued, and the intention has to be gathered from the facts on the record. If from the
circumstances it is established that the failure to meet a cheque was not accidental but was the consequence
expected by the accused the presumption would be that the accused intended to cheat.
The general principle of law is that all crime is local and the jurisdiction to try a person for an offence
depends upon the crime having been committed within the area of such jurisdiction. The word "ordinarily" has been
construed to mean "except where provided otherwise in the Code. That is why the Sections viz. 178 to 182 of code
of criminal procedure constitute exceptions to the general rule. For obvious reasons that Section 182 being a more
specific provisions will govern the venue of trial in cases of cheating leading to delivery of goods and as such it will
exclude the general principle of jurisdiction is devoid of any merit. On a mere juxtaposition of the two Sections 177
and 182 of the Code, it is manifest that the latter provision supplements and does not supplant the general rule. It is
intended to provide for the difficulty that may sometime arise in prosecuting a person in a Court within whose
territorial jurisdiction deception has been allegedly practiced for want of requisite proof. Thus it is an enabling
Section and provides alternative venue of trial so as to ensure that the accused does not get away with the ill-gotten
fruits of crime on some technical ground or for want of adequate proof of its commission in a particular area of
jurisdiction.
It is a well settle rule of interpretation that the provisions of a statute should be so read as to harmonize with
one another and the provisions of one Section cannot be used to defeat those of another unless it is impossible to
effect reconciliation between them. Considering the true meaning of the words or expressions used by the
legislature the Court must have regard to main object and scope of the statute to be read in its entirety.
It is thus the duty of the Court to give a harmonious construction to both the provisions so that full effect may
be given to both without one excluding the other, there being no seeming conflict or repugnancy in the two. Hence,
when Section 177 conveys a clear meaning it is not permissible to construe the same with reference to another
Section i.e. 182 for the purpose of controlling or diminishing the efficacy of the former. More so, when there is
nothing in the language of the latter which will control or impinge upon the effect of Sec 177. Surely, it is not intended
to abrogate the general rule of jurisdiction with regard to the trial of criminal offences and it is merely supplemental
thereto.
Giving this reasoning court says that there is no escape from the conclusion that the Court at the place where
deception is practiced and inducement is made to the person cheated to deliver property will have jurisdiction to try
the offence and the Courts mentioned in Section 182 will also be competent to try the said offence in addition to
such a court. Thus the question of jurisdiction is cleared up by the court.
Judgment
Firstly the court held that case was within the jurisdiction of the court as the place where inducement to deliver the property on basis
of cheque, which were later dishonoured, it can be clearly read under section 182 of the Cr. P. C. and thus courts at Delhi held the
jurisdiction.
Secondly the main question of proving of cheating on the basis of dishonour of cheques was also established as the facts
clearly said that at no time any effort was done by the accused to pay the necessary amount in the bank to clear the cheque. This
can be struck down by the fact that there was some alleged dispute regarding the quality as
DEVELOPMENT OF LAW
In the year 1988 comes an amendment in the Negotiable Instruments Act,1881 which inserts the dishonour of a cheque as a
crime punishable by law. Although it did not try to look in the circumstance in which the accused was unable to pay the necessary
amount in the bank in the time to avoid dishonour of the cheque but the approach of courts still tries to save the accused from the
charge of cheating. This can be clearly seen through the later judgments of various courts in which a clear demarcation was tried to
be done between cheating and plain dishonour of cheque.
In a recent judgment of 2001 the court tries to look beyond the reason of non payment of the cheque where it
held that the offence of cheating is to be distinguished from that of a simple dishonour of a cheque. Mere dishonour
of cheque does not prove that accused had a intention of non payment from the time of entering in the contract. On
an analysis of the indications it is to be seen that only in a situation where the dishonour of cheque is due to
absolute bad faith and deliberate intention to cheat, a Magistrate would be justified in treating it as an offence of
cheating. In other words, a Magistrate shall charge accused with offence of cheating only in the rarest of rare cases
where he is absolutely certain that the accused was calculatedly and designedly cheating the payee of the cheque.
As otherwise, it would amount to awarding a harsh punishment for one's poverty which is not contemplated or
warranted under the scheme of our Constitution when analysed with particular reference to Art. 21 of the
Constitution of India. This is all the more so, particularly since the proceedings under S. 138 of the Negotiable
instruments Act is that of a summary trial and it is not obligatory on the part of Magistrate to hear the accused
regarding the sentence. And then there is a heavy duly cast on the Magistrate to satisfy himself as to the absolute
[8]
necessity to award rigorous imprisonment, keeping in mind the very purpose of punishment . Also It is true that the
same transaction may give rise to civil as well as criminal proceeding, however, as far as criminal proceedings are
concerned, all the ingredients of that particular offence should be present. If one applies the test and conditions as
laid down for the definition of the word "cheating", and it is difficult to come to the conclusion that there was any
element of cheating at the time of entering into a contract or subsequently, and that, the accused persuaded the
complainant to accept what was false to his knowledge and thereby induced him to deliver him the loan amount then
it should not be said as cheating. If None of the representations made by the accused and incorporated in the
agreement, indicates that there was any fraud or dishonesty on the part of the accused and the agreement between
the parties was entered into with clear understanding and it is quite obvious that the complainant himself waived the
[9]
material condition in the Agreement then it cannot be said that he was cheated by the accused.
Deception or fraudulent or dishonest inducement of the deceived person to deliver property required for an
offence of cheating, as defined in Section 415 of the Indian Penal Code, is not necessary so far as Section 138 of
the Act is concerned. Section 138 creates a new offence, for which these mental elements are not necessary. It is
enough if a cheque is drawn by the accused on an account maintained by him with a banker for payment of any
amount of money to another person from out of that account for the discharge in whole or in part, of any debt or
other liability due. That means, the cheque must have been issued in discharge of a debt or other liability wholly or
in part. A cheque given as a gift or for any other reason and not for the satisfaction of any debt or other liability,
partly or wholly, even if it is returned unpaid, will not meet with the penal consequences. As the Explanation shows,
the debt or other liability must be legally enforceable also. As provided in Section 139, the presumption in such
cases will be that the cheque was drawn and received in discharge of a debt or other liability in whole or in part and
the contrary is to be proved by the drawer who is prosecuted. When the above condition is satisfied, irrespective of
the mental condition of the drawer, he shall be deemed to have committed an offence, provided some other
ingredients are also there. They are : (a)
the cheque must be returned either because the money standing to the credit of that account is insufficient to honour
the cheque or that it exceeds the amount arranged to be paid from that account by an agreement made with the
bank ;
(b) the cheque has been presented within six months from the date on which it is drawn or within the period of its
validity, whichever is earlier ;
(c) the payee or holder in due course makes a demand by a notice in writing to the drawer within fifteen days of the
receipt of the information by him from the bank regarding the return of the cheque as unpaid ; and
[10]
(d) the drawer of the cheque fails to make the payment within fifteen days of the receipt of the notice .
[11]
In case of Javerchand Chawla v. State of Andhra Pradesh wherein it was held that where accused got loan on
false representation to the complainant that he was owner of the shop which he was not and the cheques issued by
[12]
the accused were also bounced, offence of cheating was made out. Also in case of Joseph v. Philip Joseph ,
where it was held that where the cheque was issued by the drawer from the account which was closed in the year
1990 when the account had been closed by him in 1987 and the cheque was dishonoured no offence under Section
138 of the Negotiable Instruments Act was made out. Offence would come within the purview of Section 420 IPC.
[13]
Similarly in case of OPTS Marketing Pvt. Ltd. v. State of A.P , court laid down lays down that:
Even after the introduction of Section 138, Negotiable Instruments Act, prosecution under Section 420 IPC is maintainable in case
of dishonour of cheques or post-dated cheques issued towards payment of price of the goods purchased or hand loan taken, or in
discharge of an antecedent debt or towards payment of goods supplied earlier, if the charge-sheet contains an allegation that the
accused had dishonest intention not to pay even at the time of issuance of the cheque, and the act of issuing the cheque, which was
dishonoured, caused damage to his mind, body or reputation. Private complaint or FIR alleging offence under Section 420 IPC for
dishonour of cheques or post-dated cheques cannot be quashed under Section 482 Cr.P.C., if the averments in the complaint show
that the accused had, with a dishonest intention and to cause damage to his mind, body or reputation, issued the cheque which was
not honoured."
CONCLUSION
Cheating consists mainly of two parts i.e., deception and inducement. Usually these two go hand in hand but can operate as
separate elements also. Offence of cheating essentially require either delivery of property or commission of some act or omission
which should be due to that deception or inducement based on some representation.
Dishonour of cheque was taken up as deception of representation that cheques were good and it was thus inducing the
delivery of property. This was reading of English law principles in the Indian percept. Dishonestly obtaining anothers property by
deception with the intention of permanently depriving that person of his property is an offence under Theft act 1968 of England .
Whereas this intent to deprive permanently is not a part in Indian law. English courts interprets that mere bouncing of a cheque
shows that person has an dishonest intention to cheat the other person, whereas he has presented earlier that cheque would be
honoured and is good. Such dishonour of cheque shows that person was induced to part with his property in basis of deception that
the cheque would be honoured. As things turned otherwise it shows intent to cheat.
This was also held in this case that mere dishonour of cheque is enough to show that there was an intend to cheat.
Although Negotiable instruments act tries to differ the intention part from it but the approach of the court remains same that
act has to be there but intention is on no consequence.
[1]
Hira Lal Hari Lal Bhagwati v. C.B.I. AIR 2003 SC
[2]
Ratanlal & Dhirajlal, Indian Penal Code, ( Nagpur. Wadhwa & Co .:2002)at 601
[3]
ibid
[4]
id at 602
[5]
id at 603
[6]
Hari Sao v. State of Bihar Air 1970 Sc 843.
[7]
1982 Cr. L J. 1482 (Delhi)
[8]
Omnakuttan Pillai v. State of Kerla Air 2001 Kerla
[9]
Jotumal Thakurdas Thawani v. O.P. Ralhan & others AIR 1999 Mmbai
[10]
K.T. Kuriyan v. K.K. Sreedharan AIR 1991 Ker 93
[11]
2000(1) RCR (Crl.) 270,cited from Sneh Lata V. M/S Swastika Agro Industrial Corporation Air 2001 Punj & Har
[12]
2000(1) RCR (Crl.) 132 cited from Sneh Lata V. M/S Swastika Agro Industrial Corporation Air 2001 Punj & Har
[13]
2000(2) RCR (Crl.) 499 cited from Sneh Lata V. M/S Swastika Agro Industrial Corporation Air 2001 Punj & Har
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Free Law Projects

Sunday, August 29, 2010

Criminal Law - A Case Study on Cheating

Essential ingredients for Cheating

Main ingredients for the first part.

Main ingredients for the second part

FACTS OF CASE AND QUESTION RAISED

REASONING & JUDGMENT IN CASE

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