In V. Ganesan v. State, the Hon’ble Supreme Court of India has clarified that dishonour of a post-dated cheque by itself is not sufficient to presume dishonest intention so as to constitute an offence of cheating under Section 420 of the Indian Penal Code.
The case arose from a financial arrangement relating to a film project, wherein the complainant had invested money on the assurance of profit sharing and returns. The appellant subsequently issued post-dated cheques towards repayment of the amounts received.
Upon dishonour of the said cheques due to insufficiency of funds, criminal proceedings were initiated against the appellant for offences under Sections 406 and 420 of the Indian Penal Code. While the Hon’ble High Court quashed the proceedings under Section 406 IPC, it permitted prosecution under Section 420 IPC to continue.
Aggrieved thereby, the appellant approached the Hon’ble Supreme Court of India. The Hon’ble Supreme Court examined the scope of the offence of cheating and reiterated that the existence of dishonest or fraudulent intention at the inception of the transaction is a sine qua non for constituting an offence under Section 420 IPC.
The Hon’ble Court made the following observations:
Mere breach of contract or failure to fulfil a promise does not by itself constitute an offence of cheating.
Dishonour of a post-dated cheque cannot by itself establish dishonest intention at the time of entering into the transaction.
Post-dated cheques are ordinarily issued towards discharge of an existing or future liability.
Criminal proceedings cannot be sustained where the dispute is essentially civil in nature arising out of a commercial transaction.
The Hon’ble Court further observed that the transaction in the present case related to a film project, which is inherently a speculative commercial venture, and the mere failure of the project to generate returns could not give rise to an inference of dishonest intention at the inception.
Although the dishonour of cheques may give rise to the proceedings under section 138 of the Negotiable Instruments Act, it does not automatically attract criminal liability for cheating. Accordingly, the Hon’ble Supreme Court of India set aside the impugned order of the Hon’ble Madras High Court and quashed the criminal proceedings under Section 420 IPC.
The judgment reiterates that dishonest intention at the inception of the transaction is an essential ingredient for the offence of cheating and cannot be presumed solely on the basis of dishonour of post-dated cheques.
