Delhi Race Club (1940) Limited v. State of Uttar Pradesh

Delhi Race Club (1940) Limited v. State of Uttar Pradesh 

Criminal Appeal No. 3114 of 2024

It is observed that when a First Information Report is filed for criminal breach of trust under Section 406 IPC/ Section 316 BNS, the same is also registered for cheating under Section 420 IPC/ Section 318 BNS. This vice stems from a long-standing lack of clarity between the two offences as they are often equated and regarded as offences with similar ingredients.  

Criticising this prevalent practice, Supreme Court in this case expressed its anguish, stating ‘Sad that even after years, Courts do not understand the fine distinction between criminal breach of trust and cheating.’ The court took the opportunity to explain in detail the key differences and ingredients of criminal breach of trust and cheating while also highlighting the issues that arise from it. Court also voiced urgency over confusion among police officers regarding the legal differences between cheating and criminal breach of trust even though Indian Penal Code has been in force for 162 years.

Overview of the case 

The President and Secretary (Appellants) of Delhi Race Club filed an appeal against an order of Allahabad High Court dismissing a quashing petition. The quashing petition was against a summoning order under Section 406 of IPC passed by Additional Chief Judicial Magistrate, Khurja, Bulandshahar, Uttar Pradesh.  

Vipin Kumar Agrawal, owner of Agrawal Udyog (Complainant) filed complaint against Appellants claiming violation of provisions punishable under Sections 406, 420 and 120B of IPC (Sections 316, 318 and 61(2) of BNS respectively). Complainant contended that Appellants had cheated him by failing to pay for grains supplied by him as fodder for Appellant Company’s horse. Thus, this present complaint was filed. 

Criticism by Supreme Court 

Division Bench of Supreme Court raised concerns over the widespread practice of police officers mechanically registering FIRs for both offences based entirely on allegations of fraud or dishonesty without exercising due diligence.  

The court further emphasised the importance of police officers obtaining appropriate legal training in order to critically understand and distinguish between cheating and criminal breach of trust. 

 Understanding essential ingredients of Criminal Breach of Trust and Cheating  

Over time, courts have set forth a number of requirements essential to constitute offences of cheating and criminal breach of trust.  

Under Section 406 of IPC, criminal breach of trust has following four essential elements: 

• whoever, being in any manner, entrusted with a property or having dominion over property; 

• dishonestly misappropriates or converts to his own use or disposes of that property; 

• in contravention of any direction of law providing the mode in which such trust is to be discharged, or of any, express or implied, direction arising from a legal contract, and 

• the said misuse is detrimental to the interest of the person entrusting that property

Under Section 420 of IPC, cheating has following four essential elements: 

• deception of any person; 

• fraudulently or dishonestly inducing that person against whom the offence is carried out to deliver any property to any person; and 

• at the time of making such inducement mens rea to deceive is present from the inception

These offences are certainly distinct but because of prevalent confusion within law enforcement agencies, courts had to repeatedly clarify the difference between the two as outlined in this case.  

Supreme Court in Hari Prasad Chamaria v. Bishun Kumar Surekha (1973) 2 SCC 823 held that not every act of breach of trust may result in a penal offence of criminal breach of trust, unless there is sufficient evidence to prove deceptive conduct of fraudulent misappropriation. Mens rea is essential for an act of breach of trust to result in criminal prosecution. However, for the offences of cheating and criminal breach of trust, the question of mens rea comes up at different stages. In cheating, the mala fide intention to deceive must be from the inception while in criminal breach of trust a person is legally entrusted with possession of property which is subsequently converted to its own use with mala fide intention against the terms of original legal entrustment.  

Supreme Court in SW Palanitkar v. State of Bihar (2002) 1 SCC 241 reaffirmed that both the offences are independent and distinct and can’t co-exist simultaneously for the same set of facts. While criminal breach of trust requires evidence of entrustment of property to someone who thereafter misappropriates it, cheating comprises dishonest intention at the time of making a false representation. However, mens rea i.e. intention to deceive or dishonest intention must be present in both the offences, it must exist from inception in case of cheating. 

Delhi High Court in Wolfgang Reim v. State 2012 held that the element of deception in criminal breach of trust emerges after the accused has dominion or entrustment of property unlike in cheating where dishonest intention is essential from inception. Thus, the two offenses are mutually exclusive and can’t co-exist at the simultaneously. 

The ruling  

Supreme Court noted that for the offence of criminal breach of trust, entrustment of property is essential, which is dishonestly misappropriated in later stages. However, in event of sale of goods, property passes from seller to purchaser when goods are delivered. Since complete ownership in property is transferred, it can’t be claimed that the property was entrusted to purchaser. Without entrustment of property, there can’t be any criminal breach of trust. A charge of criminal breach of trust for non-payment of consideration amount in case of sale of goods was flawed to the core. There can be a civil remedy for the same but no criminal case is maintainable. Thus, summoning order issued by ACJM for offence punishable under Section 406 of IPC was quashed and set aside. 

In case of vicarious liability concerning the office bearers of Appellant company, court reiterated the settled position of law that there is no provision under IPC for holding office bearers responsible for offences of cheating and criminal breach of trust unless direct allegations are made against them. In the absence of such specific allegations, they can’t be held accountable. 

Conclusion   

The case in hand was plain and simple, alleging non-payment of consideration amount. Once there is sale, criminal breach of trust goes out of picture. Also no offence of cheating was made out as none of the ingredients to constitute the offence were disclosed from the materials on record.  

The judgement could set the course straight as individuals as well as police officials equate the offences of cheating and criminal breach of trust without fully understanding the key distinction between the two.  

Since cheating is a scheduled offense under Prevention of Money Laundering Act, 2002 while criminal breach of trust under Section 406 of IPC (Section 316 of BNS) is not, Section 420 of IPC (Section 318 of BNS) is often included as an offence in a FIR to maintain the element of money laundering. 

The case is a stark reminder to promote legal lucidity and impart appropriate training to law enforcement personnel to preserve the integrity and accountability of judicial processes in India. The introduction of new criminal laws has made it necessary to place strong emphasis on effective training.