The section requires that the offender must commit the offence of cheating. He must thereby induce the victim to deliver any property to any person, including himself, or to make, alter or destroy the whole of a valuable security or any part of it, or anything which is signed or sealed and capable of being converted into a valuable security.
The penalty provided in this section is the severest of all the cheating sections. The use of the words ‘and thereby’ shows that the immediate effect of the cheating must be to induce the person deceived to do whatever has been stated in the latter part of the section. Absence of dishonest intention on the part of the offender would mean that the section is inapplicable.
Where the charge against the accused is under section 420 in that he induced the complainant to part with his goods on the undertaking that the accused would pay for the same on delivery but did not pay, if the accused had at the time he promised to pay cash against delivery an intention to do so, the fact that he did not pay would not convert the transaction into one of cheating.
But if, on the other hand, he had no intention whatsoever to pay but merely said that he would do so in order to induce the complainant to part with the goods, then a case of cheating would be established. The Supreme Court held that the evidence proved that the accused had no intention of paying.
Where the accused genuinely believed that it was necessary to secure clearance from the customs department and, therefore, altered his own affidavit, his conviction under this section was set aside because he had not attempted to cheat anyone and long twenty years had passed since then.
Where the accused persons did not send documents to a bank where they were waiting for full payment, but instead made part payment to the carriers directly and obtained delivery of the goods, it was held that they were guilty under this section.
Where the accused bank officer compared the signature of a drawer of a cheque with that on the specimen signature card bearing his signature and passed the cheque for payment, and while doing so he did not notice that the specimen signature card had not been authenticated, thus resulting in loss to the bank, it was held that he could not be charged under this section because there was no fraudulent or dishonest intention on his part.
But- where a bank was defrauded of a large amount and for this purpose bank drafts had been used which bore the signature of the accused bank manager, he was held guilty under this section. It is not necessary that the word ‘property’ used in section 420 must always have a money or market value. The order of assessment issued by the income tax officer and received by an assessee is a ‘property’ within the meaning of this section. Similarly, a letter of appointment, an admission card issued by a University to a candidate entitling him to take an examination conducted by the University, and a driving licence are all ‘property’ under section 420.
Where an inspector of schools withdrew money under false wage bills, he was held guilty under this section, and so was a conspiring team of financiers who defrauded a builder by giving him counterfeit currency. Where the accused persons consigned small quantities of goods by rail, then tampered with the railway receipts by showing that the consignments were of large quantities, endorsed them in favour of a firm of theirs which drew large sums of money on these shown large quantities of goods specified, in the receipts, and drew demand drafts in favour of various banks, they were held to have committed the offence under this section. Issuing cheques with knowledge that they would be dishonoured attracts liability under this section.
Even after introduction of section 138 of the Negotiable Instruments Act, prosecution under section 420 of the Code is maintainable in case of dishonour of cheques or post-dated cheque 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.
But otherwise a cheque is not a representation that there is enough balance in the account of the drawer. Where the accused paid by a post-dated cheque for goods supplied and the cheque was dishonoured, no offence under this section was held to have been committed because there was no allegation in the complaint that while giving the cheque the accused knew that there was not enough money in that account.
There would be civil liability only. A duly signed receipt of a cheque is not a valuable security and it cannot be converted into a valuable security. Where the complainant opened an account book before the accused who had called for the same by telling the complainant that he wanted to settle his account, and the accused tore away that part of the page which bore his thumb impression, it was held that an offence under section 477, and not under section 420, had been committed by him.
In Gopalakrishnan v. State, the complainant subscribed to chit on the request of the accused and he becomes a successful bidder at the auction. The accused failed to pay the bid amount as promised. It was held that institution of criminal proceedings was without locus standi the dispute being of civil nature, and mere failure to keep the promise to the bid amount is not sufficient to fasten liability under section 420 of the Code, and issuance of the process was illegal for absence of dishonest intention.
In Ram Prakash Singh v. State of Bihar, the accused was a Development Officer in the Life Insurance Corporation of India. He was found guilty of introducing false and fake insurance proposals to the corporation with a view to inflate business and gain promotion.
Though no benefit accrued to him, the Corporation suffered loss for non-issuance of insurance policies. The Supreme Court held that such proposals harmed the reputation of the Corporation and hence the accused was guilty under section 420 of the Code.
In A jay Mitra v. State of Madhya Pradesh, the appellant beverages company (A-l) entered into a bottling agreement with the complainant bottling company for five years. Subsequently, the trademark of A-l was purchased by another industry A-6. The bottling agreement between the appellant and the complainant was duly assigned to A-6, A-6 gave notice to the complainant terminating the agreement. A complaint was filed against A-l and its directors alleging cheating.
The Supreme Court held that the appellants were nowhere in picture at the time the complainant was alleged to have spent money in improving the bottling plant pursuant to the agreement. No mens rea could be attributed on the part of the appellants to cheat or deceive the complainant and so the offence of cheating was not made out and, therefore, the complaint was liable to be quashed.
Ram Narain Poply v. Central Bureau of Investigation is the famous security scam case. There were allegations of siphoning of funds of Maruti Udyog Limited in favour of an individual though investment of surplus funds of this company with private individual was prohibited. The transactions in question, though for benefit of the broker individual, were entered in such a way as to present a picture as if the broker had nothing to do with it.
These transactions were entered into with the aid, assistance and direct involvement of officers of Maruti Udyog Limited, bank and the broker. Holding that the accused persons were liable to be convicted under sections 120-B, 409, 420, 467 and 471 of the Code, the Supreme Court observed that considering the facts that officers involved are smaller fries, that all the money misappropriated have been returned, that the offence had taken place a decade back and also that the prime accused Mr. Harshad Mehta had died it would be appropriate to reduce the sentence to that already undergone.
In Soma Chakravarty v. State of Delhi (through the Central Bureau of Investigations),2 charges against the accused persons were being framed under section 228 of the Code of Criminal Procedure, 1973 for fraud and misappropriation of huge amount of government money. The charges against the accused appellant was that she dishonestly processed and verified fake bills.
The bills in question were neither raised nor signed by the appropriate authority and the same were not entered in the bill register. The Supreme Court held that framing of charges against the appellant under sections 420 read with sections 429, 468 and 471 of the Indian Penal Code was proper and that any observation made by the Supreme Court or the High Court will not influence the trial court which shall decide the case on merits as expeditiously as possible.
In N. Devindrappa v. State of Karnataka, the accused induced the complainant and many others from parting with their money as part payment for sale of land not owned by him. Bogus receipts were also issued by him. His intention was dishonest. The Supreme Court held his conviction under section 420 of the Code proper.
Cheating and illegal or immoral contract
Where the accused took a young married girl from her mother’s house with her consent and got her married to a rich man and was paid bride price in return, they were held guilty of cheating. Where the accused agreed to let her daughter on hire to the complainant on payment of money so that he would have her as his concubine for a year but later she refused to do the same and also did not return the advance taken, the court held that where an illegal contract had been entered into which could not be enforced in a civil court, prosecution under criminal law would also not be permissible. Similarly, where two persons enter into a contract to commit a crime and one of them backs out of it later, criminal prosecution for cheating would not be permitted.
Requirement of permission of the government to prosecute
In Mohinder Singh v. State of Punjab, the Punjab and Haryana High Court observed that from the law laid down by the Supreme Court in State of Bihar v. P. P. Sharma, Shambhoo Nath Misra v. State of Uttar Pradesh, and State of Kerala v. Padmanabhan Nair, prima facie it would be clear that no sanction would be required for prosecuting a public servant for the offences connected with cheating and preparing false records besides misappropriation of public funds etc. including the offence of criminal conspiracy under section 120-B in respect of the aforesaid offences.
A national of Pakistan, doing business at Karachi, falsely represented to the complainant, doing business at Bombay, through letters, telegrams and telephone that he had ready stock of good quality rice, had reserved shipping space and would be glad to ship rice as soon as he received money from him. The complainant sent the money but received no rice.
It was held that all the ingredients of the offence of cheating occurred at Bombay and even though the accused national of Pakistan was not present physically in India, the courts at Bombay had jurisdiction to try the case by virtue of section 2 of the Indian Penal Code.
Where the accused, an M.Sc., Ph.D., was convicted of attempting to issue counterfeit University degrees and was sentenced till rising of the court of by the sessions court, it was held that the punishment was not at all commensurate with gravity of the offence and deserved to be raised to imprisonment for three years.
Where, on the other hand, the accused admitted his guilt, returned the money appropriated by him, and had a large family dependent on him, the sentence of fine against him was cut down by half. Where the court directed the accused to deposit the amount of money in question, and he deposited the same, the sentence was reduced to that already undergone by him.
In Essar Constructions Ltd. v. Central Bureau of Investigation, the Bombay High Court ruled that punishment of imprisonment under section 420 could not be imposed on juristic person like a construction company.
In Natural Sugar and Allied Industries v. Razzak Gaffar, the Bombay High Court has expressed the opinion that a company being a juristic person and not a natural person cannot have means rea to commit the offence of cheating.
The offence under section 420 is cognizable, non-bailable and compoundable when permitted by the court trying the case, and is triable by magistrate of the first class.
Of Fraudulent Deeds and Dispositions of Property
This part of the chapter on offences against property deal with fraudulent deeds and dispositions of property. These have been stated under sections 421 to 424 of the Code, both inclusive.