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Supreme Court: Cheating Charge Needs Proof of Inducement, Not Just Forged Documents

LEGAL UPDATES

The Supreme Court on Misuse of Criminal Proceedings in Commercial Disputes: A.M. Mohan v. State (2024 INSC 233)

I. Introduction

In A.M. Mohan v. State Represented by SHO and Another,1 the Supreme Court of India revisited the principles guiding the inherent jurisdiction of the High Courts under Section 482 of the Code of Criminal Procedure, 1973 (“Cr.P.C.”). The judgment, delivered on 21 March 2024 by a bench comprising B.R. Gavai, Rajesh Bindal, and Sandeep Mehta, JJ., reiterates that criminal law cannot be invoked to settle civil disputes, particularly in the context of commercial transactions.

The decision assumes significance in the backdrop of the increasing tendency to dress civil claims in the garb of criminal prosecutions in order to exert pressure on parties.

II. Factual Background

The complainant, Karthick Krishnamurthy, alleged that accused Nos. 1 and 2 induced him to invest approximately ₹16 crores in various ventures, including real estate and gold chit schemes. As part of these transactions, a sum of ₹20,00,000 was transferred into the account of the appellant, A.M. Mohan (accused No. 3). The appellant, upon receiving the money, executed a registered sale deed in favour of accused No. 1 the following day. Subsequently, accused No. 1 executed a General Power of Attorney in favour of the complainant with respect to the same property.

The complainant’s grievance centered on the subsequent cancellation of the GPA and resale of the land by accused No. 1. Importantly, no allegations of fraudulent inducement were made against the appellant beyond the receipt of ₹20,00,000 and the execution of the sale deed.

The Madras High Court declined to quash the FIR under Section 482 Cr.P.C., observing that investigation was necessary. Aggrieved, the appellant approached the Supreme Court.

III. Submissions of the Parties

A. Appellant’s Submissions

The appellant contended that:

  1. The ingredients of “cheating” under Sections 415 and 420 of the Indian Penal Code, 1860 (“IPC”) were not made out against him.2

  2. His role was limited to executing a registered sale deed for valid consideration; there was no dishonest inducement at inception.

  3. The allegations of fraud pertained exclusively to accused Nos. 1 and 2.

B. Respondents’ Submissions

The complainant argued that:

  1. The FIR disclosed specific allegations against all accused, including the appellant, thereby justifying investigation.

  2. Since the charge-sheet had been filed, the matter ought to proceed to trial and the appellant could seek discharge under Section 239 Cr.P.C.

IV. Court’s Analysis

The Supreme Court began by reaffirming the settled principles governing Section 482 Cr.P.C. as laid down in State of Haryana v. Bhajan Lal,3 which enumerated illustrative categories of cases where quashing of proceedings would be justified.

Further reliance was placed on Indian Oil Corporation v. NEPC India Ltd.,4 where the Court had cautioned against the tendency of litigants to give “a cloak of criminality” to purely civil disputes. The Court emphasized that mere breach of contract, absent fraudulent intent at inception, does not attract the offence of cheating under Sections 415–420 IPC.

Applying these principles, the Court held:

  1. The FIR and charge-sheet did not allege any dishonest inducement on the part of the appellant.

  2. The ₹20,00,000 transaction was part of a legitimate land sale, immediately followed by registration of the sale deed.

  3. All subsequent fraudulent conduct was attributable solely to accused Nos. 1 and 2.

On the objection that a charge-sheet had already been filed, the Court relied on Anand Kumar Mohatta v. State (NCT of Delhi),5 which clarified that the inherent powers of the High Court under Section 482 Cr.P.C. may be exercised even after the filing of the charge-sheet.

V. Decision

The Court concluded that continuation of proceedings against the appellant would constitute an abuse of process of law and result in miscarriage of justice. Accordingly, it quashed the FIR in Crime No. 21 of 2020 as well as the charge-sheet insofar as they pertained to the appellant.

VI. Significance

This judgment strengthens three critical principles:

  1. Demarcation of Civil and Criminal Law: Commercial or contractual disputes cannot be prosecuted criminally unless dishonest intent at inception is clearly alleged and prima facie established.

  2. Protection Against Harassment: Individuals who are only peripherally connected to commercial dealings cannot be dragged into prolonged criminal trials absent specific allegations of fraud.

  3. Flexibility of Section 482 Cr.P.C.: The power to quash proceedings survives even after the filing of a charge-sheet, thereby preventing unnecessary trials.

VII. Conclusion

The ruling in A.M. Mohan v. State reaffirms the judiciary’s consistent approach to discourage the misuse of criminal process in commercial disputes. By insisting on the presence of fraudulent intent ab initio for offences under Sections 415–420 IPC, the Court has drawn a clear boundary between civil liability and criminal culpability. The decision thus contributes to the jurisprudence on preventing abuse of criminal law as a coercive tool in business conflicts.

References

Do you want me to also add a comparative note—for example, contrasting this with other recent SC judgments on misuse of 420 IPC (like Hridaya Ranjan Prasad Verma v. State of Bihar and Murari Lal Gupta v. Gopi Singh)—to make it journal-ready?

Footnotes

  1. A.M. Mohan v. State Represented by SHO and Another, 2024 INSC 233. ↩

  2. Indian Penal Code, 1860, §§ 415–420. ↩

  3. State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335. ↩

  4. Indian Oil Corporation v. NEPC India Ltd., (2006) 6 SCC 736. ↩

  5. Anand Kumar Mohatta v. State (NCT of Delhi), (2019) 11 SCC 706. ↩

Here are the practical implications of this Supreme Court judgment:

1. For Accused Persons (Relief in Some Cases)

  • If a forged document was created or produced but did not actually result in anyone giving money, property, or any material advantage, then the accused cannot be prosecuted under Section 420 IPC (Cheating).

  • However, they may still face charges under other provisions, like Sections 465, 467, 468, 471 IPC (forgery, using forged documents, etc.).

2. For Complainants / Victims

  • Merely alleging that a forged document was produced is not enough for a cheating case.

  • The complainant must prove actual inducement and wrongful loss or gain.

  • This prevents misuse of S.420 in situations where no benefit was obtained.

3. For Investigating Agencies

  • Police will need to differentiate between forgery cases and cheating cases.

  • If no material benefit was conferred due to the forged document, they can’t automatically add 420 IPC.

  • They must focus on appropriate forgery-related sections.

4. For Courts

  • It narrows the scope of Section 420 IPC, avoiding unnecessary criminalisation when no property or benefit was exchanged.

  • This ensures that criminal trials under cheating provisions are not prolonged where there is no “inducement → benefit” chain.

5. General Principle Reinforced

  • Cheating under Section 420 requires two things:
    (i) Dishonest inducement by the accused, and
    (ii) Delivery of property/material benefit by the victim due to that inducement.

  • Without both, there is no cheating—only forgery.

Judgement