Introduction:
In the recent case of Arshad Neyaz Khan v. State of Jharkhand & Another [2025 LiveLaw (SC) 950], the Supreme Court of India decisively ruled that the offences of cheating under Section 420 of the Indian Penal Code (now Section 318 of the Bharatiya Nagarik Suraksha Sanhita, 2023) and criminal breach of trust under Section 406 IPC (now Section 316 BNS) cannot be alleged simultaneously on the basis of the same set of facts, as the two are inherently contradictory. A bench comprising Justice BV Nagarathna and Justice R Mahadevan was hearing an appeal against the refusal of the Jharkhand High Court to quash criminal proceedings in a dispute arising from a property sale agreement. The appellant, Arshad Neyaz Khan, had entered into an agreement for the sale of property and received advance payment from the complainant. However, for over eight years, he neither executed the sale deed nor returned the advance money. The complainant consequently lodged a case alleging both cheating and criminal breach of trust. While the High Court dismissed the plea to quash the proceedings, the Supreme Court, in a detailed judgment authored by Justice Nagarathna, held that the two offences cannot coexist simultaneously because cheating requires fraudulent intention at inception, while criminal breach of trust presupposes lawful entrustment that is later misappropriated. The Court drew on established precedents and analyzed the essential ingredients of both offences to conclude that neither offence was made out in the facts of this case, thereby allowing the appeal and setting aside the High Court’s order.
Arguments of the Appellant:
The appellant, represented by Advocate Ms. Srija Choudhury (AOR), contended that the criminal proceedings against him were fundamentally flawed because they simultaneously alleged two offences that are legally incompatible. It was argued that in the complaint, the respondent alleged that money had been entrusted to the appellant as advance for purchase of land, which presupposes a relationship of trust and lawful transfer of property. If that was the case, then no charge of cheating could stand because cheating requires dishonest intention right from the inception, at the time of inducing the complainant to part with the money. Conversely, if it were a case of cheating, then there could not be lawful entrustment because the transaction would have been fraudulent from the very beginning. Counsel for the appellant stressed that this contradiction went to the root of the prosecution’s case, rendering it legally untenable.
The appellant further submitted that the essential ingredients of criminal breach of trust were absent, as there was no clear evidence of entrustment nor any specific allegation that the entrusted property had been misappropriated or converted to the appellant’s own use. Mere failure to return advance money in a commercial transaction, counsel argued, may amount to breach of contract but cannot automatically be escalated into a criminal breach of trust unless fraudulent misappropriation is proved. Likewise, the allegations did not establish the ingredients of cheating because there was no inducement by false representation. At best, the dispute was civil in nature, concerning non-performance of contractual obligations. The appellant highlighted that criminal law should not be used as a tool to settle civil disputes and that the High Court erred in not quashing the proceedings despite the lack of prima facie material for either offence.
Arguments of the Respondents:
On the other hand, the complainant, represented by Advocate Mr. Rajiv Shankar Dvivedi along with Ms. Madhusmita Bora (AOR) and Mr. Pawan Kishore Singh, contended that the appellant had deceived the complainant by taking advance money under the pretext of executing a sale deed, but subsequently failed to do so for nearly a decade. This, according to the respondents, clearly amounted to cheating, as the appellant never intended to complete the transaction and dishonestly induced the complainant to part with his money. The prolonged failure to either execute the deed or refund the amount, they argued, demonstrated dishonest intention from the very beginning.
The respondents also contended that the allegations supported the offence of criminal breach of trust because the advance money given to the appellant was effectively entrusted to him for the specific purpose of completing the property transaction. By failing to return the money or fulfill his part of the agreement, the appellant had misappropriated the property entrusted to him. The respondents emphasized that criminal breach of trust is not limited to physical property but also extends to money entrusted under an obligation, and in this case, the appellant’s conduct amounted to breach of that trust. Further, it was argued that just because both charges were mentioned in the complaint did not mean they were mutually exclusive, and the High Court was right in allowing the criminal process to continue. The respondents urged the Court not to interfere at the pre-trial stage, arguing that whether the offences were ultimately made out was a matter of evidence and trial, not of quashing.
Court’s Judgment and Reasoning:
After hearing both sides, the Supreme Court allowed the appeal and quashed the proceedings. Justice Nagarathna, writing for the bench, delivered a comprehensive analysis of the essential ingredients of cheating and criminal breach of trust, clarifying why the two cannot coexist on the same factual matrix.
The Court explained that cheating, under Section 415 IPC (now Section 318 BNS), requires that the accused must have had fraudulent or dishonest intention from the very inception of the transaction. In other words, at the time of making false representations, the accused must have intended to deceive the complainant into parting with property. Thus, the key element is inducement by deception at inception. By contrast, criminal breach of trust, under Section 405 IPC (now Section 316 BNS), presupposes lawful entrustment of property to the accused, followed by dishonest misappropriation or conversion of that property. Therefore, for breach of trust, the initial act of entrustment is lawful, but subsequent dishonesty results in misappropriation.
On this basis, the Court held that the two offences are “antithetical” to each other and cannot co-exist on the same set of allegations. If the complainant admits that money was entrusted to the accused, then the offence of cheating cannot be alleged, because inducement to deliver property is absent. Conversely, if cheating is alleged, then there cannot be lawful entrustment, because the property would have been obtained dishonestly from inception. The Court referred to its earlier ruling in Delhi Race Club (1940) Limited v. State of Uttar Pradesh (2024) 10 SCC 690, where it was observed that the two offences are mutually exclusive and cannot be combined in one complaint on the same facts.
Examining the present case, the Court noted that the complainant’s allegations failed to establish the essential ingredients of either offence. With respect to criminal breach of trust, the Court found that the complaint did not specify how property had been entrusted to the appellant nor did it demonstrate dishonest misappropriation. Merely taking advance money in a sale agreement and failing to return it, the Court said, does not constitute criminal breach of trust unless there is proof of fraudulent misappropriation. On the aspect of cheating, the Court observed that since the complaint admitted that the money was entrusted, there was no question of inducement by deception at inception. Thus, the necessary elements of cheating were also absent.
Justice Nagarathna emphasized that every breach of trust in a contractual setting does not automatically become a criminal offence. The distinction between civil wrong and criminal offence must be carefully maintained, lest criminal law be misused for enforcing civil claims. The Court reiterated that criminal law cannot be used as a shortcut for recovery of money in commercial disputes and should only be invoked when the necessary ingredients of the offence are clearly satisfied.
Accordingly, the Court concluded that the complaint was fundamentally flawed in alleging both cheating and criminal breach of trust on the same facts, and that neither offence was actually made out. The impugned order of the High Court was therefore set aside, and the appeal was allowed, quashing the criminal proceedings against the appellant.
This judgment serves as an important clarification of the law relating to Sections 406 and 420 IPC (now Sections 316 and 318 BNS, 2023), reinforcing that while both offences deal with dishonest conduct, their ingredients are distinct and mutually exclusive. By drawing a clear line between contractual breaches and criminal offences, the Court has once again safeguarded against the misuse of criminal law in civil disputes while also reinforcing the need for precision in drafting complaints.