Default and one-time settlement do not constitute cheating absent dishonest intention at loan inception.

The CBI registered RCBSK-2005E002 under Sections 120B, 420, 467, 468 and 471 of the IPC, read with Sections 13(2) and 13(1)(d) of the Prevention of Corruption Act, 1988, alleging that a UCO Bank manager, in conspiracy with borrowers and other persons, sanctioned loans against false or defective securities and caused the bank substantial financial loss.

Anju Barman was alleged to have floated a non-existent firm, described in the record as M/s S.P. Industries/S.P. Enterprise, and to have obtained a cash-credit facility of approximately Rs. 20 lakhs by submitting false financial statements and other documents.

After investigation, the CBI filed a charge-sheet under Sections 120B, 420, 467, 468 and 471 IPC, while the accused sought discharge under Section 239 CrPC.

The Special Court discharged her from the Section 420 IPC charge but directed that charges under Sections 120B, 467, 468 and 471 IPC be framed.

The accused had mortgaged approximately 42 decimals of land and five fixed deposits of Rs. 1 lakh each as security for the loan.

During the pendency of the matter, the bank accepted Rs. 14.34 lakhs under a one-time settlement, issued a “no dues certificate” dated 6 November 2009, and closed the loan account.

Whether the materials collected during investigation disclosed the essential ingredients of cheating under Section 420 IPC, particularly fraudulent or dishonest intention at the inception of the loan transaction?

Whether repayment of the loan pursuant to a one-time settlement and issuance of a “no dues certificate” justified discharge from the Section 420 IPC charge?

Whether the Special Court was justified in discharging the accused only from the cheating charge while retaining the charges under Sections 120B, 467, 468 and 471 IPC?

The Court applied Section 420 IPC, read with the definition of cheating under Section 415 IPC, holding that cheating requires fraudulent or dishonest intention at the time of making the representation or promise, and that a subsequent failure to repay a loan does not by itself establish such intention.

Relying on V.Y. Jose v. State of Gujarat, (2009) 3 SCC 78, and Hiralal Hari Lal Bhagwati v. CBI, (2003) 5 SCC 257, the Court reiterated that a contractual breach or subsequent default cannot be converted into cheating unless dishonest intention existed from the beginning.

The Court also applied the principle that, at the stage of framing or considering discharge, the court must judicially examine whether the uncontroverted materials disclose the ingredients of the particular offence and need not mechanically accept the prosecution’s case.

The authorities cited by the CBI, including CBI v. Maninder Singh, (2016) 1 SCC 389, Gian Singh v. State of Punjab, (2012) 10 SCC 303, State of Maharashtra v. Vikram Anantrai Doshi, (2014) 15 SCC 29, and Sushil Suri v. CBI, (2011) 5 SCC 708, were treated as factually distinguishable because the accused was discharged only from the cheating charge and continued to face charges concerning conspiracy and forged documents.

The Court reasoned that the accused had obtained the loan against apparently genuine collateral securities, namely mortgaged land and fixed deposits, and that neither the prosecution nor the bank had challenged the genuineness of those securities.

Although the prosecution alleged that the firm was non-existent and that false financial statements had been submitted, those allegations could support the remaining charges of conspiracy, forgery and use of forged documents, which were left for trial; they did not, on the materials then available, establish dishonest intention at the inception sufficient for Section 420 IPC.

The subsequent default and the bank’s acceptance of Rs. 14.34 lakhs under a one-time settlement could not independently constitute cheating.

In the Court’s view, the existence of genuine security and the bank’s issuance of a “no dues certificate” substantially weakened the inference that the accused had initially intended to deceive the bank.

The accused’s discharge from the Section 420 IPC charge was therefore upheld.

However, the charges under Sections 120B, 467, 468 and 471 IPC remained undisturbed, as the alleged use of false documents and conspiracy required adjudication at trial.

The CBI’s revision petition, CRR 2493 of 2019, was dismissed.