Failure to repay loan and subsequent cheque dishonour constitutes breach of contract, not cheating or criminal breach of trust.

The petitioner, Jyoti Kumar Diwakar, was accused of taking a loan of Rs. 8,00,000/- from the informant and failing to repay it.

Although the petitioner issued cheques twice to satisfy the debt, they were dishonoured.

Consequently, an FIR (B.S. City P.S. Case No. 37 of 2024) was registered for offences punishable under Sections 406 (Criminal Breach of Trust) and 420 (Cheating) of the Indian Penal Code (IPC).

The petitioner moved the High Court under Section 528 of the BNSS 2023 to quash the FIR, arguing that a mere failure to repay a loan or a breach of contract does not constitute a criminal offence.

1. Whether the failure to repay a loan amount and the subsequent dishonour of cheques, without an allegation of dishonest misappropriation, constitutes the offence of criminal breach of trust under Section 406 IPC.

2. Whether a breach of contract amounts to cheating under Section 420 IPC in the absence of fraudulent or dishonest intention at the very inception of the transaction.

The court applied the definition of criminal breach of trust under Section 405 IPC (punishable under Section 406), noting that mere retention of money without dishonest disposal does not suffice, as established in Binod Kumar v. State of Bihar.

For cheating under Section 420 IPC, the court relied on Uma Shankar Gopalika v. State of Bihar and Satish Chandra Ratan Lal Shah v. State of Gujarat, holding that mens rea—specifically a fraudulent inducement at the inception of the agreement—is a condition precedent; a subsequent failure to fulfil a promise does not satisfy this requirement.

The court observed that the core of the allegation was a purely civil dispute regarding the non-repayment of a loan.

Regarding Section 406 IPC, the court reasoned that while the petitioner retained the money, there was no evidence or allegation that he dishonestly disposed of it or intended to cause wrongful loss, which is essential for criminal breach of trust.

Regarding Section 420 IPC, the court found that the FIR lacked any assertion that the petitioner played a deception at the "very inception" of the loan transaction.

Citing Satish Chandra Ratan Lal Shah, the court emphasized that the mere inability to return a loan due to economic crisis or other reasons cannot be criminalized unless a dishonest representation is inferred from the start.

Since the petitioner attempted to repay via cheques (even if they were dishonoured), a fraudulent intent at the beginning could not be established.

The High Court allowed the petition and quashed the FIR being B.S. City P.S. Case No. 37 of 2024 against the petitioner.