Loan default alone, absent dishonest inducement at inception, does not constitute cheating.

The petitioners entered into a 2013 agreement with Pashmina Realty Private Limited (PRPL) to purchase a Mumbai flat, funded in part by an IIFL loan under a tripartite subvention arrangement.

The petitioners alleged that PRPL was responsible for servicing interest until possession, but construction was delayed and possession was not delivered.

They sought cancellation and refund from PRPL; PRPL later undertook to make payments to the petitioners and IIFL but allegedly failed to do so.

IIFL complained to the Chief Judicial Magistrate, Calcutta, alleging that the petitioners obtained a loan of Rs. 2,98,59,000 on false representations and defaulted.

The Magistrate transferred the case, issued process, and later issued bailable warrants.

The petitioners sought quashing under Section 528 BNSS, including on the ground that the procedure under Section 225 BNSS had not been followed.

1. Whether the complaint’s allegations, viewed in the context of the loan default and subvention arrangement, disclosed the offence of cheating under Section 318 BNS against the petitioners.

2. Whether the alleged loan default, without further evidence of diversion or dishonest misapplication of the loan proceeds, disclosed criminal breach of trust under Section 316 BNS.

3. Whether the proceedings and the Magistrate’s orders should be quashed under Section 528 BNSS.

Section 318(1) BNS requires deception that fraudulently or dishonestly induces delivery or retention of property, or intentionally induces an act or omission causing or likely to cause harm; for the property-delivery limb, the inducement must be fraudulent or dishonest.

The court applied Hridaya Ranjan Prasad Verma v. State of Bihar and Satishchandra Ratanlal Shah v. State of Gujarat for the principle that a subsequent failure to perform or repay, by itself, does not establish dishonest intention at the inception of the transaction.

In considering Section 316 BNS, the court relied on Kailash Kumar Sanwatia v. State of Bihar and treated dishonest misappropriation or conversion, or use or disposal contrary to the governing legal direction or contract, as necessary to establish criminal breach of trust; mere default is insufficient without evidence of such conduct.

The petitioners invoked Section 528 BNSS as the basis for seeking quashing.

The court found that the complaint did not identify any false representation or concealment by the petitioners when the loan was obtained.

Instead, the allegation of dishonest intent rested on their subsequent failure to repay.

The court considered that the loan formed part of a tripartite subvention arrangement under which PRPL was to service interest until possession, that possession had not been delivered, and that the petitioners had sought cancellation from PRPL before the loan was classified as an NPA or wilful-defaulter proceedings began.

On those facts, default and IIFL’s resulting pecuniary loss did not, without evidence of dishonest inducement at inception, satisfy Section 318 BNS.

Nor did the materials show that the petitioners diverted or misapplied the loan proceeds, rather than applying them to the purchase for which the loan was sanctioned, as would be required to support criminal breach of trust.

Although the petitioners also challenged compliance with Section 225 BNSS, the court’s stated basis for quashing was its assessment of the alleged offences.

It set aside the orders dated 13 November 2024, 4 January 2025, and 7 March 2025; the connected applications, CRAN 2 of 2025 and CRAN 3 of 2026, were disposed of.