Civil Dispute vs. Criminal Cheating: The Supreme Court reiterated that mere breach of contract or failure to repay dues due to business losses does not constitute cheating under Section 420 IPC unless dishonest intention is proven at the inception of the transaction. (Para 13, 17, 19).
Ingredients of Cheating: To establish cheating, the prosecution must prove: a) Dishonest inducement at the inception of the transaction. b) Wrongful loss to the complainant due to such inducement. (Para 14, 21).
Burden of Proof: The complainant failed to demonstrate that the appellant was insolvent or knowingly misrepresented his financial status at the time of entering into the transaction. (Para 17, 21).
High Court’s Error: The High Court erroneously inferred criminal intent solely from the appellant’s failure to honour a subsequent agreement, ignoring the absence of deceit at the inception. (Para 17, 19).

The Supreme Court allowed the appeal, quashing the FIR and charge-sheet, holding: No evidence of dishonest inducement at the transaction’s inception. (Para 17). Breach of agreement due to business setbacks is not criminal cheating. (Para 19).

Major Acts:
Indian Penal Code, 1860 (IPC) – Section 415 (Cheating), Section 420 (Cheating and Dishonestly Inducing Delivery of Property).
Code of Criminal Procedure, 1973 (CrPC) – Section 156(3) (Magistrate’s Power to Direct FIR Registration), Section 155(2) (Investigation into Non-Cognizable Offences).

Question of Law:
Whether a commercial dispute involving breach of contract and unpaid dues can be construed as cheating under Section 420 IPC without proof of dishonest intention at the inception? (Para 10, 14).

Facts:

1. Nature of Litigation: Criminal appeal against refusal to quash FIR alleging cheating under Section 420 IPC.

2. Remedy Sought: Appellant sought quashing of FIR and charge-sheet, arguing the dispute was purely civil.

3. Genesis: Respondent No. 2 alleged the appellant fraudulently obtained coal supplies by misrepresenting his creditworthiness, leading to unpaid invoices and a subsequent notarized repayment agreement, which was partially breached.

4. Prior Proceedings: Magistrate directed FIR registration under Section 156(3) CrPC; High Court upheld the proceeding, holding prima facie case of cheating.

Issues:

1. Whether the appellant’s conduct constituted cheating under Section 420 IPC?

2. Whether the High Court erred in not quashing the FIR despite lack of evidence of dishonest intent?

Submissions/Arguments:
Appellant: The dispute arose from business losses, not deceit; subsequent agreement showed bona fide intent to repay. (Para 19).
Respondent: Appellant’s false representation as a "creditworthy businessman" and breach of agreement established cheating. (Para 12).

Ratio:
A commercial dispute attracting civil remedies cannot be criminalized as cheating under Section 420 IPC unless the complainant proves:
a) Deceitful intent at the inception.
b) Wrongful loss directly caused by such deceit. (Para 14, 21).

Subjects:
Cheating, Dishonest intention, Breach of contract, Commercial dispute, Quashing of FIR.

Relevant Precedents:
Hridaya Ranjan Prasad Verma vs State of Bihar – Test for dishonest inducement. (Para 14).
Mohsinbhai Fateali vs Emperor – Insolvency does not retroactively prove deceit. (Para 20).