Director's Assurance Of Payment In Ordinary Business Can't Automatically Attract Cheating Charge: Delhi High Court
The Delhi High Court has held that a director's assurance of payment given in the ordinary course of a commercial transaction cannot, by itself, be treated as fraudulent inducement so as to attract the offence of Cheating under Section 420 IPC.Justice Neena Bansal Krishna made the observation while quashing criminal proceedings against a Managing Director who had been charged with cheating...
The Delhi High Court has held that a director's assurance of payment given in the ordinary course of a commercial transaction cannot, by itself, be treated as fraudulent inducement so as to attract the offence of Cheating under Section 420 IPC.
Justice Neena Bansal Krishna made the observation while quashing criminal proceedings against a Managing Director who had been charged with cheating on allegations that goods were supplied to his company on the assurance of payment, which was later not honoured.
The bench observed,
“The “assurance” of payment mentioned in the allegations is a standard commercial representation made in the ordinary course of business. Every purchase on credit involves an implied or express promise to pay. The subsequent failure of the Company to honour this promise, due to financial incapacity or BIFR status, renders the dispute civil in nature. It does not automatically translate into criminal cheating on the part of the Director.”
The Court noted that the complainant's own case was that the accused director was dealing on behalf of the company and it is a fundamental principle of criminal jurisprudence that there is no vicarious liability in the IPC unless the statute specifically provides for it.
Moreover, since the complaint against the Company had already abated, the Court held that prosecution of the Director becomes legally unsustainable. “The Director cannot be held criminally liable for the Company's financial status or its corporate debts when the Company itself is no longer being prosecuted,” it held.
The Court further clarified that to sustain a charge of cheating, it must be shown that the accused had dishonest or fraudulent intent at the very inception of the transaction.
“Without evidence showing that Accused No. 2 knew at the time of the promise that the money would definitely not be paid, the “assurance” cannot be labelled as a fraudulent inducement,” the Court said.
As such, the Court allowed the petition and quashed the proceedings against the director.
Appearance: Mr. Rohit Priya Ranjan and Ms. Aayushi, Advocates for Petitioner; Ms. Smita Maan, Advocate for Respondent
Case title: Arun Kumar Bagla v. M/S SCJ Plastics Ltd
Case no.: W.P.(CRL) 2165/2019