Loan Amount Not 'Entrusted Property'; Mere Failure To Repay Doesn't Constitute Criminal Breach Of Trust: Jharkhand High Court

The Jharkhand High Court has held that money advanced as a loan cannot be treated as property “entrusted” to the borrower for the purpose of constituting criminal breach of trust under Section 406 of the Indian Penal Code. The Court observed that a borrower is free to use the loan amount, unlike a person who receives property through entrustment and must deal with it subject to the owner's directions.A Single Judge Bench of Justice Anil Kumar Choudhary quashed criminal proceedings initiated against a borrower for cheating and criminal breach of trust over the alleged non-payment of the outstanding loan amount.The petitioner had approached the High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023, seeking quashing of the criminal proceedings and the order dated December 31, 2023 passed by the Sub-Divisional Judicial Magistrate, Deoghar. The Magistrate had found a prima facie case against him under Sections 406 and 420 read with Section 34 IPC.According to the complaint, the petitioner, while working with the Bank of India's Deoghar Branch, obtained a loan of ₹9.30 lakh from the Deoghar Zila (Shahri Kshetra) Rastriyakrit Bank Karmchari Bachat Evam Sakh Swavlambi Sahkari Samiti Ltd. It was alleged that although he repaid ₹7.50 lakh, an amount of ₹4.85 lakh remained due and payable.The petitioner submitted that every breach of contract does not amount to cheating. It was argued that the offence under Section 420 IPC could arise only where fraudulent or dishonest intention existed from the inception of the transaction. A subsequent inability or failure to repay a loan, without an allegation of initial deception, could not constitute cheating.The Court reiterated that mere inability to repay a loan cannot give rise to criminal prosecution for cheating unless fraudulent or dishonest intention is shown at the very beginning of the transaction. It further observed that a mere breach of promise, agreement or contract does not, by itself, amount to criminal breach of trust in the absence of a clear case of entrustment. Explaining the distinction between a loan and entrustment, the Court held:“The person taking loan cannot be said to have been entrusted with the loan amount as the word 'entrusted' has been used in Section 405 of the Indian Penal Code; because the person taking loan is free to use the amount taken by him as per his sweet will unlike the case of entrustment, where the person entrusted with the property cannot deal with the entrusted property without the approval of the person entrusting the property.”The Bench noted that the only allegation against the petitioner was that he had taken a loan, repaid a portion of it and had allegedly failed to pay the balance. There was no allegation that he had practised deception from the inception of the transaction or dishonestly misappropriated any property entrusted to him. The Court observed:“In the absence of such allegation, this Court has no hesitation in holding that even if the entire allegations made against the petitioner are considered to be true in their entirety still neither of the offences punishable under Sections 406 nor the offence punishable under Section 420 of the I.P.C. is made out.”Holding that continuation of the prosecution would amount to an abuse of the process of law, the Court quashed the entire criminal proceedings and the Magistrate's order against the petitioner.Case Title: Bimlendu Shekhar Jha v. State of Jharkhand and Anr.Case Number: Cr.M.P. No. 733 of 2025Appearance: Mr. Pran Pranay for the Petitioner. Mr. Bhola Nath Ojha for the State. Mr. Bajrang Kumar for Opposite Party No. 2.Click Here To Read/Download Order

Loan Amount Not 'Entrusted Property'; Mere Failure To Repay Doesn't Constitute Criminal Breach Of Trust: Jharkhand High Court

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Loan Amount Not 'Entrusted Property'; Mere Failure To Repay Doesn't Constitute Criminal Breach Of Trust: Jharkhand High Court

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