In an important decision, the Supreme Court ruled that defaulting on a loan is not a criminal offense unless there is fraudulent intent.
The ruling comes in the Satishchandra Ratanlal Shah case against the state of Gujarat.
“The appellant’s mere inability to return the loan amount cannot give rise to criminal proceedings for cheating unless a fraudulent or dishonest intention is demonstrated from the start of the transaction, because that is what mens rea which is the crux of the offense ”, held a magistracy including Judge NV Ramana and Judge Mohan M Shantangoudar.
He further held that even though all the facts in the complaint and documents were taken at face value, no dishonest representation or inducement could be found or inferred.
The case concerns an appeal against the contested judgment of the Gujarat High Court which dismissed the appellant’s request to set aside the order fixing the charges in a criminal case.
The appellant had taken out a loan of 27 lakh in January 2008 from the complainant, director of a money lending company, which he did not repay. Subsequently, the complainant alleged that he had been threatened by the appellant when he approached him about this matter. He then filed a civil complaint, in 2011, to recover the money and followed it up with a criminal complaint and an FIR in 2012.
In its decision, the Supreme Court noted that the respondent knew the appellant and the circumstances before granting the loan. He also filed a civil complaint to recover the money.
“The law clearly recognizes a difference between the mere payment or investment of money and the confiscation of money or property. The mere violation of a promise, agreement or contract does not mean, ipso facto, constitute the criminal offense of breach of trust contained in article 405 of the IPC, without there being a clear case of warrant, ”he said in his recent decision.
The bench quashed the proceedings, setting aside the High Court order.