A Critique of Delhi Race Club Judgment — How Cheating and Breach of Trust Can Coexist

The Supreme Court of India recently observed¹ that the courts and police have failed to understand the difference between cheating [Section 420 of the Penal Code, 1860 (IPC)²] and breach of trust (Section 406 IPC)³ and that these two offences cannot coexist. This ruling is correct only to a limited extent — a conviction cannot stand for both the offences simultaneously. However, the judgment errs in assuming that the two offences cannot coexist at any stage of a criminal trial. As this article will demonstrate, the statutory scheme, the precedents as well as the practical realities permit simultaneous application of these two sections in alternate at least till the stage of framing of charges. The article will also highlight that the observations — though scathing of the police and trial courts — are mere obiters and, respectfully, should not sway the future decisions of the trial courts.

The Supreme Court was dealing with a plea seeking quashing of summons in a case wherein allegations of cheating and breach of trust had been simultaneously made against the accused. The Supreme Court quashed the summons, primarily on the ground that the allegations made in the complaint were of civil nature and did not disclose any criminality on part of the accused.⁴ Civil disputes should not be given a criminal colour and accordingly, the Court rightly quashed the summons. Thus far, the judgment is correct and no comment thereupon is necessary.

However, the problematic part of the judgment comes after the reasoning of the Court is over. As closing remarks, the judgment dedicates about four paragraphs to highlight the “casual approach of the courts below” in missing the simultaneous application of the two sections. The Supreme Court went on to observe that “even after these many years, the courts have not been able to understand the fine distinction between criminal breach of trust and cheating”.⁵ In the end, copies of the judgment have been directed to be circulated to the Principal Secretaries of the Law and Home Departments of the Union.⁶ The judgment has at length expressed discontent with the manner in which the “courts below” and the police authorities have been simultaneously registering cases under the two sections, which as per the Court, are “antithetical to each other”.⁷

Court’s reasoning — How the two offences are distinct

The judgment rightly notes that the offences of cheating and breach of trust are two distinct offences.⁸ In the former, the accused induces the victim to part with the property with dishonest intention, whereas for the latter, the accused is entrusted with the property by the victim without any inducement and the accused thereafter dishonestly retains the property. The difference is crisply summarised in the judgment as follows:

40. To put it in other words, the case of cheating and dishonest intention starts with the very inception of the transaction. But in the case of criminal breach of trust, a person who comes into possession of the movable property and receives it legally, but illegally retains it or converts it to his own use against the terms of the contract, then the question is, in a case like this, whether the retention is with dishonest intention or not, whether the retention involves criminal breach of trust or only a civil liability would depend upon the facts of each case.⁹

In this sense, the judgment is right in holding that the two offences are distinct and separate. Since the two offences are substantially distinct in how the property is parted with by the victim and when the accused’s intention turns dishonest, a person cannot be simultaneously convicted for both the offences. An example of cheating would be where a deceitful criminal, X, causes the victim to part with the money with the promise to sell a property that does not even belong to X. On the other hand, an example of criminal breach of trust would be where X is employed by a company as the manager of a storehouse, supposed to look after the goods of the company. If X then sells some of those goods and pockets the money himself, it will constitute criminal breach of trust since X did not induce his employer to entrust the goods to him — he simply misappropriated the goods that were genuinely entrusted to him without any inducement.

Thus, it could be either said that X had the intention to never perform his part of the promise and therefore induced the victim to part with the property dishonestly or it could be said that X had been bona fide entrusted with the property by the victim, who later converted the property to his own use. X cannot be convicted of both the offences together as they are substantially different. However, this reasoning can only be applied to convictions — to extend that reasoning to say that no first information report (FIR) can be lodged, or no summons can be issued under the two offences simultaneously is incorrect.

The fallacy: Conviction-stage logic cannot be applied to summoning stage

The reasoning in this case assumes that because a charge may not ultimately succeed at the conviction stage, it should not be framed at the summoning stage. Since summoning requires only a prima facie case, while conviction requires proof beyond a reasonable doubt,¹⁰ it treats different legal thresholds as identical, which is a fallacy of false equivalence. To highlight the fallacy in the judgment, an illustration is worth referring to first, to demonstrate why the reasoning is practically erroneous. Then, reference is made to the statutory scheme which would permit simultaneous application of both the sections, to demonstrate how the reasoning is theoretically erroneous. Next, reference is made to precedents to demonstrate how the judgment is per incuriam. Lastly, it is highlighted that the entire reasoning in this regard is mere obiter and not binding.

The practical aspect

To understand the situation fully, consider the following scenario:¹¹ A is interested in buying a property and contacts X, a property dealer. X shows him a property belonging to B and asks him to give a sum of five lakh rupees as the “token money”¹² to proceed further with the deal. A later meets B and learns that the token money was never transferred by X to B. Upon confronting X, it transpires that the money has been used by X himself. Now, when A goes to file an FIR (or a criminal complaint before the Magistrate, as the case may be) neither A nor the police or the Magistrate can possibly determine when exactly X‘s intention was dishonest — i.e. whether he did not have any intention to forward the token money to B since the inception (thus constituting cheating) or, the intention turned dishonest subsequent to the genuine entrustment and X thus misappropriated the money entrusted to him (constituting criminal breach of trust).

This determination can only possibly be made after investigation¹³ or inquiry,¹⁴ by including both the sections in alternate.¹⁵ In fact, there may even be cases where the specific circumstances under which X acted may be considered to be facts exclusive to his knowledge and thus, be required to be proven by him even in a criminal trial.¹⁶ These facts can thus only be ascertained during or after investigation, inquiry or trial, as the case may be. Once the complete facts have emerged (or the accused has failed to clarify the facts exclusive to his knowledge) the police (or court, as the case may be) would be equipped to make a proper call upon whether the facts constitute cheating or criminal breach of trust. Thus, while the conviction can only be under one of these sections, to determine which of the sections is applicable, both the sections can be simultaneously applied, in alternate. That is to say, an FIR can be lodged under both the sections in alternate and charges can be framed under both the sections in alternate.

The theoretical aspect — Statutory scheme

The Criminal Procedure Code, 1973¹⁷ (CrPC) and the corresponding Nagarik Suraksha Sanhita, 2023¹⁸ have considered the possibility of such scenarios arising and has explicitly permitted alternate accusations. Section 221(1)¹⁹ CrPC contemplates this exactly and states as follows:

221. Where it is doubtful what offence has been committed.—(1) If a single act or series of acts is of such a nature that it is doubtful which of several offences the facts which can be proved will constitute, the accused may be charged with having committed all or any of such offences, and any number of such charges may be tried at once; or he may be charged in the alternative with having committed some one of the said offences.

The situation at hand — concerning the offences of cheating and criminal breach of trust — has explicitly been dealt with in the illustration to the section. Illustration (a) reads as under:

A is accused of an act which may amount to theft, or receiving stolen property or criminal breach of trust or cheating. He may be charged with theft, receiving stolen property, criminal breach of trust and cheating, or he may be charged with having committed theft, or receiving stolen property, or criminal breach of trust or cheating.

Further, sub-section (2) makes it evident that in such situations, even if a charge is not explicitly framed for one of these offences (for which the accused could have been charged in alternate), the accused can still be convicted for it. The Illustration (b) corresponding to this sub-section reads as under:

In the case mentioned, A is only charged with theft. It appears that he committed the offence of criminal breach of trust, or that of receiving stolen goods. He may be convicted of criminal breach of trust or of receiving stolen goods (as the case may be), though he was not charged with such offence.

Thus, an accused can even be convicted for criminal breach of trust, even though no formal charge has been framed thereunder, when the circumstances are such that charge could have been framed against him for the offences in alternate. Thus, for the Court in Delhi Race Club case²⁰ to then say that the two offences are “antithetical” which “cannot coexist” in an FIR, a summons or a charge, is completely destructive to the legislative intent evident from these provisions.

The precedents

The courts have consistently held that Section 221 CrPC permits alternate charges to be framed where the evidence might support either charge depending on the outcome of the trial.²¹ For instance, in Mahendra Das Vaishnav v. State of Rajasthan²², the trial court examined the material collected during the investigation and found enough evidence to frame charges under Section 420 IPC as an alternative to Sections 406 and 120-B²³. The Rajasthan High Court upheld this ruling, stating that Section 221 CrPC allows framing of alternative charges when the evidence could support different offences. The Gujarat High Court also expressed a similar view in Ravindra C. Mehta v. Musta Hussein Karam Hussein²⁴, stating that the Court has the discretion to frame alternative charges when it is uncertain whether the offence falls under Section 406 or Section 420 IPC, to ensure that no potential offence goes unexamined.

The Gauhati High Court laid down this principle in clearer terms in Usha Roy v. Pinku Roy²⁵, and ruled thus:

20. What therefore follows from the above discussion is that though conviction of an accused for offence of cheating and criminal breach of trust may not be possible on the same set of facts, there should not be any difficulty in framing alternative charge or taking cognizance of offence under Sections 420 and 406 IPC, simultaneously.

Notably, the Supreme Court has not only permitted framing alternate charges under mutually exclusive offences, but in certain cases, has also mandated it to ensure that the accused is properly notified of all potential charges arising from the facts of the case. For instance, in State of Gujarat v. Haidarali Kalubhai²⁶, the Sessions Court convicted the accused under Section 304 Part II IPC²⁷ for culpable homicide not amounting to murder, along with Sections 326²⁸ and 323²⁹ IPC for causing injuries. However, the High Court overturned the conviction under Section 304 Part II and instead convicted him only under Section 304-A IPC³⁰ for causing death by negligence — a decision later upheld by the Supreme Court.

The Supreme Court reasoned that if a person is charged under Section 304 IPC for culpable homicide not amounting to murder, they must also be notified of an alternative charge under Section 304-A IPC for rash or negligent act causing death, to account for the possibility that the act causing death might only constitute rash or negligent conduct. Clearly, the ingredients of Sections 304-A and 304 are antithetical to each other — the death can either be caused intentionally or negligently — yet, the charges are directed to be framed alternatively, with the question of which of the two offences have been committed being left open, to be decided after trial. There is no reason to restrain from applying the same logic to the offences of cheating and criminal breach of trust.

Similarly, though the offences of murder³¹ and dowry death³² are distinct³³, it is not unheard of that the two sections are simultaneously present in a trial.³⁴ In fact, in Rajbir v. State of Haryana³⁵, the Supreme Court directed that in cases involving dowry deaths, trial courts should add a charge under Section 302 IPC to the charge under Section 304-B IPC. This ensures that the possibility of a homicidal death is not overlooked and the accused can be tried for murder if the evidence supports it. Thus, alternate charges for offences, which are otherwise antithetical to each other for the purposes of conviction, are still possible and in some cases, necessary.

The obiter

It is worth noting that in Delhi Race Club case³⁶, the Supreme Court quashed the trial court’s and High Court’s proceedings because the case lacked the essential ingredients for either offence. It held that there was no “entrustment” of property to establish criminal breach of trust, nor any evidence of fraudulent intent at the inception of the transaction to constitute cheating. It was a contractual dispute over unpaid dues, which should have been pursued as a civil remedy, and criminal proceedings cannot substitute civil remedies in cases of commercial disputes.

To determine whether some observations in a judgment are obiter dicta or not, the Supreme Court has previously applied the “inversion test”.³⁷ Applying the same test to the present case, it becomes evident that the Court’s observations about how not even an FIR can be lodged in the two sections simultaneously, are obiter dicta and thus not binding. Thus, in the respectful submission of the authors, the present judgment is not an authority on this point and should be considered accordingly.

Conclusion

The Supreme Court’s observations in Delhi Race Club case³⁸ reinforce the distinction between cheating and criminal breach of trust but conflate the standards for summoning and conviction. By foreclosing the possibility of framing charges under both provisions in the alternative, the judgment risks narrowing prosecutorial discretion in complex cases where the exact nature of the accused’s intent is not immediately clear. The Court’s approach risks prematurely narrowing the scope of trial by requiring a degree of certainty in framing charges that ordinarily ought to be expected only after a trial.

This judgment may make it more difficult to prosecute cases where cheating and breach of trust are intertwined, compelling not just courts to assess complex fact patterns through a binary lens, but also prosecuting agencies to take a call on which offence to formally allege when it may not be immediately evident. A more balanced approach would have preserved judicial discretion to frame alternative charges while reinforcing safeguards against abuse of process. It is hoped that a future judgment will clarify this ruling to ensure that trial courts retain the necessary flexibility to deal with multifaceted cases without being bound by rigid categorisations at the threshold stage.