Supreme Court Says Failure To Repay Loan Is Not Criminal Offence in the Absence of Criminal Intent: Report

Moneylife Digital Team 27 February 2019

Consumer Interest

The Supreme Court has held that mere failure to repay a loan would not automatically become a criminal offence unless there is criminal intent underlying the same, says a report.

According to a report from Bar & Bench, a bench of justices NV Ramana and MM Shantanagoudar passed an order clarifying this position while quashing charges of cheating and criminal breach of trust framed by a magistrate court in Gujarat.

In January 2008, one Satishchandra Ratanlal Shah took a loan of Rs27 lakh from Dharshan Fiscal Pvt Ltd, which was to be repaid within a year with interest. However, Mr Shah did not repay the loan. When Dharshan Fiscal approached Mr Shah for recovery of loan, it alledged that the borrower threatened with dire consequences. Dharshan Fiscal then filed a first information report (FIR) in the Kagdapith police station in Ahmedabad.

On 29 January 2012, Mr Shah was arrested, but was released on bail by the Gujarat High Court on 23 February 2012.

When the police filed a charge sheet on 1 March 2012, the metropolitan magistrate issued a summons against Mr Shah. Later in is petition to the apex court, Mr Shah alleged that he was given a copy of the charge sheet and on 4 December 2013, the magistrate framed charges on a blank sheet without giving him an opportunity of being heard.

Mr Shah then filed a petition before the High Court requesting squashing of the FIR against him.

In an order on 12 April 2018, the Gujarat HC dismissed Mr Shah's petition and directed the trial court to complete the trial within three months. The HC observed that prima facie an offence of cheating under Section 420 was made out but charge under Section 406 pertaining to criminal breach of trust was not applicable in the given factual scenario. However, the court did not removed the charges against Shah under Section 406 while noting that no case had been made out to get the charge quashed.

Mr Shah then approached the Supreme Court with his special leave petition (Criminal Appeal no9 of 2019).

In its order, the bench, says, "...it is to be noted that the criminal application preferred by Shah before the High Court was against the order of the trial court at the stage of framing of charges, where it is the duty of the court to apply its judicial mind to the material placed before it and to come to a clear conclusion that a prima facie case has been made out against the accused. An order of framing of charges is of serious concern to the accused as it affects his liberty substantially. The courts must therefore be cautions that their decision at this stage causes no irreparable harm to the accused."

"...we may note that there is nothing either in the complaint or in any material before us pointing to the fact that any property was entrusted to Shah at all which he dishonestly converted for his own use so as to satisfy the ingredients of section 405 punishable under Section 406 of the Indian Penal Code (IPC). Hence, the learned magistrate committed a serious error in issuing process against the appellants for the said offence. Unfortunately, the high court also failed to correct this manifest error," the SC said.

Pointing out that Dharshan Fiscal's pending summary civil suit for recovery of its loan amount, the bench said, "The mere inability of Mr Shah to return the loan amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning of the transaction as it is this mens rea which is the crux of the offence."

The Supreme Court then set aside the order passed by the High Court. While allowing application filed by Shah, the bench quashed proceedings initiated against him based on the FIR filed by Dharshan Fiscal.

Comments

User

AAR

7 years ago

Shah has been defending himself in High Court and Supreme Court for the last 7 years for what? 27 Lakhs. Duh. I am sure his legal bill would have cost much more.