Breach of Contract does not amount to Cheating unless fraudulent and dishonest intent proved: SC

Distinguishing breach of contract vs cheating, the Supreme Court has clarified that mere breach of contract does not amount to cheating. The Apex Court has ruled that offences of criminal breach of trust and cheating are mutually exclusive and cannot co-exist simultaneously on the exact same set of facts. The Court stated that “a mere bald and omnibus allegation against the accused with regard to their dishonest intention to misappropriate the refundable security deposit, uncorroborated with any cogent material, cannot by itself sustain the charge under Section 405 of IPC against them.”

In a judgment delivered by a Bench of Justice B.V. Nagarathna and Justice Ujjal Bhuyan, the Apex Court quashed criminal proceedings against landowners who had been booked under Sections 406 and 420 of the Indian Penal Code, 1860.  

Criminal Breach of Trust vs Cheating 

The Supreme Court carefully analyzed the statutory ingredients required to constitute offences under Section 405 and Section 415 of the Indian Penal Code, 1860, punishable under Section 406 and Section 420 respectively. The Court, in its reasoning, observed: "Although the offence i.e. the offence of breach of trust and cheating involve dishonest intention, yet they are mutually exclusive and different in basic concept. There is a distinction between criminal breach of trust and cheating. For cheating, criminal intention is necessary at the time of making a false or misleading representation i.e. since inception. In criminal breach of trust, mere proof of entrustment is sufficient. Thus, in case of criminal breach of trust, the offender is lawfully entrusted with the property, and he dishonestly misappropriates the same. Whereas, in case of cheating, the offender fraudulently or dishonestly induces a person by deceiving him to deliver any property. In such a situation, both the offences cannot co-exist simultaneously." 

Addressing the failure of the developer to secure planning permissions, the Supreme Court held that a mere breach of contract does not amount to cheating for criminal prosecution, unless a fraudulent and dishonest intention is established right from the inception of the transaction. Highlighting the developer's failure to conduct due diligence, the Court noted that contractual failure or subsequent property transactions do not automatically attract criminal liability. 

Background

The dispute arose from an unregistered Joint Development Agreement executed on May 23, 2012, between the appellant-landowners and the complainant, a property development company. In terms of the agreement, the complainant paid a refundable security deposit of Rs 3 Crore and received a General Power of Attorney. Subsequently, the Chennai Metropolitan Development Authority rejected the planning permission application on the ground that the property was part of an unapproved layout. 

Following the rejection, the appellants cancelled the General Power of Attorney and sold the property to a third party on January 5, 2018. On the same day, they issued a legal notice requesting the return of title documents against the refund of the security deposit, which the complainant refused. The complainant thereafter initiated criminal proceedings, leading to the registration of FIR No. 181 of 2021 and a subsequent chargesheet under Sections 406, 420 read with Sections 109 and 34 of the Indian Penal Code, 1860. 

Meanwhile, the appellants invoked arbitration, resulting in an arbitral award dated April 12, 2023, which directed the return of title deeds to the appellants and the refund of Rs 3 Crore to the complainant. The complainant challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. Parallelly, the High Court of Judicature at Madras refused to quash the criminal charges via its order dated March 28, 2025. Assailing the High Court's order, the appellants approached the Supreme Court. 

Relying on precedents like Deepak Gaba vs. State of U.P. ( "(2023) 3 SCC 423": 2023 CaseBase(SC) 173), Binod Kumar vs. State of Bihar ( "(2014) 10 SCC 663": 2014 CaseBase(SC) 643), Hridaya Ranjan Prasad Verma vs. State of Bihar ( "(2000) 4 SCC 168": 2000 CaseBase(SC) 392), Dalip Kaur vs. Jagnar Singh ( "(2009) 14 SCC 696": 2009 CaseBase(SC) 951), Delhi Race Club (1940) Ltd. vs. State of U.P. ( "(2024) 10 SCC 690": 2024 CaseBase(SC) 209), Indian Oil Corporation vs. NEPC India Ltd. ( "(2006) 6 SCC 736": 2006 CaseBase(SC) 333), and State of Haryana vs. Bhajan Lal, the Apex Court held that the ingredients of Sections 406 and 420 of the Indian Penal Code, 1860 were completely absent. Consequently weighing that breach of contract does not amount to cheating, the Supreme Court set aside the Madras High Court order and quashed the pending criminal case. 

Case Details: 

Case No.: Criminal Appeal No. of 2026 (Arising out of SLP (Crl) No. 10294 of 2025) 

Neutral Citation: 2026 INSC 772 

Case Title: G. Saminathan & Another v. The State, Represented by the Sub-Inspector of Police & Another 

Source: 2026 CaseBase(SC) 713