The Indian Penal Code (IPC) now known as The BNS is a cornerstone of the legal framework in India, encompassing a wide range of criminal offenses. Among these, Sections 420 and 406 are particularly significant as they deal with offenses that are all too common in the complex world of business and personal dealings. These sections address the crimes of cheating and criminal breach of trust, respectively. Despite their importance, confusion often arises regarding the differences between these two offenses, leading to inappropriate criminal filings in cases that would be better suited for civil resolution, particularly in commercial disputes.

Recently the Hon’ble Supreme court of India in the case of Delhi Race Club (1940) Ltd. & Ors. Vs. State of Uttar Pradesh & Anr. Criminal Appeal No. 3114 of 2024 talked about the above-mentioned issue and opined that unfortunately, it has become a common practice for the police officers to routinely and mechanically proceed to register an FIR for both the offences i.e. criminal breach of trust and cheating on a mere allegation of some dishonesty or fraud, without any proper application of mind. The Hon’ble Court  found that “prosecution of cases on charge of criminal breach of trust, for failure to pay the consideration amount in case of sale of goods was flawed to the core. There can be civil remedy for the non-payment of the consideration amount, but no criminal case will be maintainable for it.” While passing the judgment the court talked in detail about the difference between the two sections.

Understanding IPC Section 420: Cheating

Section 420 of the IPC defines cheating as an act committed with the intention to deceive a person and thereby cause him or her to suffer a loss or to gain an advantage. This section is invoked when there is a dishonest inducement or fraudulent misappropriation of property. The essence of cheating lies in the deception and the intention to cause wrongful loss or gain.

Understanding IPC Section 406: Criminal Breach of Trust

On the other hand, Section 406 of the IPC deals with criminal breach of trust, which occurs when a person entrusted with property or with any dominion over property dishonestly misappropriates or converts it to his own use or dishonestly uses or disposes of it in violation of any direction of law prescribing the mode in which such trust is to be discharged. This section is concerned with the breach of a fiduciary relationship and the subsequent misuse of the trust reposed.

The Fine Line Between Cheating and Criminal Breach of Trust

The distinction between these two offenses is often blurred, leading to challenges in legal proceedings. The key difference lies in the nature of the relationship between the parties involved.

1. For cheating, there must be a criminal intention at the time of making a false or misleading representation. This means that the deception is planned from the outset of the transaction. In contrast, for criminal breach of trust, the offender is lawfully entrusted with the property, and the dishonest act of misappropriation occurs later, not necessarily with the initial intention to deceive.
2. Criminal breach of trust requires that the property must have been entrusted to the accused or that the accused must have dominion over it. This entrustment is a crucial element that distinguishes criminal breach of trust from cheating, where such entrustment is not a necessary precondition.
3. Cheating involves fraudulently or dishonestly inducing a person to deliver property or to consent to its retention. It is an offense that is complete at the moment of deception. Criminal breach of trust, on the other hand, involves the dishonest misappropriation or conversion of entrusted property, which occurs after the property has been lawfully entrusted.

Conclusion: –

The distinction between these offenses is crucial for the proper administration of justice. Therefore, make sure that whenever you file any case especially involving a commercial dispute related to consideration amount related to a sale of good, instead of filing a criminal complaint, file a civil or commercial suit as both Section 420 and Section 406 of IPC are distinct in nature and are applicable where dishonest intention from inception is present or property is entrusted. There can be civil remedy for the non-payment of the consideration amount, but no criminal case will be maintainable for it depending upon the facts of the case.