Advance Tax and Service Tax Were Paid Only to Gain Confidence: Madras High Court Upholds Cheating Conviction in ₹1 Crore Business Scam

“This Is Not a Mere Breach of Contract but Criminal Deception from Inception” –  Madras High Court upheld the conviction of the petitioner under Section 420 of the Indian Penal Code for cheating in a business transaction involving over ₹1,09,95,000/.

Justice M. Nirmal Kumar, exercising revisional jurisdiction under Sections 397 and 401 Cr.P.C., confirmed the concurrent findings of the Trial Court and the Appellate Court, holding that the petitioner had induced the de facto complainant to invest huge sums on false representations of lucrative computer supply contracts to educational institutions. While affirming the conviction, the Court modified the sentence from three years rigorous imprisonment to two years rigorous imprisonment, maintaining the compensation ordered.

 “Promise of 12% Interest and 50% Profit Share”

The prosecution case was that the petitioner, a computer service engineer known to the complainant for nearly ten years, represented that he had secured substantial orders for supply of computers to colleges and educational institutions. He induced the complainant to invest funds by executing a Memorandum of Understanding dated 21.01.2008, promising 12% annual interest along with 50% share in profits.

Believing these representations, the complainant transferred ₹1,09,95,000/- through bank transactions from his account and his wife’s account. The petitioner projected ongoing business activities and even arranged for payment of advance Income Tax and Service Tax, ostensibly to demonstrate the genuineness of the enterprise.

However, no proof of actual purchase, assembly, or supply of computers was ever produced. The complainant eventually realised that he had been deceived and lodged a complaint, leading to registration of FIR and prosecution.

The Trial Court acquitted the petitioner under Section 406 IPC but convicted him under Section 420 IPC. The Appellate Court confirmed the conviction, leading to the present revision.

“Photostat Copies and Font Similarity Cannot Defeat Substantive Evidence”

A principal contention of the petitioner was that Ex.P1 to Ex.P12, including the Memorandum of Understanding, were only photostat copies and were marked subject to objection. He argued that the original MOU was not produced and that similarity in font between the MOU and complaint indicated fabrication.

The High Court rejected this submission.

The Court noted that the MOU was originally retained by the petitioner and later destroyed. This was confirmed by prosecution witnesses. The stamp paper, though purchased in blank and recorded in the vendor’s register in another name, was produced by the petitioner himself, and the contents were typed in the complainant’s office.

Justice M. Nirmal Kumar observed that “similarity in font and letter style cannot be a serious discrepancy to totally reject the MOU,” especially in an era of electronic printing where uniformity is natural.

Invoking Section 73 of the Indian Evidence Act, the Trial Court had compared signatures on the MOU with admitted signatures and found sufficient similarity. The High Court held that secondary evidence was acceptable in the peculiar facts of the case and that the objection regarding photostat copies was not fatal.

Bank Transactions and Tax Payments: “A Web of Deception”

The Court placed heavy reliance on bank statements produced by bank officials, which confirmed continuous transfers exceeding ₹1 crore from the complainant to the petitioner. These transactions were not seriously disputed.

The petitioner had paid advance Income Tax and Service Tax, which he relied upon to argue that it was a genuine business venture. The Court, however, saw this differently.

The judgment records that “the advance payment of Income Tax and Service Tax are only to further deceive the de facto complainant.” The Court observed that such payments were used to project legitimacy and gain the complainant’s confidence.

Crucially, the petitioner failed to produce any material to show that computers were actually purchased, assembled, or supplied to any educational institution. No invoices, delivery records, or supply contracts were placed on record.

“Not a Civil Dispute but Cheating from Inception”

The petitioner argued that the dispute was purely civil in nature, arising out of a failed business transaction, and that mere default in repayment cannot amount to cheating.

The High Court disagreed.

It reiterated the settled distinction that mere breach of contract does not constitute cheating. However, where intention to deceive exists from inception and is evidenced by conduct and surrounding circumstances, the offence under Section 420 IPC is attracted.

In this case, the Court found that from the beginning the petitioner projected false business prospects, induced huge investments, and failed to account for the funds or demonstrate any genuine business activity.

The Court held that the attendant facts and circumstances “clearly confirm the petitioner committing the offence of cheating” and that the case could not be reduced to a mere civil dispute for recovery of money.

Scope of Revisional Jurisdiction: No Perversity in Concurrent Findings

The High Court emphasised that two Courts below had rendered well-reasoned judgments based on oral and documentary evidence. In revisional jurisdiction, interference is warranted only if there is perversity, illegality, or miscarriage of justice.

Finding no such infirmity, the Court confirmed the conviction under Section 420 IPC.

Sentence Modified

While upholding the conviction, the Court took into consideration the facts and circumstances and reduced the sentence from three years rigorous imprisonment to two years rigorous imprisonment. The compensation of ₹1,09,95,000/- ordered by the Trial Court was left undisturbed.

This reportable judgment reinforces the principle that business transactions cloaked in formal agreements and tax payments cannot shield fraudulent intent. Where false representations are made from inception and large sums are induced without any genuine business activity, the offence transcends a civil dispute and enters the realm of criminal cheating.

By affirming the conviction while modifying the sentence, the Madras High Court has drawn a clear line between commercial failure and calculated deception.

Date of Decision: 16/02/2026