No Deception At Inception: Calcutta High Court Refuses To Revive Cheating Charges Against Borrower After One-Time Settlement

"The mere inability of the petitioner to repay the loan in time or to make one-time settlement with the Bank at a lesser amount cannot give rise to a criminal prosecution for cheating unless fraudulent or dishonest intention is shown right at the beginning." Calcutta High Court, in a significant ruling dated August 25, 2026, upheld the discharge of an accused from charges of cheating under Section 420 of the IPC, observing that the presence of genuine collateral security at the time of loan disbursement negates the element of mens rea required to establish deception.

A bench of Dr. Justice Ajoy Kumar Mukherjee held that a subsequent one-time settlement (OTS) with a bank, which results in a "No Dues Certificate," fundamentally undermines the prosecution's claim of a dishonest intention at the inception of the contract.

The case originated from a 2005 complaint by the UCO Bank alleging that the opposite party, Anju Barman, had conspired with bank officials to procure a cash credit limit of ₹20 lakhs for a non-existent firm. While the CBI alleged that the accused had submitted forged financial statements to secure funds, the trial court had previously discharged her from the Section 420 IPC charge, noting that she had mortgaged land and fixed deposits worth the loan value. The CBI moved the High Court challenging this discharge, arguing that a private settlement does not absolve the accused of criminal liability for fraud.

The primary question before the court was whether the repayment of a loan under a one-time settlement agreement serves as a valid ground to discharge an accused from the offence of cheating under Section 420 IPC. The court was also tasked with determining whether the absence of mens rea at the time of the initial loan application precludes the framing of charges for cheating, even if other allegations regarding document forgery persist.

Absence of Initial Deception

The court observed that for an offence under Section 420 IPC to be sustained, the prosecution must establish a fraudulent or dishonest intention at the very inception of the transaction. In this case, the accused had mortgaged immovable property and fixed deposits of equivalent value, which were accepted by the bank as genuine collateral. The court noted that there was no challenge to the validity of these securities, which indicated that the accused did not intend to deceive the bank at the time the loan was sanctioned.

The Role of One-Time Settlement

The bench emphasized that the bank had voluntarily entered into a compromise with the borrower and issued a "No Dues Certificate" after receiving the settled amount. The court held that while the bank may have suffered a loss, this civil or contractual dispute, mediated through an OTS, does not automatically transform into a criminal offence of cheating. The court noted that if the bank chose to accept a lesser amount, it was a commercial decision rather than evidence of initial criminal deception.

"No Deception At Inception"

The court underscored that a failure to keep a promise or a default in repayment does not retrospectively prove a criminal intent from the beginning. Referring to the precedent in Hiralal Hari lal Bhagwati v. CBI, the court reiterated that criminal prosecution should not be used as a tool for harassment when the ingredients of the offence are missing. While other charges, such as those under Section 467/468/471 IPC for forgery, remain pending for trial, the court ruled that the specific charge of cheating under Section 420 IPC was legally unsustainable.

"Criminal Proceedings Not A Tool For Harassment"

The court explicitly stated that the judiciary must act as a check on mechanical prosecution. It held that the trial court is not a "mouthpiece" for the prosecution and must apply its judicial mind to determine if the material on record could realistically lead to a conviction. Since the bank had recovered the dues through a settlement, the court found the trial court's order of discharge to be well-reasoned and legally sound.

The High Court dismissed the revision petition filed by the CBI, affirming the trial court's order. It clarified that while the accused would still face trial for the alleged forgery and conspiracy charges, the charge of cheating under Section 420 IPC was rightly dropped due to the absence of initial mens rea.

Date of Decision: 25 August 2026