One Act, One Offence—But When Transactions Are Separate, Cheating and Criminal Breach of Trust Can Coexist: Karnataka High Court Clarifies Applicability of Sections 406 & 420 IPC

“Mens Rea at the Time of Inducement vs. Misappropriation After Entrustment—Two Distinct Offences Require Two Distinct Intents” - In a significant ruling that distinguishes between the foundational elements of cheating and criminal breach of trust, the Karnataka High Court dismissed the writ petition filed by M/s Umrah Developers, represented by Yusuf Sheriff, challenging the registration of an FIR and charge sheet under Sections 406 and 420 of the Indian Penal Code.

Petitoner sought to quash the proceedings under Articles 226 and 227 of the Constitution, read with Section 482 CrPC, arguing that both charges—cheating and criminal breach of trust—are “mutually destructive” and cannot coexist in law when based on a single act. The High Court disagreed, emphatically holding:

“One single transaction cannot constitute cheating as well as criminal breach of trust, but it can be either cheating or criminal breach of trust. However, where the allegations arise out of multiple and distinct transactions, both offences can legally be invoked.” [Para 18]

Court Emphasizes Distinction in Timing and Nature of Criminal Intent

Justice M.I. Arun laid down a clear doctrinal distinction between the two offences by examining the mens rea involved:

“In cheating, the accused is required to fraudulently or dishonestly induce a person to deliver property. The mens rea is at the time of receipt. In criminal breach of trust, a person who has been legally entrusted with property dishonestly misappropriates it thereafter. Thus, the criminal intent arises post-receipt.” [Paras 16–17]

This precise legal articulation, rooted in the statutory definitions of Sections 415 and 405 IPC, forms the bedrock of the Court’s ruling that Section 406 and 420 IPC can be invoked simultaneously if the transactions are factually separate and distinct.

Three Transactions, Three Alleged Offences—Court Finds Distinct Criminality

The complaint filed by respondent no.2 pertained to three separate real estate transactions involving joint development agreements in:

1. Doddabettahalli Village

2. Harappanahalli Village

3. Doddanagamangala Village

The Court found that in the first two, the allegations clearly fell under Section 406 IPC as the funds were entrusted but later allegedly misappropriated when the petitioner failed to honour the sharing agreements. In contrast, the third transaction was classified under Section 420 IPC for having allegedly induced the complainant to pay ₹1.32 crores for a land deal under false pretences.

The Court concluded:

“The complaint and charge sheet pertain to three different transactions, each constituting a separate offence… with two of them pertaining to the offence under Section 406 of IPC and the other under Section 420 of IPC.” [Para 22]

Delhi Race Club Ruling Doesn’t Apply—Court Distinguishes Apex Court Precedent

The petitioner relied on the Supreme Court's decision in Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh, [(2024) 10 SCC 690], which held that cheating and breach of trust cannot coexist for a single act. The High Court, however, distinguished the facts:

“In Delhi Race Club, the allegations stemmed from a singular factual act. In contrast, the present case deals with three distinct sets of facts and agreements. Therefore, the ratio of that judgment does not apply here.” [Para 22]

Refusal to Honour ₹6 Crore Demand Draft Strengthens Allegations

Adding to the allegations, the petitioner had issued a ₹6 crore demand draft—purportedly as refund—but had cancelled it the same day. This act, the Court noted, cast serious doubts on the bona fides of the petitioner and further strengthened the case for dishonest misappropriation:

“To the shock and horror of the complainant, the petitioner had got the same [demand draft] cancelled on the same day,” the judgment records with disapproval. [Para 10]

Civil Remedy Does Not Bar Criminal Proceedings When Allegations Show Fraud

The petitioner argued that the matter had already gone to arbitration and therefore was civil in nature. The Court rejected this contention, reaffirming that availability of a civil remedy does not preclude criminal prosecution when prima facie ingredients of an offence are disclosed.

“That the dispute has gone into arbitration or that the arbitral award remains unhonoured does not remove the criminality of the acts alleged in the complaint.” [Para 20]

No Abuse of Process—Police Investigation and Charge Sheet Not Mechanical

The petitioner also alleged that the police had filed the charge sheet mechanically, without application of mind. The Court disagreed, observing that the FIR and charge sheet disclosed prima facie material to proceed:

“There is nothing to show that the charge sheet was filed mechanically. The complaint narrates distinct facts supporting distinct offences. The prosecution is justified in proceeding on all three counts.” [Para 20]

Petition Dismissed—Trial to Proceed

Holding that the presence of separate transactions independently made out distinct offences under Section 406 and 420, the High Court ruled:

“For the aforementioned reasons, the writ petition is hereby dismissed.” [Final Para]

Accordingly, the Court upheld the continuation of criminal proceedings in C.C. No. 10899/2023 before the IV Additional Chief Metropolitan Magistrate, Bengaluru.

Date of Decision: 30 October 2025