Court’s Decision
The Bombay High Court dismissed an anticipatory bail application filed by two applicants accused of cheating an investor by inducing him to part with ₹30 lakh on the assurance of earning 10–15% monthly profit through intraday share trading. Justice Amit Borkar held that such unrealistic profit guarantees prima facie reflected dishonest intention at the inception and constituted cheating. The Court emphasized that “every breach of contract does not amount to cheating, but where inducement is coupled with false promises inherently impossible to fulfil, the offence is made out.”
The Court further noted that the applicants, both practicing advocates, had admitted transactions involving large sums of money for “liaisoning work” with government officials. Such conduct was described as unbecoming of members of the Bar and indicative of professional misconduct under Section 35 of the Advocates Act, 1961. The Court concluded that custodial interrogation was necessary given the magnitude of the fraud and the number of victims, and accordingly, anticipatory bail was rejected.
Facts
The case originated from a complaint lodged at Kharghar Police Station alleging that applicant no. 2 had persuaded the complainant, a fellow advocate, to invest ₹30 lakh in intraday share trading. The inducement was based on promises of extraordinary returns of 10–15% every month. The applicants initially paid ₹4 lakh as profit but failed to return the remaining amount. A cheque of ₹25 lakh was issued as security, but the complainant stopped its payment and later initiated proceedings under the Negotiable Instruments Act.
The complainant further alleged that when he demanded repayment, he was abused and threatened. He produced transcripts of conversations and a draft Memorandum of Understanding sent via WhatsApp in which the applicants admitted receipt of the funds. He also highlighted that part of the transactions related to liaisoning work before the Revenue Commissioner and Revenue Minister, which raised issues of professional misconduct.
During investigation, the police discovered that at least four other individuals had made similar allegations against the applicants, involving amounts of ₹4 lakh, ₹45 lakh, ₹45 lakh, and ₹49 lakh.
Issues
- Whether the dispute was of a purely civil nature arising from failed business dealings, or whether it disclosed criminal offences of cheating and misappropriation.
- Whether promises of assured abnormal profits in share trading prima facie reflected dishonest intention at inception.
- Whether anticipatory bail could be granted despite multiple victims, large sums involved, and evidence suggesting fraudulent inducement.
- Whether admitted payments for liaisoning work by practicing advocates added an element of misconduct justifying rejection of bail.
Petitioner’s Arguments
The applicants contended that the FIR was false and motivated, arising from professional rivalry between two advocates. They argued that the dispute was purely civil, relating to the dissolution of their law partnership firm, M/s Law Sinergy. They denied receiving ₹30 lakh and claimed to have instead paid ₹36.32 lakh to the complainant.
It was argued that investments in share trading inherently carry risks, and hence absence of profit could not amount to cheating. The applicants highlighted their cooperation with the investigation and asserted that dishonest intention at inception was absent. They prayed for anticipatory bail on the ground that custodial interrogation was unnecessary.
Respondent’s Arguments
The complainant and the prosecution opposed the application, stressing that the applicants had lured the complainant with false promises of guaranteed monthly returns, an inherently impossible assurance in the share market. They relied on transcripts of recorded conversations and a draft Memorandum of Understanding where the applicants admitted receipt of funds.
The prosecution further pointed to four other victims who had suffered similar losses due to identical inducements, showing a larger fraudulent scheme. It was argued that the applicants diverted the money for personal use, had no authorization to accept public investments, and used their status as advocates to secure confidence. The prosecution also relied on documents where applicant no. 2 admitted receiving over ₹26 lakh for liaisoning work, which was both illegal and professionally unethical.
Analysis of the Law
The Court reiterated the settled principle that not every breach of contract amounts to cheating. However, where inducement is coupled with inherently impossible or false assurances, the dishonest intention at inception brings the matter within the scope of criminal liability.
The Court observed that promising 10–15% assured monthly profit in intraday trading was “on the face of it highly unrealistic and impractical”, thereby establishing fraudulent intent. It further stressed that professional misconduct by advocates engaging in liaisoning with government officials for monetary consideration compounded the seriousness of the allegations.
The Court emphasized that anticipatory bail could not be granted when the investigation required custodial interrogation to trace utilisation of funds and identify other victims.
Precedent Analysis
- The Court drew from the general principle laid down in Hridaya Rangan Pd. Verma v. State of Bihar (2000) 4 SCC 168, that dishonest intention at inception is key to distinguishing cheating from civil disputes.
- The principle that every breach of contract is not cheating was reiterated from earlier Supreme Court rulings but clarified that inducements based on false, inherently impossible promises fall squarely within the scope of cheating.
- Reference was also made to Section 35 of the Advocates Act, 1961, highlighting that advocates engaging in trade, business, or influence-peddling may face disciplinary proceedings for professional misconduct.
Court’s Reasoning
Justice Amit Borkar held that the promise of extraordinary assured profits was sufficient to infer dishonest intention from the inception. The Court relied on transcripts and the draft Memorandum of Understanding to note that the applicants themselves admitted receipt of money.
The Court rejected the defence of a purely civil dispute, emphasizing that the pattern of inducements, multiple victims, and false assurances revealed a fraudulent scheme. Importantly, the Court noted that the applicants, as advocates, had admitted to receiving money for liaisoning work, which not only indicated illegality but also professional misconduct.
In conclusion, the Court held that custodial interrogation was necessary to trace funds and uncover the scale of the fraud, and anticipatory bail could not be granted in such circumstances.
Conclusion
The Bombay High Court dismissed the anticipatory bail application, holding that the allegations went beyond civil disputes and disclosed criminal offences of cheating and misappropriation. The Court stressed that inducement with false promises of unrealistic profits constituted dishonest intention. It further condemned the applicants’ involvement in liaisoning activities, noting the ethical breach under the Advocates Act.
The ruling highlights the judiciary’s strong stance against white-collar frauds camouflaged as business transactions and against members of the legal profession engaging in activities unbecoming of advocates.
Implications
This judgment sends a strong message that courts will not extend protection to individuals accused of financial fraud disguised as civil disputes, particularly where inducement involves inherently impossible promises. It also underscores that members of the legal fraternity face higher ethical responsibilities, and engaging in liaisoning or influence-peddling for monetary gain could amount to professional misconduct.
The decision will act as a deterrent against fraudulent investment schemes and reinforce accountability among advocates.
FAQs
1. Can promising high profits in share trading amount to cheating?
Yes. The Court held that assurances of 10–15% guaranteed monthly profit are inherently unrealistic and prima facie show dishonest intention, attracting the offence of cheating.
2. Does every breach of contract amount to cheating?
No. Breach of contract alone is a civil wrong, but if fraudulent intent exists at the inception, it becomes a criminal offence.
3. Why did the Court emphasize professional misconduct in this case?
Because the applicants were advocates who admitted to receiving money for liaisoning work with government authorities. Such conduct is unethical under the Advocates Act and aggravated the criminal allegations.
