09 - Chapter 4

Cfiapter-lV
LegaCPerspective under generaCLaws

to CurS <Ban^ng Trauds in India
CHAPTER - IV
LEGAL PERSPECTIVE UNDER GENERAL LAWS TO CURB

BANKING FRAUDS IN INDIA
4.1 INTRODUCTION
With the passage of time, many legislative steps have been

taken by the legislative bodies of India to deal with numerous social
evils and problems. Presently frauds generally and banking frauds in
particular, have emerged as a socio-economic evil. As the preceding
Chapter makes it clear that banking frauds have been silently
weakening the roots of the banking and economic system of India.
And a strong, stable, secure economy is a prerequisite for becoming a
powerful nation in the present world order. This wishful state of
affairs can be achieved through different concurrent measures. A
robust legal framework is undoubtedly an imperative part of the
indispensable measures for creating a safe and secure national
economy. As a matter of fact, it is found that various Indian
legislations are dealing with the menace of banking frauds. It is not
possible to deal with all the provisions as there is possibility of breach
of different laws by even one single act of banking fraud. Therefore, it
would be legitimate to study those legislations which stand to face
threats and challenges of banking frauds in the 21^1 Century. Thus,
an attempt has been made to point out the provisions dealing with
banking frauds under some of the important and relevant general
legislations under which continuous new dimensions of banking
frauds have been retrieved.
It has become evident from the study thus far that the issue of
banking frauds has not got the warranted attention from the
economic, social and academic circles which has consequentially
157
resulted into lack of a precise legal framework to directly deal with the
problem of banking frauds in India. However, the beauty of our legal
system is that despite lack of pinpointed legislative provisions, the
fundamental civil and criminal laws of the land cover the evil of
banking frauds within their purview.
Under this Chapter, the researcher has tried to incorporate and

underline the provisions under the Indian Penal law, Indian
Contractual Law, Indian Evidence Law and under Indian Law of Torts
which are being or may be called into action to seek redressal against
various kinds of banking frauds according to the facts and issues of
each instance of banking fraud.
4.2 LEGISLATIVE PERSPECTIVE TO CURB THE MENACE OF

BANKING FRAUDS UNDER THE INDIAN PENAL CODE, 1860
Looking at the gravity and the likely effect of banking fraud, it

must be treated not only as a civil wrongi, but also as a criminal act^.
The basic philosophy which works behind treating an act as 'crime' is
that certain acts are forbidden at the pain of punishment.^ Rupert
Cross and Philip Isterley opine,
"A crime is a legal wrong for which the offender is

liable to be prosecuted and if convicted, punished by
the state".^
Now, which acts can be termed as crimes and which not, is
defined and regulated by the concerned legal system, more precisely,
by the 'criminal law's of the concerned legal system. Under the Indian
' In case of a Civil Wrong, the injured party i.e. the plaintiff brings the suit again
the wrongdoer i.e. the defendant for the main remedy namely damages.
2 In case of Criminal Wrong, the State initiates the action against the accused for
punishing him. The injured party i.e. the victim however does not get any
compensation.
3 S.N. Misra, Indian Penal Code 1 (Central Law Agency, Allahabad, 1 1 * edn., 2003)
"* Rupert Cross and Philip Isterley Jones, An Introduction to Criminal Law 9
(Butterworths 8s Company Publisher Ltd., London, 7*^ edn. 1972).
5 Criminal Law is that part of the law which deals with the definition, and
punishment of crime and with the procedure for trial of persons suspected or
158
legal system, at the macro level, the criminal law is covered by the
Indian Penal Code of 1860, the Code of Criminal Procedure of 1973,
and the Evidence Act of 1872. The Indian Penal Code is the
substantive law defining the crimes, while the Code of Criminal
Procedure and the Evidence Act are the adjective laws regulating the
procedure in trials of crimes.
The Indian Penal Code is a pre-independence legislation,

enacted at a time when India was under the British rule. Brought into
force on January 1, 1862, presently this legislation is applicable in the
whole of India except the State of J a m m u 86 Kashmir.
Ironically the Indian Penal Code of 1860 does not recognize

TDanking fraud' as a separate crime. In fact, the Indian Penal Code
doesn't define even 'fraud' as a crime as such. Therefore, in case of
banking fraud, various provisions of the Indian Penal Code are
attracted, depending upon the facts of each case.
Penal provisions covering 'banking fraud' are broadly

incorporated in the Indian Penal Code under Chapter II- General
Explanations^, Chapter XII- Of offences Relating to Coin and
Government Stamps'^, Chapter XVIII- Of Offences against Property^,
and Chapter XVIII-Of Offences Relating to Documents and to Property
Marks^.
4.2.1 Conceptual Explanations of Relevant Terms Dealing With

Banking Fraud under the Code
Under Chapter II of the Indian Penal Code titled 'General

Explanation', the Code puts forth the meaning of the various terms
accused of crime; that branch or division of law which defines crimes, treats of
their nature, and provides for their punishment.
6 Jd., Sections 23, 24, 25, 28, 29, 29A, 30.
7 Id., Sections 230-254.
8 Id., Sections 378, 383, 390, 391, 405, 415, 463.
" Id., Sections 489A-489E.
159
used in its provisions. These general explanations are relevant to be
understood as the provisions of the code are to be read according to
these general explanations. A few of these general explanations are
relevant with respect to the present study on banking frauds. These
relevant general explanations are being elucidated as follows:
4.2.1 (i) Wrongful gain and Wrongful loss
Under the Indian Penal Code, "Wrongful gain" is defined as a

gain by unlawful means of property to which the person gaining is not
legally entitled. "Wrongful loss" is the loss by unlawful means of
property to which the person losing it is legally entitled.lo In further
explanation of terms "Gaining wrongfully, losing wrongfully^, a person
is said to gain wrongfully when such person retains wrongfully, as
well as when such person acquires wrongfully. A person is said to lose
wrongfully when such person is wrongfully kept out of any property,
as well as when such person is wrongfully deprived of property, n
Looking at this definition, banking fraud is certainly a case of
wrongful loss to the customer and a case of wrongful gain to the
perpetrator of the banking fraud.
4.2.1 (ii) Dishonestly
Section 24 of the Indian Penal Code defines "Dishonestly" as

whoever does anything with the intention of causing wrongful gain to
one person or wrongful loss to another person, is said to do that thing
"dishonestly". Criminal law experts have stressed on the fact that
'dishonesty' in law is different from 'dishonesty' as understood in the
market place. 12 The same opinion has been put forth by courts too. In
Boddepalli Lashminarayana v. Suwari Sanyasi Appa Rao, the
Andhra Pradesh High Court observed,
10 Id., Sections 23.

" /d., Sections 23
'2 Justice C.K. Thakker (rev.), Ratanlal & Dhirajlal's Law of Crimes, Vol.1, 82,
(Bharat Law House, New Delhi, 25th ed. Reprint. 2004).
160
"From this definition it will appear that the term
'dishonestly' is not used in the code in its popular
significance as implying deviation from probity. It need
not always involve an element of fraud or deceit. "^^
In this Section, the intention to cause a wrongful pecuniary gain
or loss is necessary. A dishonest intention may be presumed only if an
unlawful act is done or if a lawful act is done by unlawful means. ^'^ An
actual intention to convert an illegal or doubtful claim into an
apparently legal one makes an action dishonest. ^^ As every man is
presumed to intend the natural consequences of his act, it is from the
consequences that the court has often to presume the intention of the
accused in doing a particular act.i^ Judiciary has also brought to light
the fact that definition of the word 'dishonestly' is not exhaustive.!'^
4.2.1 (iii) Fraudulently
Under the Indian Penal Code, a person is said to do a thing

fraudulently if he does that thing with intent to defraud, but not
otherwise. 18 in the Indian Penal code, terms, 'fraud' and 'defraud' have
not been defined.
In Abbas Ali's case^^ CJ Maclean highlighted the discrepancy in

this definition stating that as a definition, this provision is obviously
imperfect, and perhaps introduces an element of doubt, which didn't
previously exist; for it leaves to be determined...whether the word
'defraud' implies the deprivation or intended deprivation of property as
a part or result of the fraud.20
^3 Boddepalli L a s h m i n a r a y a n a v. S u w a r i Sanyasi Appa Rao, AIR 1959 AP 530.

'* S a n s a r Singh, AIR 1934 All 7 1 1 .
15 Kalyanmal, AIR 1937 Nag 89.
"^ Sheodeni Singh, AIR 1961 Pat 3 6 2 .
'^ Baju J h a , AIR 1929 Pat 6 0 .
'8 The Indian Penal Code, 1860, Sections 2 5 .
19 Abbas Ali (1897) 25 Cal 512 (FB).
^0 7d. at p. 5 2 1 .
161
The Supreme Court has held that the expression 'defraud'
involves two elements namely, deceit and injury to the person
deceived. Injury is something other than economic loss, that is
deprivation of property, whether movable or immovable, or of money,
and it will include any harm whatever caused to any person in body,
mind, reputation or such others. In short, it is a non-economic or
non-pecuniary loss. A benefit or advantage to the deceiver will almost
always cause loss or detriment to the deceived. Even in those rare
cases where there is a benefit or advantage to the deceiver, but no
corresponding loss to the person deceived, the second condition is
satisfied. 21
The word 'defraud' is of double meaning in the sense that it

either may or may not imply deprivation, and as it is not defined, its
meaning must not be sought by e consideration of the context in
which word 'fraudulent' is found.22 Sir James Stephen in his treatise
observes,
"...whenever the words 'fraud', 'intent to defraud', or

'fraudulently' occur in the definition of a crime, two
elements at least are essential to the commission of
the crime; namely first deceit or an intention to deceive
or in some cases, mere secrecy, and secondly either
actual injury or possible injury or an intent to expose
some person either to actual injury or to a risk of
possible injury by means of that deceit or secrecy...In
practice people hardly ever intentionally deceive each
other in matters of business for a purpose which is not
fraudulent.''23
Even Allahabad High Court has approved this view stating that
where there is an intention to deceive and by means of the deceit to
21 Vimla V. Delhi Administration, AIR 1963 SC 1572: (1963) 2 Cri LJ 434 (SC)
22 Supra Note 19 at p. 521.
23 Sir James Stephen, History of the Criminal Law of England, Vol. 7/121.
162
obtain an advantage, there is fraud.24 A wider interpretation was given
by Le Blanc J, stating,
"By fraud, I understand an intention to deceive;

whether it be from any expectation of advantage to the
party himself or from the ill will towards the others is
immaterial. "25
The Bombay High Court26 and the Calcutta High Court27 have
adopted this view. The Bombay High Court had further elaborated
that the term 'defraud' denotes some form of dishonesty. An intention
to defraud has to be inferred from the conduct of the accused, and
must necessarily involve something in the nature of cheating.28 The
Mysore High Court examined Section 25 and observed that the words
'intent to defraud' under Section 25 would mean that such an
intention was established only when deception had an aim on some
advantage or the likelihood of advantage to the person who caused it
or some kind of injury or possibility of injury to another.29 Looking at
the relationship between terms 'fraudulently' and 'dishonestly', the
Supreme Court of India has observed,
"The word 'defraud' includes an element of deceit.

Deceit is not an ingredient of the definition of the word
'dishonestly' which is an important ingredient of the
defmition of the word 'fraudulently'. The former
involves a pecuniary or economic gain or loss while the
latter by construction excludes that element. Further
the juxtaposition of the two expressions 'dishonestly'
and 'fraudulently' used in the various Sections of the
code indicates their close affinity and therefore the
definition of one may give colour to other.''^^
^4 Muhammad Saeed Khan, (1898) 21 All 113, 115.

25 Haycroft v. Creasy (1801) 2 East 92, 108
26 Vithal Narayan (1888) 13 Bom 515
27 Lalit Mohan Sarkar (1894) 22 Cal 313, 322
28 Visram Valji, AIR 1935 Bom 162
29 Padmanabha Rao B V, AIR 1970 Mys 254: Cri LJ 1502 (Mys)
30 Supra Note 21.
163
4.2.1 (iv) Counterfeit
A person is said to "counterfeit" who causes one thing to

resemble another thing intending by means of that resemblance to
practise deception, or knowing it to be likely that deception will
thereby be practiced.î For counterfeiting, it is not essential that the
imitation should be exact.32 Mere passable counterfeiting is sufficient
under the Indian Penal Code. Thus, it would still be still be
counterfeiting even though there are differences in detail between the
original and imitation so long as the resemblance is so close that
deception may thereby be practiced.^3 Further, it is not necessary to
show that the deception actually took place. Intention to practice
deception by causing one thing to resemble another is quite
sufficient. 34
The 'thing' referred to in this definition may be a coin, a piece of

metal, etc. Its value is immaterial. The counterfeit may be more
valuable than the genuine coin.35 Regarding burden of proof,
explanation 2 to Section 28 is applied36 and a presumption is created.
While creating an exception to the general rule, the burden of proof is
shifted from the prosecution to the accused. And the accused could
not be heard to say that he was causing duplicates to be made of a
given sample in good faith.37 Once it is established that the
resemblance is such that a person might be deceived thereby, it shall
31 The Indian Penal Code, 1860, Sections 28.

32 Id., Explanation 1 to Sections 28.
33 State V. Hafiz Mohd Ismail, AIR 1960 SC 6 6 9 : 1960 Cri L J 1 0 1 7 (SC); State v
Mathai Verghese, AIR 1987 SC 3 3 : 1987 Cri LJ 308(SC)
34 D i n a N a t h K a p o o r , AIR 1 9 6 3 All 1 3 3 : (1963) 1 Cri LJ 2 8 2 (All)
35 Supra Note 12 a t p . 9 2 .
36 The Indian Penal Code, 1860; Section 28, Explanation 2- When a person causes
one thing to resemble another thing, and the resemblance is such that a person
might be deceived thereby, it shall be presumed, until the contrary is proved,
that the person so causing the one thing to resemble the other thing intended by
means of that resemblance to practice deception or knew it to be likely that
deception would thereby be practised.
37 Superintendent and Remembrancer of Legal Aff, AIRs v. PrafuU Kumar Roy, AIR
1954 Cal 277: 1954 Cri LJ 841
164
be presumed until the contrary is proved, that there was intention to
deceive. The presumption is, however, rebuttable.^s
Altering used stamps so as to resemble genuine unused stamps

amounts to counterfeiting.^^However, it has been held that if coins are
made to resemble genuine coins and the intentions of the makers is
merely to use false case upon their enemies, these coins do not come
within the definition of counterfeit coins.ô
In the present study with respect to banking frauds in India, the

provisions dealing with the offence of counterfeiting of bank-notes and
currency-notes (Sections 489A-489D), inserted via amendment of year
1889, are of special significance.
4.2.1 (v) Document
The word "document" denotes any matter expressed or

described upon any substance by means of letters, figures or marks,
or by more than one of those means, intended to be used, or which
may be used, as evidence of that matter.î The explanation to the
Section makes it clearer that it is immaterial by what means or upon
what substance the letters, figures or marks are formed, or whether
the evidence is intended for, or may be used in, a Court of Justice, or
not.'^^ 7he term document is defined by two other Indian legislations,
namely, The Indian Evidence Act, 1872^^3, and the General Clauses
Act, 189744 also.
38Ibid., See also, Supra Note 33.

39Ram Lai, AIR 1921 Mad 86 (2): (1920) 22 Cri LJ 289 (Mad.)
40 Velayudham Pillai, AIR 1937 Mad 711; Shaherao, AIR 1938 Nag 444.
••1The Indian Penal Code, 1860; Sections 29
'»2Id., Sections 29, Explanation 1
''3The Indian Evidence Act, 1872; Section 3, "Document means any matter
expressed or described upon any substance by means of letters, figures, or
marks, or by more than one of those means, intended to be used, or which may
be used, for the purpose of recording that matter. "
44 The General Clauses Act, 1897; Section 3(18), "document shall include any
matter written, expressed, or described any substance by means of letters,
165
The Indian law definition of document is different from the
English law definition of this term. As per the English law, the
material on which words are written is said to be a 'document'. While
according to the Indian law, it is the matter written; not the material,
which is referred to as document.
The term 'document' seems to include ever5rthing done by the

pen, by engraving, by printing, or otherwise, whereby is made, on
paper, parchment, wood or other substance, a representation of words
or other equivalents addressed to the eye.'^s Thus words, figures,
marks, whether engraved, printed, lithographed, photographed on
paper, parchment, metal or stone or any other perceptible substance
are 'document' for the purpose of the Indian Penal Code, 1860.
The judiciary has further explained the term 'document' by

including the marking of trees'*^, an unsigned instrument*'^ , and by
excluding a forged avouchment'*^, imitation of trade mark"*^ from the
definition of term 'document'. The words 'intended to be used' in the
definition have been explained stating that a writing which is not
evidence of the matter expressed may yet be a document, if the parties
framing it believed it to be, and intended it to be an evidence of that
matter.50 And the words 'as evidence' in the definition means the proof
of existence of the matter and not proof of the truth or otherwise of the
contents of the documents.î
figures, or marks, or by more than one of those means, intended to be used, or

which may be used, for the purpose of recording that matter. Currency notes
would be included in this definition."
•'s Supra Note 12 at p. 94.
46 Emperor v. Krishtappa Khandappa, AIR 1925 Bom 327: (1925) 27 Bom LR 599;
(1925) 26 Cri LJ 1014 (Bom.)
47 Ramaswamy Ayyar, AIR 1918 Mad 150: 19 Cri LJ 177
48 Closs case (1858) Dears & B 460
49 John Smith (1858) 27 LJ (MC) 225
50 Sheefait Ally, (1868) 10 WR (Cr) 6 1 : 2 Beng LR 12
51 Dharmendra Nath Sastri v Sheoraj Singh, AIR 1949 All 353: (1949) 50 Cri LJ
550 (All)
166
It is worthwhile to mention here that cheques and currency
notes find a special mention in the definition of document in the
Indian Penal Code, 1860, and the General Clauses Act, 1897
respectively.52 Business practices such as endorsement of bill of
exchange have been expressly included and explained in the definition
of 'document' by the Indian Penal Code.53
4.2.1 (vi) Electronic Record
The term 'electronic record' was inserted by the Information

Technology Act, 2000, Section 9 1 , Sch.l w.e.f. 17-10-2000. The code
defines 'electronic record' as having the meaning assigned to them in
clause (t) of Sub-section (1) of Section 2 of the Information Technology
Act, 2000.54 According to Information Technology Act, 2000,
"electronic record" means data, record or data generated, image or
sound stored, received or sent in an electronic form or micro film or
computer generated micro fiche.ss The concept of e-banking actually
deals with electronic record.
4.2.1 (vii) Valuable Security
The words "valuable security" denote a document which is, or

purports to be, a document whereby any legal right is created,
extended, transferred, restricted, extinguished or released, or whereby
any person acknowledges that he lies under legal liability, or has not a
certain legal right.56 The use of terminology 'purports to be' in the
definition of valuable security makes forged or unstamped or
improperly executed or unregistered documents, 'valuable security',
despite the fact that these documents are not proper according to law.
5^ See, The Indian Penal Code, 1860, Sections 29, Illustrations to Explanation 1;
The General Clauses Act, 1897, Section 3(18)
53 The Indian Penal Code, 1860, Sections 29, Explanation 2 And Illustration to
Explanation 2
S'' Id., Sections 29A.
55 The Information Technology Act, 2000, Section 2(l)(t).
56 The Indian Penal Code, 1860, Section 30.
167
The judiciary has recognized various documents such as
unsigned settlement of accounts without any promise to pay^^^
kabuliyat^^, hundP'^, decree of divorceô, title page of an account
bookî, a counterfoil of a bank's pay-in-slip62, an original forest transit
passes, a promissory note executed by a minor under force^^, blank
pieces of paper with thumb impressions put under force^^^ j-ent note^^,
discharge receipt signed by a fictitious nominee of an insurance
policy^'7, duly signed proposal for insurance's^ passport^s, as valuable
security. Certain others documents such as copy of lease'ô, a sanad
purporting to confer a personal title'î, a postal receipt for an insured
parcel''2^ a copy of decree of court''^ or order of baiF"^, bill receipted as
by a chequers, accounts books containing entries not signed by a
party"^', all have failed to pass the test of valuable security in the eyes
of judiciary. A copy of a valuable security is held not to be a valuable
security.'^'^ And a document whereby a person acknowledges liability is
57 Kapalavaya Saraya (1864) 2 MHC 247

58 Nasiruddin (1883) 3 AWN 59
59 Lekhraj (1910) PR No. 31 of 1910: 11 Cri LJ 639
60 Azimoddeen (1869) 11 WR (Cr) 15.
61 Hari Charan Goriat v. Girish Chandra Sadhuken, (1910) 38 Cal 68.
62 Turner, AIR 1925 Cal 673: 26 Cri LJ 835: (1925) 52 Cal.
63 Superintendent and Remembrancer of Legal Affairs v. Daulatram Kudi, AIR 1932
Cal 390: (1932) 33 Cri LJ 685 (Cal).
64 Ramnarain Sahu, AIR 1933 Pat 601: (1934) 35 Cri LJ 123 (Pat).
65 Batisa Singh, AIR 1932 Pat 335: (1933) 34 Cri U 81 (Pat).
66 Khrishnarao Raojirao, AIR 1953 Nag 165: 1953 Cri LJ 979 (Nag).
67 Harol N a r m a d a P r a s a d Singh, AIR 1956 VP 30: (1956) Cri LJ 1246 (VP).
68 KumaranKR(1961) 2 C r i L J 9 8 (Ker.).
69 Daniel Hailey Walcott, AIR 1968 Mad 349: 1968 Cri LJ 1282 (Mad).
70 Kushal Hiraman (1867) 4 BHC (Cr C) 2 8 ; Naro Gopal (1868) 5 BHC (Cr C) 56.
71 J a n Mahomed (1884) 10 Cal 584.
72 Aruna 14 Cri LJ 436; Sadho Lai, AIR 1917 Pat 699: 17Cri LJ 479.
73 Cham Chandra Ghose, AIR 1924 Cal 502: 25 Cri LJ 1034.
74 Emperor v. Sher Alam Khan Sahib, AIR 1933 Bom 4 9 4 : (1934) 35 Cri LJ 4 7 9
(Bom).
75 Shaw H K V. Suresh Chanrda Mitter, AIR 1936 Cal 324: (1936) 37 Cri LJ 828
(Cal).
76 Hari Prasad, AIR 1953 All 660: (1953) Cri LJ 1496 (All).
77 Gobinda Prasad Parui, AIR 1962 Cal 174: (1962) 1 Cri LJ 316 (Cal)
168
not a valuable security unless the person in whose favour the security
is acknowledged has a right to the document.'^^
Every valuable security is, ex hypothesi, a document, but the

converse is not true and every document is not a valuable securityJ^
The Supreme Court highlighted the difference between 'document' and
Valuable security' by stating that whereas the former merely evidences
a matter, the latter creates or extinguishes legal right or liability.ô
4.2.2 Offences relating to Coin
Chapter XII of the Indian Penal Code, 1860 defines the offences
relating to coin and government stamps, and prescribes the
punishment for these offences. Beginning from Section 230 to Section
263A, this Chapter covers the offences of counterfeiting coin (Section
230-254) and government stamps (Section 254-263A), and the related
activities facilitating such counterfeiting. The minimum punishment
prescribed is minimum imprisonment of two years or fine and a fine of
rupees two hundred in relation to coin and government stamps
respectively. In offences relating to counterfeiting of Indian coin or
government stamps, the punishment is extendable up to a maximum
of imprisonment for life, or imprisonment for ten years with fine.
Counterfeiting both foreign and Indian coin is punished. With

the distinction maintained that foreign coin attracts this provision
only while these are being used as money and attracts less
punishment. While Indian coins, continues to have protection even
after it has lost its legal status as money and attracts greater
punishment.
78 P r a y a g D a s , AIR 1 9 6 3 All 1 3 1 : (1963) 1 C r i L J 279(A11)

79 Supra Note 12, p. 94
80 Shriniwas Pandit Dharmadhikari, AIR 1981 SC 800; 1980 Cri LJ 1312: (1980) 4
s e c 551; Ishwarlal Girdharilal Parekh, AIR 1969 SC 40: 1969 (1) Cri LJ 271
(SC)
169
The present definition of 'Coin' was introduced by the Indian
Penal Code Amendment Act XIX of 1872 to check the counterfeiting of
the copper coin of Indian States. As 'Government' earlier denoted the
person or persons authorized by law to administer executive
Government in any part of British India, the coins of Indian States
were left legally unprotected. This amendment further introduced the
words Tor the time being' in the definition out of protection under
these Sections.
Coin is metal used for the time being as money, and stamped
and issued by the authority of some State or Sovereign Power in order
to be so used. And Indian coin is metal stamped and issued by the
authority of the Government of India in order to be used as money;
and metal which has been so stamped and issued shall continue to be
Indian coin for the purposes of this Chapter, notwithstanding that it
may have ceased to be used as money, î
Coin need not be a legal tender received at a value in rupees

fixed by law. Gold Mohurs which although do not pass at an
absolutely fixed values yet have a current value, not ascertainable
merely by weighing them as lumps of gold, but attaching to them as
coin, are coins "for the time being used as mone3^.82
The test of whether a particular piece of metal is money or not

(supposing it is genuine), is the possibility of taking it into the market,
and obtaining goods of any kind in exchange for it. For this, its value
must be ascertained and notorious; that it is known to persons of
special skill or information is not sufficient.^^ With respect to the

82 Kunj B i h a r i (1873) 5 NWP 1 8 7 .
83 Bapu Yadav(1874) 11BHC172.
170
Indian coins, it's immaterial whether the coins are still current or they
have ceased to be used as money.^'^
The illustrations to Section 230 make it clear that cowries,

lumps of unstamped copper, medals are not coins, while
"Farukhabad" rupee, which was formerly used as money under the
authority of the Government of India, is Indian coin, despite the fact
that it is no longer in use. Like "Farukhabad" coin, "Murshidabad"
rupee is also held to be Indian coin.^^
This decision highlights the fact that a foreign coin is protected

only as long as it is a legal tender, while Indian coin issued by the
authority of Government of India is protected under law even after it
ceases to be a legal tender. In view of this definition, it is immaterial
whether the coins are still current or they have ceased to be used as
money. Thus one, five, ten and twenty five paisa coins, though no
more a legal tender are still protected from counterfeiting.
The terminology 'counterfeit' is defined and explained under

Section 28.^6 Counterfeiting under law doesn't mean exact limitation.
Allahabad and Patna High Courts have opined that it is not necessary
under this Section that counterfeit coin should be made with the
primary intention of its being passed as genuine, it is sufficient if the
resemblance to the genuine coin is so close that it's capable of being
passed as such.^'^ However, where the edges of the alleged counterfeit
coins are irregular and none would be deceived by such coins, those
cannot be counterfeit coins within this definition.^s
8^ Ranchhod Mula (1961) 2 Cri LJ 472 (Guj).

85 Deni, ( 1 9 0 5 ) 2 8 All 6 2 ; Gopal,(1903) 2 3 AWN 1 1 5 ; B a m a n , ( 1 9 0 2 ) P R No. 1 of 1 9 0 3
86 For more on Counterfeiting, See Supra 4.2.1 (iv).
87 Qadir Baksh, (1907) 30 All 93; Amrit Sonar, AIR 1919 Pat. 330.
88 Raunchhod Mula, (1961) 2 Cri LJ 472 (Guj).
171
4.2.3 Offences against Property
Generally the State leaves the property disputes to be solved out

in civil courts. However, sometimes the nature of dispute or potential
threat in certain violations of property rights is so grave, that the state
thinks it proper to use the force of criminal law to curb the violations.
Chapter XVIII titled 'Offences against Property' covering Sections

378-462, the second largest chapter of the Indian Penal Code, 1860, is
the manifestation of the State's attempt to redress violations of
property rights through criminal law within the territory of India.
Banking fraud definitely includes an offence against the property. The
prominent provisions of Chapter XVIII, that deal with 'Banking fraud'
are, namely (i) Theft^^ (ii) Extortionô (iii) Robberyî (iv) Dacoity92 (y)
Criminal Misappropriation of Property's (yi) Criminal Breach of Trusf*
and (vii) Cheating.'^ These offences can be explained in relation to
banking fraud, as under:
4.2.3 (i) Theft
Whoever, intending to take dishonestly any movable property

out of the possession of any person without that person's consent
moves that property in order to such taking, is said to commit theft.'^
This is the statutory definition of theft under the Indian Penal Code,
1860.
89 The Indian Penal Code, 1860, Section 378-382.

91 Id., Section 390.
92 /d., Sections 391-402.
95 /d., Sections 415-420.
96 7d., Section 378.
172
The Supreme Court of India interpreted the definition of theft in
the case of K.N. Mehra v. State of RajcLsthan?^ and Pyare Lai
Bhargava v. State of Rajasthan.'^^
In K.N. Mehra's case,^^ the Supreme Court directed the

ingredients of Section 378 as: (a) Dishonest intention to take property;
(b) The property must be movable; (c) The Property is taken out of the
possession of another person; (d) The property is taken without the
consent of that person; (e) There must be some removal of the
property in order to accomplish the taking of it.
(a) Dishonest Intention to take Property.
The first ingredient (a) i.e. 'the dishonest intention to take

property' was explained in Pyarelal Bhargava's Case^^^ by the
Supreme Court as the intention to cause a wrongful gain or a
wrongful loss, by unlawful means, of property to which the person
gaining is not entitled, or to which the person losing is legally entitled,
as the case may be. The Supreme Court, further, dwelling upon the
comparative position between Indian and English law, further
highlighted that there is marked difference in the ingredients
constituting theft under Indian Law and English Law. The Theft Act,
1968 of the United Kingdom holds a person guilty of theft if he
dishonestly appropriates property belonging to another with the
intention of permanently depriving the other of it. Wrongful gain' is
not an ingredient under the Indian Penal Code while 'dishonest
misappropriation' is an ingredient in English law. And the taking of
movable property has to be permanent under English law to
constitute theft, while under the Indian Law, the removal of movable
97 AIR 1967 SC 3 6 9 : 1957 Cri LJ 552 (SC): 1957 SCR 6 2 3 .

"8 AIR 1963 SC 1094: (1963) 2 Cri LJ 178 (SC).
99 Supra Note 9 7 .
100 Supra Note 9 8 at p. 1097
173
property without consent, even with the intention to return it later,
still completes the offence of theft, loi
Section 378 uses the words, 'Intending to take dishonestly...'

making 'intention' the fundamental characteristic of the offence of
theft. It implies that if there is intention to take dishonesty, it is a
theft, otherwise not. This first ingredient of the offence of theft has two
essential constituents, Intention' and 'Dishonesty'.
Authors on criminal law have explained the term 'intention' as

an immediate state of mind, as distinguished from 'motive' which is
the ultimate end which prompts the intention. 102 Thus for the offence
of theft, it is the immediate state of mind, that is relevant. It is the
intention of the taker which must determine whether the taking or
moving of a thing, is theft. The intention to take dishonestly exists
when the taker intends to cause wrongful gain to one person or
wrongful loss to another person. i03 xhe meaning and significance of
the term 'dishonestly' has already been explained, lo^ in Chandi
Kumar v. Abanidhar Roy,^^^ the Supreme Court stated that the
intention to take dishonestly must exist, at the time of moving of the
property. This is known as animus furandO^^
In banks, if a creditor takes movable property away from a

debtor without his consent, with an intention of coercing him to pay
debt, he still commits the offence of theft. 1^7 However, a creditor
101 Supra Note 97; Supra Note 98.

102 Supra Note 12 at p. 1429.
103 Ramratan v. State of Bihar, AIR 1965 SC 926: (1965) 2 Cri LJ 178(SC).
1""*See, Section 24, 'Dishonestly', Chapter III, A General Explanations under the
Indian Penal Code, 1860, Supra 4.2.1. (ii).
105 Chandi Kumar v. Abanidhar Roy, AIR 1965 SC 585: (1965) 1 Cri LJ 496 (SC).
106 Id., at p.588.
107 Sri Churn Chirago (1895) 18 All. 88; Bakhtawar, AIR 1925 Lah. 131: (1924) 25
Cri LJ 650 (Lah): Ganpat Krishnaji Parit, AIR 1930 Bom. 167: (1930) 31 Cri LJ
975 (Bom.); Bhgya (1938) NLJ 302; Ransom HJ v. Triloki Nath, AIR 1942 Oudh
318: (1942) 43 Cri LJ 578 (Oudh); Budhan Singh (1960) CriLJ. (1485) (Pat.):, AIR
1960 Pat. 518.
174
receiving time-bound debt, rendered by the debtor by mistake, cannot
be held guilty of theft.ô^ Likewise, a creditor taking away pledged
goods from debtor's possession, with the honest belief, that he was
entitled to do so under the agreement, was not held to be guilty of
theft. 109 Thus, to commit fraud, dishonest intention is prime
ingredient.
(b) The Property must be Movable.
The second ingredient of the definition of 'theft' consists of two

important terms that is 'property' and 'movable'. Implying thereby that
under the Indian Penal Code, theft can be committed only over
'movable property'. The term 'Property' is said to convey a compound
idea composed of "that which is its subject", and of "the right to be
exercised over it". It is everywhere used in this code so as to be
applicable exclusively to "that which is its subject".^^
The term 'movable property' is defined by Section 22 of the

Indian Penal Code, 1860. For the purpose of the Code, the words
"movable property" are intended to include corporeal property of every
description, except land and things attached to the earth or
permanently fastened to anything which is attached to e a r t h . m
Some other Indian legislations also define the term 'movable

property', illustrating few being, the General Clauses Act, 1897;ii2 The
Registration Act, 1908;ii3 and The Code of Civil Procedure, 1908.ii^
•08 M u s a m m a t Piare Dulaiya (1904) lALJ 5 0 8 : (1900) 1 Cri LJ 8 0 3 .

109 D h a k l u (1902) 4 Bom. LR 56: (1880) 1 Weir 4 0 5 ; Nge Shwe Meik (1900) lUBR
(1897-1901)339.
'10 The First Report on t h e Penal Code by the Indian Law Commission, 1846.
112 See, The General Clause Act, 1897, Section 3(36).
113 See, The Registration Act, 1908, Section 2(9).
114 See, The Code of Civil Procedure, 1908, Section 2(13).
175
The terminology 'movable property' finds mention in the Sale of Goods
Act, 1930,115 and the Companies Act, 1956.ii6
An analogous provision is found in the Transfer of Property Act,

1882, which defines the term 'attached to the earth.n'^ However, the
'property' that is being referred to here, need not necessarily be of a
'value'. Thus, anything over which a person can possess the right of
property over can be subject-matter of theft. Though Section 95 comes
for the protection of the accused in trivial matters, ^^ yet in cases
where in all ingredients of the offence of theft are satisfied, over a
subject matter lacking appreciable value, it will still be a case of theft.
Thus, where a person took a fake rupee from the pocket of a

person, it was held that he was guilty of theft as the rupee still had
value as a piece of metal of which it was made of.n^ In another case, it
was held that even a cancelled currency not is not res nullius and can
be subject-matter of theft. And a person handing over his goods/
property for destruction, still retains the rights of owner, and thus
such property is still capable of being the subject-matter of theft or
criminal breach of trust, iô
After probing all these definitions, it can be fairly said that

under the Indian Penal Code, use of term 'movable property' is
restricted to corporeal property i.e. the property which may be
•15 See, The Sale of Goods Act, 1930, Section 2(7).

"& See, The Companies Act, 1956, Section 82.
"^ The Transfer of Property Act, 1882, Section 3- "attached to earth" means - (a)
rooted in the earth, as in the case of trees and shrubs; (b) imbedded in the earth,
as in the case of walls or buildings; or (c) attached to what is so imbedded for the
permanent beneficial enjoyment of that to which it is attached.
••8 The Indian Penal Code, 1860, Section 95- Nothing is an offence by reason that it
causes, or that it is intended to cause, or that it is known to be likely to cause,
any harm, if that harm is so slight that no person of ordinary sense and temper
would complain of such harm.
"9 Francis Manikum, Cri App. No. 342 of 1910, decided on November 3, 1910 by
Batchelor and Rao, J J . (Unrep Bom.).
120 Moti, AIR 1925 Sin 21: (1925) 26 Cri LJ 189 (Sin.).
176
perceived by the senses in contra distinction to incorporeal rights
which are not so perceivable 121 as obligations of all kinds. 122
Thus, all intangible property is excluded from the definition of

'movable property' under the Indian Penal Code. This raises a
pertinent question with respect to banking fraud, that is whether
siphoning off money from online bank account, amounts to 'theft' or
not. As the money thus stolen, would be in intangible/incorporeal
form. Further, exclusion of incorporeal rights 123 and of chose in
action 124 from the definition of 'movable property' under the Indian
Penal Code renders the definition in-exhaustive.
Further, any valuable security may be subject of theft. ^25 Taking

of halves of currency notes sent in a letter, 126 removal of bank draft
forms from a proper custody without the consent of the authorized
person, 127 all have been held to be theft.
(c) The Property is taken out of the possession of another

person.
The third component of the offence of theft under Section 378 of

the Indian Penal Code, 1860, requires the taking of movable property
121 S.K. Sarvaria (ed.), R A Nelson's Indian Penal Code, Vol. IV 3 7 5 8 (Lexis Nexis,
New Delhi, 9^ edn., 2003)
122 Supra Note 12 a t p. 79.
123 Incorporeal Rights developed with the development of society, s u c h a s Right to
reputation.
124 The Term "Chose in action" is now u s e d to cover a miscellaneous a s s o r t m e n t of
rights a n d properties. Originally t h e p h r a s e h a d a clear a n d definite m e a n i n g
viz., a p r e s e n t right to take proceedings in a court of law to recover a debt or
d a m a g e s . The t e r m now includes all d e b t s , a n d all claims for d a m a g e s , for torts
connected with contact, which c a n n o t be without action. "A chose or t h i n g in
action" is a t e r m in contradistinction to a chose or thing in possession a n d is
applicable to c a s e s where t h e title to the money or property is in one person a n d
possession is in a n o t h e r , which by c o n t r a c t h e is b o u n d to deliver to the owner."
V.R. M a n o h a r (ed.), P. R a m a n a t h a Aiyer, Concise Law Dictionary 148-149
(Wadhwa a n d Company Law Publishers, New Delhi, Abridged edn., 1997,
Reprint, 2003).
125 Kashiraj Marfan, (1873) CrR of 1870 Unrep. Cr.C 4 3 .
126 Mead, (1831) 4 C Ss P 5 3 5 .
127 Ashok Datta Naik, 1979 Cri LJ (NOC) 9 5 (Goa).
177
out of the 'possession' of another 'person'. Under this provision, what
has been protected is possession of property' with the same rigour as
law protects ownership. This transfer of possession of the property,
however transient, is an essential ingredient of an offence of theft. ^28
The definition of theft, as stated above requires that it has to be taken
out of possession of 'any person'. This person may or may not be the
owner of the property, and even not a rightful keeper, still taking
property out of his physical control, would amount to theft.
(d) The Property is taken without the Consent of the Person in

Possession of it.
The fourth requirement of the offence of theft is absence of

consent of the person in possession in taking away of the property
from him. The primary inquiry to be made is whether the taking was
invito domino or without the will or approbation of the owner. Thus,
where a debtor gave certain property to his creditor, and subsequently
found out that the debt was time-barred, the full unqualified consent
on the part of the debtor at the time of giving away of the property
nullified the charge of theft. ^29 The consent so given, may be
expressed or implied, and may be given either by the person in
possession, or by any person having for that purpose authority either
express or implied.iô
(e) There must be some removal of the property in order to

accomplish the taking of it.
It has been held that the least removal of the thing taken from
the place where it was before is a sufficient exportation though it be
not quite carried off.^î n [^ not essential that it has to be carried out
of the reach of the owner or out of the place of its keeping. The courts
>28 State V. Vishwanath Tukram Umale, AIR 1979 SC 1825: 1979 Cri LJ 1193 (SC).
129 Mussammat Piari Dulaiya, (1904) 1 ALJ 508: 1900 1 Cri LJ 803.
130 The Indian Penal Code, 1860, Section 378, Explanation 5.
131 Hanmanta, (1877) 1 Bom. 610.
178
have gone so far as to say that the offence of theft is completed when
there is a dishonest moving of the property, even though the property
is not detached from that to which it is secured. ^32
Relationship with Banking Fraud
Presently, majority of transactions are taking place because of

automation process. Under such circumstances, removal of
information/data from computer will also amount to theft. If the
information from computer is unauthorisedly hacked and copied by
outsider to take some advantage, this will also amount to theft and in
considered as removal of intangible information from wrongful storage
is also called theft in the generic sense. It is separate issue that
Information Technology Act 2000 provides remedy or punishment for
such theft of intangible information.
If all the above stated five ingredients are satisfied, the accused
is subject to punishment as prescribed by Section 379. The
punishment prescribed is imprisonment of either description for a
term which may extend to three years, or with fine, or with both.^^^
This punishment is for an offence of theft simpliciter, not for an
aggravated form of theft, namely, robbery,i34 dacoity,!^^ etc.
Restoration of Stolen Property
Under Section 452 of the Code of Criminal Procedure, 1973,

there is a provision for restoration of stolen property to the
proprietor. 136
Ratanlal and Dhirajlal in their book 'Law of Crimes', note the

difference between the two situations where in the thing stolen is (a)
132 Nga Po Hie, (1866) SJLB 3 9 9 .

'33 The Indian Penal Code, 1860, Section 3 7 9 .
134 Id., Section 3 9 0 .
'35 Id., Section 3 9 1 .
'36 See, the Code of Criminal Procedure, 1973, Section 452 (1), (2) a n d (4).
179
negotiable instrument or (b) bank-note, i^'^ A negotiable instrument
remains the property of its rightful owner, as against the thief and the
subsequent holder, unless the subsequent holder can prove that the
instrument had become negotiable at the time it was stolen and also
that he had obtained it bona fide for value without notice of theft, i^^
Bank note, currency note, being legal tender^^^ and in legal view
money, property in it passes by mere delivery, iô in the interest of
commerce and security of human dealings nothing short of fraud in
taking an instrument payable to bearer will engraft an exception upon
the rule. I'*! The courts have clarified that title to money which is
current coin of the realm passes by mere delivery to a person who
receives it in satisfaction of a lawful debt even though the money was
obtained by committing the offence of cheating. ^"^2
4.2.3 (ii) Extortion
The verb 'extort' means to get by coercion, or obtain by force, i'*^

Unlike theft, in extortion, the accused uses 'force' instead of 'conceit'
to obtain property. Section 383 of the Indian Penal Code, 1860 defines
extortion and Section 384 provides punishment for act of extortion. As
an offence, extortion is taken as an offence graver than theft, but a
little less threatening than robbery.
Section 383 defines 'extortion' as whoever intentionally puts any

person in fear of any injury to that person, or to any other, and
thereby dishonestly induces the person so put in fear to deliver to any
137 Supra Note 12, p. 1940.

138 Bank of Bengal v. Mendes (1880) 5 Cal. 654.
139 Joggessur Mochi (1878) 3 Cal. 379.
i-w*Pandharinath P. Revenkar (1915) 17 Bom. LJ 922: 40 Bom. 186.
'••iGoodman v. Harvey (1836) 4 Ad & EI 870 followed in Collector of Salem (1873) 7
MHC 233:2 Weir 664.
142 Baij Nath (1914) PR No. 1 of 1915: (1915) 16 Cri LJ 460.
143 Julia EUio (ed.), Oxford Dictionary & Thesaurus 264 (Oxford University Press,
New Delhi, 11^^ Impression, 2007)
180
person any property or valuable security or anytJiing signed or sealed
which may be converted into a valuable security, commits "extortion".
Extortion is distinct from theft in the sense that in extortion

there is over-powering of the will of the owner, i'^'^ and the person is
induced to part with the property by putting him in fear of injury,I'^s
while in theft, the property is taken without the consent of the owner,
or of person in possession. Further, as the word, 'movable' is not used
with the term 'property' in the definition of extortion, unlike in case of
theft. Thus, the subject matter of extortion can be both movable and
immovable property, but theft can be committed only of movable
property.
The ingredients of the offence of extortion are: (a) The accused

must intentionally put any person in fear of injury to that person or
any other person; (b) The accused must thereby induce the person so
put in fear to deliver to any person any property, valuable security or
anything signed or sealed which may be converted into a valuable
security. And such inducement must be done dishonestly. ^46
Firstly, Section 44 of the Indian Penal Code defines injury as

any harm whatever illegally caused to any person, in body, mind,
reputation or property. Thus, the injury so contemplated, may be
bodily, mental, reputation for property related. However, threat of
divine punishment is not treated as injury as such^'^'^, and the injury
thus threatened should be that it is basis for either a criminal or a
civil action. I'^s And, the fear must be real, that is, it must unsettle the
mind of the person on whom it operates, and takes away from his acts
144 Meajan, (1865) 4WR (Cr.) 5.

145 Mst. I n d r a s a n a Kuer v. Sia Ram Pandey, 1970 Cri LJ 647 (Pat.).
146 S.R. Nayak v. A.R. Autulay, AIR 1986 SC 2 0 4 5 : 1986 CriLJ. 1922 (SC): (1986) 2
s e c 716: 1986 SCC (Cri) 2 5 6 .
147 Doraswami Iyer, AIR 1925 Mad. 480: (1925) 26 Cri LJ 7 5 5 (Mad.): T a n u m a l
Udha Singh, AIR 1944 Sin 2 0 3 : (1945) 46 Cri LJ 149 (Sin).
148 For more details. See The Indian Penal Code, 1860, Section 3 8 3 .
181
that element of free, voluntary action which alone constitutes consent.
Where the threats are not unnecessarily of a character to excite such
alarm, the test becomes whether they were made under such
circumstances of intimidation as to have that effect. ^'^^
The second ingredient to be proven under this Section is that

after the person is put in fear; he must be dishonestly induced,
meaning thereby that the inducement caused has to be not only
wrongful but dishonest too. The delivery may be of property, valuable
security, 150 or an3^hing signed or sealed which may be converted into
valuable security. This implies that not only complete, but incomplete
deeds may be the subject of extortion. A promissory note, signed, but
not dated and without particulars of amount, can be a subject of
extortion. Where it is doubtful whether property is obtained by
fraudulent inducement or by putting in fear of injury, the accused can
be punished either for extortion or for cheating.iî
The punishment prescribed for extortion is imprisonment of

either description for a term which may extend to three years or fine
or both. 152 Section 385 provides punishment for an incomplete offence
of extortion,153 while Sections 386 to 388 provide punishment for
committing extortion under aggravated circumstances. i54
i« Walton, (1863) 9 Cox 268.

•50 See, Supra 4.2.1. (vii).
151 Ramnarain Chowkeedar, (1865) 3 WR (Cr.) 32.
153 Id., Section 385-Ptting person in fear of injury in order to commit extortion-
whoever, in order to the committing of extortion, puts any person in fear, or
attempts to put any person in fear, or attempts to put any person in fear, of any
injury, shall be punished with imprisonment of either description for a term
which may extend to two years or with fine or with both.
15'' Id., Section 386 - Extortion by putting a person in fear of death or grievous hurt
- imprisonment of either description for a term up to ten years and fine; Section
387 - Putting person in fear of death or of grievous hurt, in order to commit
extortion - imprisonment of either description up to seven years and fine;
Section 388 Extortion by threat of accusation of an offence punishable with
death or imprisonment for life, etc. - imprisonment of either description for a
term extendable up to ten years and fine, and if offence be one punishable under
182
Relationship with Banking Frauds
The very initial form of banking fraud, that is, extracting cash
from the bank cashier under force, which is still prevalent to getting
signed cheques from bank customer under coercion, all can be
brought under the scope of Section 383/384.
4.2.3 (iii) Robbery
Robbery is aggravated form of theft or extortion. Calcutta High

Court termed 'robbery' a s a felonious taking from the person of
another or in his presence against his will, by violence or putting him
in fear. 155 In fact, Theft is 'robbery', if in order to the committing of the
theft, or in committing the theft, or in carrying away or attempting to
carry away property obtained by the theft, the offender for that end
voluntarily causes or attempts to cause to any person, death or hurt
or wrongful restraint or fear of instant death or of instant hurt, or of
instant wrongful restraint. Similarly, Extortion is "robbery" if the
offender, at the time of committing the extortion, is in the presence of
the person put in fear, and commits the extortion by putting that
person in fear of instant death of instant hurt, or of instant wrongful
restraint to that person, or to some other person, and, by so putting in
fear, induces the person so p u t in fear then and there to delivering u p
the thing extorted.^56 Thus, what elevates an act from the offence of
theft or extortion to robbery is the imminent fear of injury.
The makers of the Code further explained that there can be no

case of robbery which does not fall within the definition either of theft
or of extortion; but in a practice it will perpetually be a matter of
Section 377 of this Code, punishable with imprisonment for life; Section 389
putting person in fear of accusation of offence, in order to commit extortion -
imprisonment of either description for a term extendable up to ten years and
fine, and, if the offence be punishable under Section 377 of this code,
imprisonment for life.
155 Karali Prasad Dutta v. East Indian Railway Company, AIR 1928 Cal. 498.
183
doubt whether a particular act of robbery was a theft or an extortion.
A large proportion of robberies will be half theft, half extortion. ^57
Section 390 requires mens rea from the very start, the intention
to deprive the complainant of the property, and should for that
purpose either hurt him or place him under wrongful restraint. ^ 58
Section 392 prescribes rigorous imprisonment for a term which may
extend to ten years, and the culprit shall also be liable to fine. In case
of the offence of robbery has taken place between sunset and sunrise,
the imprisonment may be extended to fourteen years. 1^9
In looting a bank branch and taking away the cash or valuable

securities from the bank premises, the offence of robbery, more or
less, inevitably takes place. Attempt to commit robbery attracts
rigorous imprisonment u p to seven years and fine,i60 while if any
person, in committing or in attempting to commit robbery, voluntarily
causes hurt, such person, any person conjointly concerned in such
acts is punishable with imprisonment for life, or with rigorous
imprisonment for a term up to ten years and fine.^î
4.2.3 (iv) Dacoity
J u s t like 'robbery' is aggravated form of 'theft' or 'extortion',

'dacoity' is aggravated form of 'robbery'. When the number of
participants in robbery is five or more persons, it is dacoity. i^^ simply
put, dacoity is robbery committed by five or more persons. The
157 NoteN, p. 162.

158 Mir Baz, AIR 1935 Pesh 49: (1935) 36 Cri LJ 894 (Pesh).
162 Id., Section 391 When five or more persons conjointly commit or attempt to
commit a robbery, or where the whole number of persons conjointly committing
or attempting to commit a robbery, and persons present and aiding such
commission or attempt, amount to five or more, every person so committing,
attempting or aiding, is said to commit "dacoity".
184
popular notion of dacoity was that of an outrage committed, at the
very dead of night by a band of ruffians, whose heads were covered
and whose faces were disguised by chalk or some other mixture, and
who had no private enmity with the peaceable and unfortunate house
holder, whom some one of the gang had previously, by secret
inquiries, marked out for a prey.^^^
The Indian Penal Code defines 'dacoity' as when five or more

persons conjointly commit or attempt to commit a robbery, or where
the whole number of persons conjointly committing or attempting to
commit a robbery, and persons present and aiding such commission
or attempt, amount to five or more, every person so committing,
attempting or aiding, is said to commit "dacoity". i^"* From this
definition, it becomes clear that even attempt to commit dacoity is
punishable just like actual commission of dacoity. This depicts the
intention of the code makers to curb the menace of dacoity.
It is said that dacoity may be one of the very rare offences under
the Indian Penal Code, which have been made expressly punishable at
four stages, 165 namely: (a) Preparation to commit dacoity - Section 399
(b) Assembling for dacoity - Section 402 (c) Attempt at dacoity -
Section 391 (d) Actual Commission of dacoity - Section 391.
In fact, even an agreement to commit dacoity, if proven,

becomes the offence of conspiracy punishable under Section 1208.1^^
Commission or attempt at dacoity is compulsorily punishable with
imprisonment for life or with rigorous imprisonment for a term which
may extend to ten years, and fine.i^'^ Dacoity with murder is
punishable with death or imprisonment for life or rigorous
163 Supra Note 12, p. 1972.

IS-* The Indian Penal Code, 1860, Section 391.
165 Supra Note 12, at p. 1973; Supra Note 121 at p.3856.
166 Samundar Singh, AIR 1965 Cal. 598: (1965) 2 Cri LJ 713 (Cal.
185
imprisonment for a term which may extend to ten years and fine.i^s
Robbery or dacoity, with attempt to cause death or grievous hurt, is
punishable with imprisonment of a term not less than seven years. ^69
A mere attempt to commit robbery or dacoity when armed with deadly
weapon is punishable with imprisonment of a term of not less than
seven years. I'ô Making preparation to commit dacoity is punishable
with rigorous imprisonment for a term extendable u p to ten years and
fine.i'î Punishment for belonging to gang of dacoits is imprisonment
for life, or rigorous imprisonment for term extendable up to ten years
and fine.1'72 ^ncj assembling for purpose of committing dacoity shall be
punished with rigorous imprisonment u p to seven years and fine.i'^s
Dacoity was at one point of time, most dreaded form of offence

against property in India. Even at present, it is so rigorously
suppressed by criminal law, as involvement of five or more persons
clubbed with imminent threat of death or hurt or wrongful restraint,
at an attempt or actual commission of robbery presents a picture of
lawlessness in the Country.
With time, banking institutions became depository of greater

amount of money and valuable goods, which made them more
attractive for those looking for instant richness. At the same time,
security measures were raised and are still being constantly raised at
bank premises to protect/save the public money from anti-social
miscreants. All this has made it likely that miscreants will come
together in greater number to rob the banks, in such cases; the
charge of dacoity under Section 391 will become operational.
if'S Id., Section 396.

"0 Id., Section 398.
186
4.2.3 (v) Criminal Misappropriation of Property
If the dishonesty with respect to a moveable property starts after

getting the possession of such property, the offence of dishonest
misappropriation of property is committed. Under the Indian Penal
Code, 1860, whoever dishonestly misappropriates or converts to his
own use any movable property, shall be punished with imprisonment
of either description for a term which may extend to two years or with
fine or with both.^'^^ And if the dishonest misappropriation was in
possession of a deceased person at the time of that person's decease
the punishment is imprisonment of either description u p to three
years and fine, and if the offender at the time of such person's decease
was employed by him as a clerk or servant. The imprisonment may
extend to seven years, i'^^
The distinction between theft, cheating and criminal

misappropriation rests on the point of time when the dishonestly
began. Because under the earlier two wrongs, the property is acquired
through dishonestly, while in case of criminal misappropriation of
property the property be first acquired honestly and then
misappropriated or converted to one's own use.
A person who got wrongful possession of a draft through past

and converted the same to his own use, is deemed to have critically
misappropriated the draft contained therein, i'^^ Likewise, a shop
assistant who obtained by deception the owner's consent to sell his
goods in return to customer's stolen cheque was held guilty of
wrongful appropriation of goods. ^'^'^ However, when a certain amount
of cash, which was entrusted to the cashier, was missing from bank,
but was not found with the cashier or at his home, the Bombay High
174 Id., Section 4 0 3 .

175 Id., Section 4 0 4 .
176 State V. Abu Ismail Merchant, AIR 1959, Bom. 4 0 8 : ILR (1959) Bom. 8 6 5 .
177 DPP V. Gomez, (1992) 3 WLR 1067 (HL).
187
Court held that he could not be held liable for breach of trust in the
absence of proof for misappropriation by him.^'^s
While a cheque under Section 404 is non-cognizable, bailable,

triable by Magistrate of first class and non-compoundable. The wrong
of banking fraud doesn't come to an end with obtainment of other's
property, it continues with the dishonest misappropriation of such
property by the fraudster. This is his later stage that the offence under
Section 403 of the Indian Penal Code is attracted, and if the
misappropriator is bank-employee or agent or servant of the bank's
customer, in those cases. Section 404 with higher punishment.
4.2.3(vi) Criminal Breach of Trust
The societal structure is made of relationships, and

relationships are based on trust. Trust leads to deposit of whatsoever
one considers valuable with the people who a person believes to be
trustworthy. But sometimes, this trust is broken. Breaking of trust
causes not only emotional, but sometimes financial loss also. Such
financial or economic loss is tried to be recovered and restored by
force of law. The recovery of financial loss due to breach of trust is
mostly left to civil law, as under law of torts, remedy is provided for
civil breach of trust. Likewise, for restoration of a person's loss to trust
is provided for under criminal law as a punishable offence of criminal
breach of trust under Section 405 to 409 of the Indian Penal Code,
1860.
Whoever, being in any manner entrusted with property, or with

any dominion over property, dishonestly misappropriates or converts
to his own use that property, or dishonestly uses or disposes of that
property in violation of any direction of law prescribing the mode in
which such trust is to be discharged or of any legal contract, express
178 state V. Mohan Radhakrishna Pednekar; 1998, Cr.LJ 3771 (Bom.).
188
or implied, which he has made touching the discharge of such trust or
willfully suffers any other person so to do, commits "criminal breach
of trust". 179
To constitute the offence of criminal breach of trust, there must

be dishonest misappropriation by a person in whom confidence is
placed as to the custody or management of the property in respect of
which the breach of trust is charged, iô It has been held that firstly,
there must be an entrustment; then secondly, there must be
misappropriation or conversion to one's own use or use in violation of
any legal direction or of any use in violation of any legal direction or of
any legal contract and thirdly the misappropriation of conversion or
disposal must be with dishonest intention, iî Every offence of criminal
breach of trust involves a civil wrong in respect of which the
complainant may seek his redress for damages in the civil court, but
every breach of trust in the absence of mens rea, cannot legally justify
a criminal prosecution. 1^2 Further, a case of criminal breach of
contract is almost always found in a charge of criminal breach of
trust. The deciding factor in judging whether a case is one of criminal
breach of trust or of criminal breach of contract is whether the person
proceeded against had acted dishonestly, i^^
The scope of this Section is very wide. It covers all cases of

breach of trust, whether the entrustment was created with a lawful
object or not, and this entrustment can be breached by
misappropriation or conversion to his own use. However, there is no
reference to violation of direction of law or of a legal contract in the
'79 The Indian Penal Code, 1860, Section 4 0 5 .

180 Isser C h u n d e r G h o s h e v. Peari Mohun Palit (1871) 16 WR (Cr.) 39; Ko Set Shwin
(1903) UBR (PC) 9: (1900) 1 Cri LJ 3 8 5 .
181 Rex V. Krishnan V., AIR 1940 Mad. 329: (1940) 41 Cri LJ 824 (Mad.).
182 Kanhaiya Lai, AIR 1937 Oudh 331: {1937} 38 Cri LJ 491 (Oudh); Amritlal v.
Bajranglal (1963) 2 Cri LJ 4 7 4 (Ori.).
183 Halimuddin Ahmad v. Ashoka Cement Ltd., 1976 Cri LJ 449 (Pat.).
189
definition itself. It is said that there are various ways in which
criminal breach of trust may be committed.^^^^ The entrustment may
be in any manner, High Courts have opined that it does not imply a
trust in the sense of a law relating to trusts. ^^^ jf ^ [^ not entrustment,
then the accused should get dominion over the property in any way.
But in any case, the accused should receive the property. ^^^ The
misappropriation or conversion of the property so entrusted or
obtained may not be directly proved in every case. All what is required
under this Section is the dishonest misappropriation or conversion,^
which can be inferred not from the failure to account without any
explanation, but from an untrue explanation given for failure to
account. 18"^
The Supreme Court held that from the definition, following

essentials of the offence of criminal breach of trust can be gathered:
(a) Entrustment of any person with property or with any dominion

over property.
(b) That person so entrusted (1) dishonestly misappropriates or
converts to his own use that property; or (2) dishonestly
uses or disposes of that property or willfully suffers any
other person so to do in violation of -
(i) Any direction of law prescribing the mode in which such
trust is to be discharged; or
(ii) Any legal contract made touching the discharge of such
t r u s t . 188
The first ingredient of the offence of criminal breach of trust
seeks explanation of three terms that is, 'entrustment', 'property' and
'dominion' over property, along with study of position of certain
184 Nga Te (1904) 2 LBR 2 1 6 : (1900) 1 Cri LJ 7 3 0 (FB).

'85 Kalaktar Singhy 1978 Cri LJ 6 6 3 (Pat.); S h o p Nath 1975 Cri LJ 1122 (All.): 1975
All. LJ 4 6 8 .
'86 S u r e n d e r Pal Singh, AIR 1957 All. 122: 1957 Cri LJ 170 (, AIR).
'87 J a i k r i s h n a d a s , AIR 1960 SC 8 8 9 : 1960 Cri LJ 1250 (SC).
188 Om P r a k a s h Gupta, AIR 1957 SC 4 5 8 : 1957 Cri LJ 575 (SC): 1957 SCR 4 2 3 ;
Pratibha Rani v. Suraj Kumar, AIR 1985 SC 6 2 8 : 1985 Cri LJ 8 1 7 (SC): 1985
s e c (Cri) 180; Chelloor, AIR 1953 SC 4 7 8 : 1954 Cri LJ 102 (SC).
190
categories of persons such as servants, partners, spouses etc. in
respect of this offence.
The Calcutta High Court has explained that the expression

"entrustment" carries with it implication that the person handing over
any property or on whose behalf that property is handed over to
another, continues to be its owner. ^^^ In addition to it, there must be
confidence on the part of the person handing over the property in the
person taking the property, so as to create a fiduciary relationship
between them.^ô Viscount Haldane in Lake v. Simmons^^^ said that
entrust is not necessarily a term of law. It may have different
implications in different contexts. In its most general significance all it
imports is a handing over the possession for some purpose which may
not imply the conferring of any proprietary right at all. The Supreme
Court of India has explained entrustment as an act whereby the
ownership or beneficial interest in the property is in some person
other than the accused and the latter must hold it on account of some
person or in some way for his benefit. 1^2
Here, it has to be noted that the 'entrustment' as required under

this Section, is not strictly as per the law on trusts. The person who
transfers possession still remains the legal owner of the property, and
the person in whose favour the possession is so transferred has only
the custody of the property to be kept or disposed of by him for the
benefit of the other party, the person so put in possession only
obtaining a special interest by way of a claim for money advanced or
spent upon the safe-keeping of the thing or such other incidental
189 P u s p a Kumar Rai 1978 Cri LJ 1379 (Sikkim).

190 State V. J a s w a n t l a l Nathalal, AIR 1968 SC 700: 1968 Cri LJ 8 0 3 (SC): (1968) 25
CR 4 0 8 ; Tata J R D , Ch, AIRman TISCO Ltd. v. Payal K u m a r 1987 (Cri LJ 4 4 7
(Del.).
191 (1927) 96 LJKB 6 2 1 , 6 2 5 ; Crown Prosecutor v. Mclver J , AIR 1936 Mad. 6:
(1936) 37 Cri LJ 142 (Mad.); Thakarsi (1949) Nag. 620.
192 Chelloor, AIR 1953 SC 4 7 8 : 1954 Cri LJ 102 (SC); S h e o n a r a y a n 1953 Cri LJ
1289 (Pat.).
191
expenses as may have been incurred by him.^^^ Provided there is
entrustment of property, it matters little whether the complainant on
whose behalf the property is entrusted is the owner thereof or not.i94
It is the facts of the case, not the words used by the parties, which
determine whether there was entrustment or not. When the giving of
money or any other property is accompanied with an instruction as to
how to deal with it, it is likely to be entrustment.
Entrustment is based on free consent of the giver. Thus, if the

accused had obtained possession by tricking or deceiving the owner, it
would not be a case of criminal breach of trust, but of cheating under
Section 420.195
Money deposited in chit fund scheme, ^ê deductions by the

employer from wages of the employee under ESI Act, 1948,197
collection of bus far as part of job of conductor, i^s all have been held
not to be entrustment within the meaning of this Section.
However, in cases where money is given in discharge of debt,

but the creditor tries to deny the fact of receipt of payment, i99 and
when a debtor fails to return the debt within stipulated period,200 it is
not a case of criminal breach of trust but rather of civil liability.
Further, the Supreme Court saw no reason in restricting the

meaning of word 'Property' used in this Section to movable property
193 J a s w a n t r a i Manilal Akhaney, AIR 1956 SC 5 7 5 : 1956 Cri LJ 1116 (SC): (1956)
SCR 4 8 3 ; State v. J a w w a n t l a l , AIR 1968 SC 700: 1968 Cri LJ 8 0 3 (SC): (1968) 2
SCR 4 0 8 .
194 State V. Dahyalal D a l p a t r a m , AIR 1960 Bom. 5 3 : (1959) 61 Bom. LR 8 8 5 : 1960
Cri LJ 217 (Bom).
195 Arab Mihan, AIR 1942 Sind 167: 204 IC 6 0 9 : (1942) Kar. 284; State v.
R a d h a k a n t a Pathaik (1954) Cri LJ 1429 (Ori.).
196 Sai Narain 1974 Cri LJ 232 (PfisH). See also Laxman Singh (1986) 1 Crimes 634.
197 Nathmull Paddar v. Salil Kumar Chakrabory 1971 Cri LJ 361 (Cal.). See
Explanation 2 to Section 405.
198 Puspa Kumar Rai 1978 Cri LJ 1379 (Sikkim).
199 Hitnarain v. Bednarain (1944) 24 Pat. 128: (1994) 26 PLT 357.
200 Satyabrata Bhattachaiya v. Jarnal Singh 1976 Cri LJ 446.
192
only,201 and held the term 'property' to be including a chose in
action.202 A cancelled cheque falls within the term 'property'. The
question of value of the property in respect of which breach of trust is
committed is held to be, (except with reference to Section 95 of the
Code) quite immaterial.203
The accused may be either entrusted or have dominion over the

property. While 'entrustment' is a conscious act on the part of giver,
'dominion over a property' can be said to exist, when the property is
under control of the accused due to one reason or the other. For
example. President and Sales Clerks of a society receiving delivery for
the purpose of distributing sugar to ration card holders,204 a
mortgager in possession,ôs a tehsildar having custody of amounts of
land revenue,206 manager of a branch office of a bank holding
government promissory notes,207 have been held to have dominion
over property and thus liable under Section 405 in case of
misappropriation or diversion.
Use of loan for a purpose other than for which it was granted,
does not involve criminal breach of trust. 208 But pledging of already
201 Dalmia RK v. Delhi Administration, AIR 196 2 SC 1 8 2 1 : (1962) 2 Cri LJ 8 0 5

(SC): (1963) 1 SCR 2 5 3 overruling Reg v. Girdhar D h a r a m d a s 6 Bom. HCR (Cr)
3 3 a n d J u g d o w n S i n h a (1895) 2 3 Cal. 372 a n d approving B i s h a n Prasad, AIR
1915 All 93:37 All 128; R a n c h a n d r a Gurvala, AIR 1926 Lah 3 8 5 ; M a n c h e r s h a
Ardishir v. Ismail Ibrahim, AIR 1936 Bom. 167: (1936) 37 Cri LJ 577 (Bom): 6 0
Bom. 7 0 6 a n d Dand Khan, AIR 1926 Lah. 385: (1926) 2 7 Cri LJ 17 (Lah.).
202 S h i v a n a r a y a n L a x m i n a r a y a n J o s h i , AIR 1981 SC 4 3 9 : 1980 Cri LJ 3 8 8 (SC):
(1980) 2 SCR 4 6 5 .
203 Maula B a k h s h (1904) 27 All. 2 8 .
204 Ayyadurai Devar, In re 1980 Cri LJ 2 5 8 (Mad.).
205 Ram Manick S h a h a v. B r i n d a b u n C h u n d e r Podar (1866) 5 WR 230.
206 Vasant Moghe, AIR 1979 SC 1008: 1979 Cri LJ 8 8 5 (SC): 1979 SCC (Cri) 8 6 8 .
207 Sailendra Nath Mitter, AIR 1944 Cal. 92: (1944) 4 5 Cri LJ 131 (Cal): (1943) Cal.
493.
208 Supra Note 200.
193
pledged property in violation of law or contract, ô^ or denial of
pledgeîo holds a person liable under this Section.
Moreover, a fixed deposit with bank is money paid to the bank

and not a trust with the bank. In fact, this is no longer the depositor's
money. The only stipulation that operates is that when the fixed
deposit becomes due an amount equal to that deposited amount is
due for payment to the depositor.^!!
The second essential of offence of criminal breach of trust is

breaking of the trust that has been created in that person who h a s
been entrusted with or has dominion over that property. This breach
of trust can be effected through following two modes: (1) Dishonestly
misappropriates; or (2) Converts to his own use that property.
Further, dishonest intention is the gist of the offence.212 Any

breach of trust is not an offence. It may be intentional without being
dishonest or it may appear dishonest without being really so. In such
cases, the Magistrate must be slow to move. This caution is all the
more necessary since there is a natural desire to secure speedy justice
by having recourse to criminal law.213 The meaning of the term
'dishonestly' has been discussed in detail earlier.21^ Further, it is only
the intention which is essential, whether actual wrongful gain or loss
occurred or not is immaterial as it is a consequence; but not essential
part of the offence and a person is not accused of the offence by
209 (1871) 6 MHC (Appx.)28:l Weir 461; Vadivaloo Chelhy v. Abdul Razak (1907) 13
Burma LR 286: (1905) 6 Cri LJ 334.
2'o Abinash Chandra Kumar v. Dhani Buksh Mahammad, AIR 1963 Cal. 673:
(1937) 38 Cri LJ 118 (Cal.).
2" Sablok RP v. Kaushalya Devi 1982 Cri LJ 1342 (Del.).
212 Rahim Baksh (1879) PR No. 30 of 1879; Ponnambalam Pillai (1883) 1 Weir 462;
Murphy (187) 9 All. 666; Grishan HAL v. Mutuswamy (1909) UBR (PC) 21: (1910)
11 Cri LJ 44.
213 Rangi Lall, AIR 1930 Oudh 321: 31 Cri LJ 1078: (1930) 6 Luck 68: Kanhaiya Lai,
AIR 1937 Oudh 331: (1937) 38 Cri LJ 491. (Oudh); Abdul Karim v. Crown, AIR
1952 Ass 129; (1951) 52 Cri LJ 1178 (Lah.); Gopal Krishan (1955) Cri LJ 1636.
214 See, Supra 4.2.1. (ii).
194
reason of it.2i5 Mere retention, and in fact, not even actual use of
entrusted property without dishonest intention, does not result in
criminal breach of trust. This would be the case of a person who is
proved to have a reasonable claim against the person whose property
he is holding.216 In fact, even person acting bonafide, though his claim
may be unfounded in law or in fact, may be acting without dishonest
intention. The mere disregard of a direction by itself does not lead to
the conclusion that the accused must have acted dishonestly.î^
However, false explanation is sufficient to prove the element of
dishonestly.218 Sole fact of temporary retention of money2i9 or
retention on behalf of the principal by agent,220 do not amount to
criminal breach of trust. Further, loss to the principal or anybody else
is not necessary ingredient for completion of this offence.221
To 'misappropriate' means improperly setting apart for one's use

to the exclusion of the 'owner'. 'Converts' means appropriation and
dealing with property of another without right as if it is his own
property. 222 There may be appropriation by a mental act without any
actual expenditure of the money thus appropriated. But "the mental
appropriation must be proved by some overt and visible act, but
actual expenditure of the money is not the only proof of it.''223 Mere
retention of goods without misappropriation does not constitute
criminal breach of trust.
If a person receives money which he is bound to account for and

does not do so, he commits this offence, although no precise time can
215 Rambilas (1914) 38 Mad. 6 3 9 ; M a t h u r a Prasad (1946) PWN 192.

216 Rex V. Krishnan V., AIR 1940 Mad. 3 2 9 : 91940) 41 Cri LJ 8 2 4 (Mad.
217 S u m a n d e r Singh (1956) Raj. 9 4 2 .
218 C h a m p a k l a l N e m c h a n d (1961) 2 GLR 2 6 2 .
219 Musti Piyara K h a t u n v. Md. Yasin All 1982 Cri LJ (NOC) 146 (Gau.).
220 Ram Khelawan, AIR 1991 Pat. 570: (1919) 20 Cri LJ 6 5 4 (Pat.).
221 J i v a n d a s Sav C h a n d 91931) 32 Bom. LR 1195: 55 Bom. 59 (FB).
222 D u r u g a p p a P, AIR 1956 Mys. 4 0 1956 Cri LJ 6 3 0 (Mys.).
223 Per Plowden J., in Kesho Ram (1889) PR No. 3 6 of 1880.
195
be fixed at which it was his duty to pay over the money.224 Dishonest
retention of money, howsoever short in time, is still criminal breach of
trust. And failure to account for money or giving false account of its
use, though a strong circumstance, is only an indication, and must be
considered along with other facts of the case.225 Further, it is not only
acts done in case of contractual relationships, but also the acts done
in violation of any direction of law that constitute criminal breach of
trust. Among others, the punishment prescribed for criminal breach of
trust by a public servant, banker, merchant, factor, broker attorney or
agent is imprisonment for life or imprisonment of either description up
to ten years and fine.226
Thus, the banking fraud by bank itself resulting into criminal

breach of trust has been made subject to the greatest possible
punishment for this offence under the Indian Criminal Law.
As banker has been recognised as a special class of persons,

criminal breach of trust by who has been made severely punishable
under Section 409. The word ^banker' in this Section has not been
used in the technical sense of the Indian Banking Companies Act (now
the Banking Regulation Act, 1949) but signifies any person who
discharges any of the functions of the customary business of banking
and would also include a firm that carries on such business.227 The
word TDanker' includes a cashier or a shroff?'^^ The relation between a
banker and creditor, with a superadded obligation arising out of the
custom of bankers to honour the customers' drafts and that relation is
not altered by an agreement by the banker to allow the interest on the
224 Welch (1846) 1 D e n 1 9 9 .

225 Harakrishna Mahatab, AIR 1930 Pat. 209: (1930) 31 Cri LJ 249 (Pat.); Gona
Achayya (1936) MWN 825.
227 Nadir Ali, AIR 1960 All. 1 0 3 : 1960 Cri L J 1 8 8 (AIL): 1960 ALJ 3 3 .
228 Hiralal (1907) PR No. 19 of 1 9 0 8 : (1907) 8 Cri LJ 4 9 2 .
196
balances in the bank.229 Further, the money that a customer deposits
in a bank is not held by the latter on trust for him. It becomes part of
the banker's funds, and he is only under a contractual obligation to
pay the sum deposited by the customer to him on demand. The
relationship between a bank and its customer is one of creditor and
debtor. The bank is liable to pay the money to the customer when
called upon, but until called upon to pay it, the bank is entitled to
utilize the money in investment and in other permitted ways for
earning profit. An offence under this Section presupposes an
entrustment.230 A bank manager dishonoured cheque of the
complainant despite balance in his account, but it was held that the
manager cannot be charged for criminal breach of trust.2^1 Persons
working in a bank are not bankers. Therefore, this Section has no
application in respect of alleged criminal breach of trust by such
persons.232 However, when a bank manager made fictitious entries
and false representation to sarpanchas of Gram Panchayat, which had
deposited large sum of money in bank, his conviction was held right
by the Supreme Court.233
Thus, a bank stands in a peculiar situation with respect to

criminal breach of trust due to heightened public faith in their
functioning. But it is not just any case which barely fits the
requirement of this Section, only the clear case of dereliction of duty
resulting into breach of trust by banks that calls for punishment
under Section 409.
229 Folley V. Hill (1848) 2 HLC 2 8 .

230 J o d h a Ram (1950) ALJ 8 0 8 .
231 Trilochan B a n g a 1986 (1) Crimes 11.
232 Gopesh C h a n d r a v. Nirmal Kumar, AIR 1950 Cal. 57: (1950) 51 Cri LJ 3 8 8 (Cal.).
233 B u d h Singh, AIR 1974 SC 1354: 1974 SCC (Cri) 168: 1974 Cri LJ 6 1 4 (SC).
197
4.2.3 (vii) Cheating
Under the Indian Penal Code, 1860, whoever, by deceiving any

person, fraudulently or dishonestly induces the person so deceived to
deliver any property to any person, or to consent that any person shall
retain any property, or intentionally induces the person so deceived to
do or omit to do an5^hing which he would not do or omit if he was not
so deceived, and which act or omission causes or is likely to cause
damage or harm to that person in body, mind, reputation or property,
is said to "cheat".^34 A dishonest concealment of facts is a deception
under this code, within the meaning of cheating.^35
The definition of cheating contains two parts. First comes the

main part "whoever by deceiving any person..." These are the words
which obviously apply to the whole Section. Then the first part follows,
"fraudulently or dishonestly induces the person so deceived to deliver
any property to any person or to consent that any person shall retain
any property. Then comes the second part, which is an alternative to
sub-part 1 viz., "or intentionally induces... mind, reputation or
property". Then are the closing words "is said to cheat". The words
"and which act or omission... reputation or property" form a portion of
Part 2 and are not applicable to part 1 at all.236 in fact, the Law
Commission has suggested substitution of Section 415 with the above
mentioned segregation in part (a) and (b) with addition of words
Vrongful gain to any person', and a detailed explanation.237

235 /d.. Explanation to Section 415.
236 i s h a r Das (1908) PR No. 10 of 1908: (1906) 7 Cri LJ 290; Laxman (1962) II Cri
LJ 559 (Mys.).
237 "415. Cheating - Whoever, by deceiving any person, -
(a) Fraudulently or dishonestly induces the person so deceived to deliver any
property to any person, or to consent that any person shall retain any property,
or;
(b) Intentionally induces the person so deceived to do or omit to do anything
which he would not do or omit if he were not so deceived, and which act or
omission causes or is likely to cause damage or harm to any person in body,
198
The cases in which no transfer of property is occasioned by the
deception and some in which such a transfer occurs, a general
provision is made in Section 417 of the Code. For the cases in which
property is transferred a more specific provision is made by Section
420.238 Though, in another case it was held earlier that such offence
may be punished under either of the Sections; but where the case
appears to be of a serious nature steps must be taken to send it to the
Court of Session for trial under Section 420.239
Merely suffering pecuniary loss in consequence of the accused's

act does not amount to cheating, if no deception has been
practiced.240 j o hold a person guilty of cheating it has to be shown
that his intention was dishonest at the time of making promise. But
such dishonest intention cannot be inferred from the fact of
subsequent non-fulfillment of the promise.2^1
The offence of cheating is equally applicable in case of movable

and immovable property. In distinction with certain similar offences
like breach of contract, extortion, breach of trust and criminal
misappropriation, the offence of cheating can be understood better.
The offence of cheating has an element of fraudulent or dishonest
intention from the very beginning while breach of contract is
committed at a later stage of relationship between the parties. In
extortion, property is obtained by intimidation, not by deception,
unlike cheating. In cheating as a person tricks another into doing
something, the element of trust is not there, while in criminal breach
mind, reputation or property or wrongful gains to any person, is said to "cheat".

Explanation - A d i s h o n e s t concealment of facts, or where there is a legal d u t y to
disclose particular facts, a d i s h o n e s t omission to disclose those facts, is a
deception within the m e a n i n g of this Section."
238 Bavaji (1875) U n r e p Cr.C. 96, Cr.R September 2 3 , 1875.
239 B a p u (1864) U n r e p Cr.C2.
240 S u n d e r Singh (1904) PR No. 2 5 of 1904: (1901) 2 Cri LJ 126.
241 Daugarshi v. Deviprasad O m p r a k a s h Bajoria 1985 Cri LJ 1943 (Bom.) See also
State V. Parsad Pillai A, AIR 1973 SC 326: 1972 SCC (Cri) 7 0 5 : 1972 Cri LJ 1243
(SC).
199
of trust, initial delivery of property was voluntary in trust, which was
later misappropriated by the person so entrusted. Likewise, in case of
criminal misappropriation, the property first comes into the hands of
the accused in some usual way, not by deception as is conceived by
offence of cheating. The ingredients of the offence of cheating under
Section 415 would be: (a) Deception of any person; (b) Fraudulent or
dishonest inducement to that person to deliver any property to any
person or to consent that any person shall retain any property; or (c)
Intentional inducement to that person to do or omit to do an5^hing
which he would not do or omit if he were not so deceived, and which
act or omission causes or is likely to cause damage or harm to that
person on the body, mind, reputation or property.
Firstly, deception is the quintessence of the offence of cheating.

Deception must be caused by the accused to generate inducement in
the mind of the complainant.242 n means causing to believe what is
false or misleading as to a matter of fact, or leading into error. ^43
Deception need not be directed at a definite person, and such

deception may be by words or conduct. 244 w h a t is sufficient to
constitute a deception must be decided in each case on its own
facts.245 A bank is a juridical person and not an actual person and
cannot be said to have the mens rea for the offence of cheating.246 A
willful misrepresentation of a definite fact with intent to defraud,
cognizable by senses is cheating.247 it is but little to the purpose to
show that in fact the representation has turned out to be untrue.248 it
242 R a m a u t a r C h o u k h a n y v. Hari Ram Todi 1982 Cri LJ 2 2 6 6 (Gau.).

243 Wooley (1850) 4 Cox 193; Swami Dhirendra B r a h m c h a r i v. Shailendar B h u s h a n
1995 Cri LJ 1810 (Del.).
244 Swami D h i r e n d r a B r a h a m a c h a r i v. Shailender B h u s h a n 1995 Cri LJ 1810 (Del.).
245 R a m n a t h Kalapahar (1905) 2 CLJ 524: (1902) 3 Cri LJ 160.
246 Sunil C h a n d r a Banerji v. Krishna C h a n d r a Nath, AIR 1949 Cal. 6 8 9 : (1949) 2
Cal. 2 9 3 .
247 Goss (1860) 8 Cox 2 6 2 .
248 Erahimji Mulla Jeevanji (1912) 15 Bom. LR 297: (1913) 14 Cri LJ 2 3 2 .
200
is not necessary that the false pretence should be made in express
words, if it can be inferred from all the circumstances attending the
obtaining of the property. 2^9 A man may be guilty of an attempt to
cheat although the person he attempts to cheat is forewarned and is
therefore not cheated.250 A fraudulent representation got made
through a person acting as an agent for the accused amounts to
fraudulent representation by and on behalf of the accused.^si
A person who fraudulently offered a one bank note as a note for

5 ponds and got it changed upon that representation, was held guilty
of obtaining money by false pretence, although the prosecutor might
by the exercise of reasonable caution have detected the imposition.252
The question in every case is, whether, in truth, the false statement
did impose upon the prosecutor or not.253
Secondly, the deception must lead to fraudulent or dishonest

inducement of delivery of property to any person. The respective
meanings of the terms Traudulently'254 and 'dishonestly'255 have been
discussed earlier. Justice Henderson said that the word Traudulently'
being used in the Section together with the word 'dishonestly' must
mean, if it is to have any meaning at all, something different from
dishonestly.256 The words 'fraudulently' and 'dishonestly' do not
govern the whole of the definition of cheating. This Section is divisible
in two parts. It is only in the first part that the requirement of
fraudulent and dishonest deception of the victim is required for the
249 Maria Gilis (1865) 10 Cox 44: K h o n d a Bux v. Bakeya M u n d a r i (1905) 32 Cal.
9 4 1 ; Ram C h a n d v. J a i Dial (1912) 13 PLR 3 4 5 : (1912) 13 Cri LJ 4 5 6 , on
r e m a n d , AIR 1915 Lah. 3 8 1 : (1915) 16 Cri LJ 6 5 7 (Lah.).
250 Mitter (1888) 16 Cal. 3 1 0 .
251 State V. Joti Prasad, AIR 1962 All. 582: (1962) 2 Cri LJ 722 (All.) 1962 All. LJ
639.
252 J e s s o p (1858) 7 Cox 3 9 9 .
253 WooIIey (1850) 4 Cox 193.
254 Supra 4.2.1 (iii).
255 Id., (iv).
256 B a b u r a m Rai (1905) 32 Cal. 7 7 5 , 7 7 9 .
201
purpose of holding the accused liable, under the second part only
intentional inducement is necessary, although the deceiver has not
acted fraudulently or dishonestly.^s^ Evidence must be of fraudulent
or dishonest intention at the time of alleged act of cheating.^ss And
once a person obtains possession of a property by a trick, the offence
of cheating is complete.259
Thus, the loan was obtained from the bank by making

fraudulent representations. Though loan was advanced on the
security of property and there was no loss to the bank, yet as
borrowers made wrongful gain to themselves, they were held guilty of
offence of cheating.260 Inducement caused by making a person believe
that the accused has divine powers, is sufficient for the court to
presume offence under Section 420. It is for the accused, in such a
situation, to rebut the presumption.26i
The act of drawing a cheque for payment of goods purchased

implies at least three statements as to the state of affairs existing at
the time when the cheque is drawn, first, that the drawer has an
account with the bank in question; secondly, that he has authority to
draw on it for the amount shown on the cheque; and thirdly, that the
cheque, as drawn is a valid order for the payment of that amount or
that in the ordinary course of events the cheque, on future
presentation, will be honoured. It does not, however, imply any
representation that the drawer already has money in the bank to the
amount shown in the cheque, for he may either have authority to
overdraw, or have an honest intention of paying in the necessary
257 Mohabat (1889) PR No. 20 of 1889; Mangeram v. Lai Chhatra Mohan Singh
(1950) Nag. 908.
258 Viraswami (1881) 1 Weir 4 7 8 ; Dick GW, AIR 1914 All. 538: (1915) 16 Cri LJ 49
(AH.).
259 Arab, AIR 1942 Sind 167: 204 IC 609: (1942) Kar. 284.
260 state V. Ramadas Naidu 1977 Cri LJ 2048 (Mad.).
261 Bhagwan Samardha Sreepada Vallabhar Venkata Viswanandha Maharaj, AIR
1999 SC 2 332: 1999 CriLJ. 3661 (SC): (1999) 5 SCC 740: 1999 SCC (Cri) 1047.
202
money before the cheque can be presented.262 Thus, issuing cheque
with knowledge of insufficient funds with the bank is no offence of
cheating unless it is proven that the person to whom the cheque was
issued parted with the property of that he did anything which he
would not have done had he known that the cheque would be
dishonoured.263 The dishonouring of a cheque for an antecedent debt
does not amount to cheating.264 A post-dated cheque in payment of
goods already received is a mere promise to pay on a future date and
the fact that the cheque is dishonoured, which amounts only to a
broken promise, is not a criminal offence.^^s However, where
circumstances prove that the accused must have been aware that the
cheque would be dishonoured and the dishonour was not accidental,
he would be liable for offence of cheating. 266 Though under normal
circumstances, issuing a cheque in lieu of money already due, with
the knowledge that the drawer had no funds in the bank does not
amount to an offence, but to only a civil wrong.267 Firstly the burden
is on prosecution, it has to support the allegation of cheating by
incriminating circumstances, mere allegation of dishonor of cheque is
not sufficient.268 Then if the accused's conduct has been doubtful and
his bank account showed that at no stage any attempt was made by
the accused to pay in sufficient amount for encashment of cheques, it
can be presumed that the accused has committed the offence of
cheating. 269
262 Laxmi Narain, AIR 1 9 5 6 S C 5 4 4 : 1 9 5 6 Cr.LJ 9 4 8 (SC); K a n w a r Sain (1938) 19

Lah. 662.
263 Nagarajan v. Jinnah Saheb 1986 Cri LJ 483 (Mad.).
264 E s w a r a Reddy 1 9 8 6 Cri LJ 2 0 7 (AP).
265 See, Chidambaram Chettiar v. Shanmugham Pillai, AIR 1938 Mad. 129: (1938)
39 Cri LJ 261 (Mad.).
266 Kunwar Sen (1932) 8 Luck 286.
267 Ratra R.S. v. G a n e s h D a s s (1939) 41 PL R 8 6 9 : (1940) 41 Cri LJ 3 9 4 (Lah.).
268 Prestolite of India Ltd. v. Munsif M a g i s t r a t e Hawaii 1 9 7 8 Cri LJ 5 3 8 (AIL).
269 B h o l a Nath Arora 1982 Cri LJ 1482 (Del.).
203
The second alternative part of the definition of cheating is
deception intended to induce the person deceived to do or omit to do
something which causes or is likely to cause damage to the person
deceived in body, mind, reputation or property. Thus, under this part,
the requirement is two-fold. Firstly, there must be an act or omission
by the deception, and secondly such act or omission does or is likely
to cause harm to the person deceived in body, mind, reputation or
property.
However, the intention is required only up to the fact of act or

omission, not regarding the harm resulting there from. Thus, it is
sufficient if he intentionally induces the person deceived to do or omit
to do anything which he would not do or omit to do if he were not
deceived and the act or omission causes damage or harm to that
person in body, mind, reputation or property.^70 The intention need
not be fraudulent or dishonest in this part. J u s t 'intentional
inducement' is sufficient. In the latter part of the Section the words
'fraudulently', or 'dishonestly' do not find a place.27i And 'intent' refers
to the dominant motive of action, and not to a casual or merely
possible result.272
The use of words 'causes or is likely to cause' makes the ambit

of this part far reaching in future. It is not necessary that the act
which the person deceived is induced to do should actually cause
harm to him. It is enough that the act which the person deceived had
been induced to perform is likely to cause damage or harm to him.273
'Cause' postulates a direct and proximate causal connection between
270 Nand Lai, (1888) PR No. 3 6 of 1888.

271 Baburam Rai, (1905) 32 Cal. 775, 781; Hridaya Ranjan Prasad Verma, AIR 2000
SC 2341: 2000 Cri LJ 2983 (SC): (2000) 4 SCC 168: 2000 SCC (Cri) 786.)
272 Harendra Nath Das v. Jyotish Chandra Datta, AIR 1925 Cal. 100: (1925) 26 Cri
LJ 445. (1924) 52 Cal. 188.
273 Harish C h a n d r a v. Rex (1949) 50 Cri LJ 31 (All.).
204
the act or omission and the harm and damage to the victim.2^4 This
definition is wide enough to include all damage resulting or likely to
result as a natural consequence of the induced act.275
Likewise, in another aggravated form of cheating committed

with knowledge that the perpetrator thereby is likely to cause wrongful
loss to a person whose interest in the transaction to which he was
bound either by law or by a legal contract, to protect, is punishable
with imprisonment of either description for a term which may extend
to three years or with fine or with both.276 This provision applies to
cases of cheating by a guardian, trustee, solicitor, an agent or
manager of joint Hindu family, directors of companies etc.
When, cheating is coupled with delivery of property or alteration

or destruction of a valuable security or of anything capable of being
converted into a valuable security, the offence is punishable under
Section 420.
Where the accused drew a hundi and borrowed money on it,

without assuring him that the drawer with whom he had no previous
dealings and who was not supplied with funds, would honour the
same. The money so borrowed was splurged and the hundi, when
presented for payment, was dishonoured by the drawee, the accused
did not take any steps to have the hundi honoured or to repay the
amount. He was held guilty of cheating under this Section.2^7
However, the mere fact that the petitioner could not fulfill his promise
to return the money and his cheque has bounced despite his
representation that he has sufficient money in his account, a case
under Section 420 will not succeed, as there was nothing to show that
274 Ramji Lakhamshi v. Harshadrai, AIR 1960 Bom. 268: 1960 Cri LJ 812: (1959)
61 Bom.LR 1648.
275 Per Riochardson J., in Legal Ramembrancer v. Mahmatha Bhushan Chatterjee,
AIR 1924 Cal. 495: (1925) 26 Cri LJ 330 (Cal.): (1923) 51 Cal. 250, 260.
277 Uttamlal Narottamdas, (1920) 23 Bom. LR 340: (1921) 22 Cri LJ 305.
205
the petitioner induced the respondent to pay money by deceiving him
or that he had a dishonest intention at the time of taking money.278
The intention of the drawer at the time of issue of cheque is the
material test and if it appears from the circumstances of the drawer
that he did not expect that the cheque would be encashed in normal
course, it would be prima facie proof of the intention to cheat.279 issue
of a cheque would not imply any representation that the drawer
already had money in the bank to cover the amount shown on the
cheque, for he may have either authority to overdraw or have an
honest intention to pay the money before presentation of the cheque
for encashment. 280 A duly signed receipt of a cheque is neither a
valuable security nor is it capable of being converted into a valuable
security.281 If the dispute is of civil nature, relating to contractual
relationships, remedy cannot be sought by invoking Section 415 or
420 of the Indian Penal Code.282
Being very important part of banking fraud, cheating simplicitor

is a non-cognizable and bailable offence, triable by any magistrate as
a summons case and compoundable by the person cheated when
permission is given by the court before which the prosecution is
pending. Cheating by personation is cognizable offence, bailable and
compoundable when permission is given by the Court before which,
the prosecution is pending, and triable by any magistrate as a warrant
case. While cheating and dishonestly inducing delivery of property
under Section 420 is a cognizable offence, non-bailable.
278 Manoranjan Sinha v. Bishamber Lai, 1976 Cri LJ 1622 (Gau.).

279 Shantilal 1956 Cri LJ 68 (MB). See also Biswanath Agarwalla 1976 Cri LJ 1901
(Cal.); Ramaprasad Chatterjee v. Md. Jakir Kureshi 1987 Cri LJ 1485 (Cal);
Muthu Kumar S. 1995 Cri LJ 350 (Mad.).
280 Mohanti O.K. v. Pratap Kishroe Das 1987 Cri LJ 1446 (Ori.).
281 Sitakant Govind Bhobe v. Joao Xavier Miranda 1977 Cri LJ 531 (Goa).
282 Mubarak Ali Ahmed, AIR 1957 SC 857: 1957 Cri LJ 1346 (SC): (1958) SCR 328;
Vasudeo, AIR 1977 SC 1760: 1977 Cri LJ 1152 (SC): 1977 SCC (Cri) 343; Hira
Lai (1969) 3 SCC 756; Shaikh Alimuddin, AIR 1971 SC 1371: 1971 Cri LJ 1100
(SC); Hari Prasad, AIR 1974 SC 301: 1974 Cri LJ 352 (SC): 1973 SCC (Cri) 1082.
206
compoundable by the person cheated with the permission of the court
before which the prosecution is pending, and triable by Magistrate of
the first class.
Most of the banking frauds are committed through either

negligence or deception. Whenever a banking fraud would be carried
out by deception, provision of offence of cheating would be attracted.
As evident from the above observations that dishonouring of cheque is
likely to get these provisions applied if the fact of fraudulent or
dishonest intention from the beginning is proved; though the burden
is heavy on the prosecution in such cases. Further, in case of
bouncing of cheques, these provisions have to be read keeping in
mind, the Chapter XVII of the Negotiable Instruments Act, 1881, with
special reference to amendments of year 1988 and 2002.
Apart from dishonour of cheques, the other types of banking

frauds are most likely to attract the provisions of cheating, and likely
to invite rigorous punishment under Section 420, as there would be
hardly any case of cheating with respect to banking fraud, without
inducement of delivery of property, or alteration or destruction of
valuable security.
4.2.3 (viii) Fraudulent Deeds and Disposition of Property
The next four Sections of the Indian Penal Code, 1860 namely
Sections 421 to 424 deal with dishonest or fraudulent execution of
deed and disposition of property. These Sections are seen to deal with
criminal treatment of fraudulent conveyances under the Transfer of
Property Act of 1882 and under the Insolvency laws. According to H.S.
Gaur, the effect of these Acts is to declare the nullity of deeds intended
to defraud creditors and to insure a certain degree of commercial
honesty in dealing with one's property. Sections 421 to 424 serve the
same purpose by placing dishonest debtors under the lash of criminal
207
law.283 He further opines that these Sections along with Sections 206-
210 which are closely analogous to these Sections have practically
remained a dead letter in the code owing to the difficulty and expense
of prosecuting dishonest debtors and the disinclination of creditors to
embark upon the uncertain issue of vindicating justice.28'^
Sections 206 to 210 apply in case the procedure of law is

abused in order to defraud the creditors. These Sections cover the
instances of fraudulent removal or concealment of property to prevent
its seizure as forfeited or in execution,285 fraudulent claim to property
to prevent its seizure as forfeited or in execution,2^6 fraudulently
suffering decree for sum not due,^^^ dishonestly making false claim in
court,288 and of fraudulently obtaining decree for sum not due^sQ
Sections 421 to 424 try to cover the other instances of defrauding the
creditor, such as dishonor or fraudulent removal or concealment of
property to prevent distribution among creditors,290 dishonestly or
fraudulently preventing debt being available for creditors,29i dishonest
or fraudulent execution of deed of transfer containing false statement
of consideration,292 and dishonest or fraudulent removal of
concealment of property.293 All these offences under Sections 206 to
210 and from Section 421 to 424 attract the punishment of
imprisonment extendable two years with or without fine.
In relation to the study under hand, all these provisions are

highly relevant as these provisions aim at discouraging a debtor from
283 Hari Singh Gaur, The Penal Law of India, Vol. IV, 4 2 4 5 - 4 2 4 6 (Law Publishers
(India) Pvt. Ltd., Allahabad, 11*^ edn., 2008).
284 Id., at p . 4 2 4 6 .
285 The Indian Penal Code, 1860, Section 2 0 6 .
290 Id., Section 4 2 1 .
292 Id., Section 4 2 3 .
293 Id., Section 4 2 4 .
208
defrauding his creditor. The debtor and creditors include the customer
of banks and the banks respectively. Thus these provisions came
handy when banks intend to hold a fraudulent debtor liable under
penal law as well, and the use of term 'dishonestly' and 'fraudulently'
with each of these provisions hit directly at curbing of banking frauds
as those persons who owe a liquidated money obligation recoverable
by suit294 will be covered under the definition of 'debtor' and would
thus be liable for every fraudulent or dishonest removal, concealment,
release or any other form of disposition of property due to the
creditors including banks.
4.2.4 Offences Relating to Documents and to Property Marks
Under the Indian Penal Code, 1860, offences relating to

documents, trademarks, and property marks were contained in a
separate chapter XVIII, titled of 'Offences Relating to Documents and
to Trade or Property Marks'. With the passage of time, the
nomenclature and contents of this chapter were changed by some
deletion and some addition. In the year 1958, with enactment of Trade
and Mer'chandise Marks Act, 1958 (43 of 1958), provisions relating to
trade marks that is. Section 478 and 480, and the word 'trade' from
the title of the chapter were repealed. In the year 1899, and in 1943,
Section 489A-489D, and Section 489 E was added respectively to
provide protection against forgery of currency-notes and bank-notes;
though the title of the chapter was not amended accordingly.
At present. Chapter XVIII is divided into three sub-heads, the

first sub-head is dealing with 'forgery' generally (Section 463-477A);
the second sub-head is dealing with forgery of property and other
marks' (Section 478-489); and the third subsequently added sub-head
is dealing with currency-notes and bank-notes' (Sections 489A-489E).
^94 See, Supra Note 283 at p. 4247.
209
For the present study, first and third sub-heads are relevant and
thus, will be studied as follows:
4.2.4 (i) Forgery
Forgery for a la5anan or in common parlance would be making a

false document to appear like a genuine one. But for the purpose of
the Indian Penal Code, to constitute the offence of forgery, the
requirement is somewhat greater. Sections 463 to 471 of the Indian
Penal Code, 1860 deal with various provisions dealing with different
dimensions of forgery, making of a false document, and use as
genuine of a forged document or electronic record.
Section 463 defines 'forgery' and Section 464 elaborates on

making of a false document. These two Sections are essentially
explanation of what constitutes the offence of forgery. The Law
Commission of India has recommended camping of this two Sections
and giving a simplified and clearer definition of the offence of
committing forgery.295 Till the time this change is done, these two
Sections are to be read together.
Whoever makes any false document or false electronic record or

part of a document or electronic record, with intent to cause damage
or injury to the public or to any person or to support any claim or
title, or to cause any person to part with property, or to enter into any
express or implied contract, or with intent to commit fraud or that
fraud may be committed, commits forgery.296 This definition was
amended in the year 2000 to encompass forgery of the electronic
records as well.297
Section 463 is to be read with Section 464 of the Indian Penal

Code, 1860. Section 463 declares making of a false document or false
295 Law Commission of India, Forty-Second Report, Chapter XVIII, Para 18.1, p.310.
297 Vide Act 2 1 of 2 0 0 0 , w.e.f. 1 7 . 1 0 . 2 0 0 0 .
210
electronic record with any of certain specified intentions to be fraud.
And Section 464 lays down when a person is said to make a false
document. The ingredients of the offence of forgery as per Section 463
and 464 are the following: (a) Making any false document or false
electronic record or part of a document or electronic record ;(b) Such
making is done dishonestly or fraudulently in one of the three modes
specified in Section 464; (c) Such making is with intent: (1) To cause
damage or injury to (i) the public or (ii) any person; or (2) To support
any claim or title; or (3) To cause any person to part with property; or
(4) To cause any person to enter into any express or implied contract;
or (5) To commit fraud or that fraud may be committed.^^s
(a) Making any false document or false electronic record or

part of a document or electronic record.^^^
Under Section 463 making of a false document or electronic

record amounts to forgery. What is making of a false document or
electronic record is defined by Section 464. The maker of a false
document is guilty of forgery, but if he has caused such Talse
document' to be made, he will be guilty of abetment.^ô Therefore,
mere forging of writing in any cheque belonging to other does not by
itself make it available for being used for the purpose of cheating any
one. The prosecution has to establish that the signatures thereon had
been made by the accused himself.ôi
Further, it is not necessary that the document should be

published or made in the name of a really existing person.302 g u t it is
essential that the false document thus made, must either appear on
298 Goswami S.L., AIR 1979 SC 4 3 7 : 1979 Cri LJ 193 (SC); 1979 SCC (Cri) 3 1 1 ;
Daniel, AIR 1968 Mad. 3 4 9 : 1968 Cri LJ 1282 (Mad.); R a m a Rao, AIR 1969 SC
724: 1969 Cri LJ 1964 (SC).
299 See, Infra, Making of a False Document.
300 Haider Ali P r a d h a n i a (1912) 17 CWN 3 5 4 : (1913) 14 Cri LJ 129.
301 Amar Nath 1971 Cri LJ 1335 (Del.).
302 The Indian Penal Code, 1860, Section 463, Explanation 1.
211
its face to be or be in fact, one which, if true, would possess some
legal validity or legally capable of effecting the fraud intended.303
However, a writing, which is not legal evidence of the matter
expressed, may yet be a 'document' if the parties framing it believed it
to be and intended it to be, evidence of such matter.ô^ For example,
preparing a false deed, though falling short of requirements of a valid
deed, will be a false document for the purpose of this code.ôs
However, assertion of a false claim in a document doesn't make it a
false document.306
1. Such making is done dishonestly or fraudulently in one of the

three modes specified in Section 464;307
2. The making of false document is with intent to cause damage or
injury to (i) the public or (ii) any person;
(b) To Support any Claim or Title; or
Justice Devadoss opined whether a document is a false

document or not, does not depend upon the adjudication of the court
on the claim or title which is intended to be propped u p by the false
document. There is no warrant for saying that in order to constitute
forgery the document must be intended to support a false claim or a
false title. If in order to support a true claim or a genuine title, a false
document is created, it is a forgery.ôs ^ ^ actual intention to convert
an illegal or doubtful claim into an apparently legal one makes an
action dishonest.309
303 J a w a l a R a m , (1895) PR No. 12 of 1 8 9 5 .

304 Sheefait Ally, (1868) 10 WR C(Cr.) 6 1 : 2 Beng.LR.
305 See, Lyon (1813) Russ & Ry 255; Machintosh (1800) 2 Leach 883.
306 Adaikalammai v. Raman, (1908) 32 Mad. 90.
307 See, the explantation on Section 464, infra.
308 Sivananda Mudali, AIR 1926 Mad 1072; (1926) 27 Cri LJ 9 9 4 , 9 9 5 (Mad.); See
also, Dhunum Kazee, (1882) 9 Cal. 53; Krishnarao, AIR 1953 Nag. 165: 1953 Cri
LJ 979 (Nag.).
309 K a l y a n m a l , AIR 1 9 3 7 Nag. 8 9 : (1937) 3 8 Cri LJ 2 3 3 (Nag.): ILR 1 9 3 7 Nag. 4 5 .
212
(c) To cause a person to part with property.
Edje C.J. opined that it is not necessary that the property with
which it is intended that the false document shall cause a person to
part, should be in existence at the time when the false document was
made.310 A written certificate is 'property' within the meaning of this
Section.311
(d) To cause any person to enter into any express or implied

contract.
This clause refers to creating of contractual rights by a false

document.
(e) To commit fraud or that fraud may be committed.
The Bombay Court has held that the term 'fraud' is used in its
ordinary and popular acceptation in this Section.^12 Stephen in his
book 'History of Criminal Law' states, "whenever the word 'fraud' or
'intent to defraud' or 'fraudulently' occur in the definition of a crime
two elements at least are essential to the commission of the crime:
namely first, deceit or an intention to deceive or in some cases mere
secrecy; and secondly, either actual injury or possible injury or an
intent to expose some person either to actual injury or to risk of
possible injury by means of that deceit or secrecy... A practically
conclusive test as to the fraudulent character of a deception for
criminal purposes is this: Did the author of the deceit derive any
advantage from it which he could not have had if the truth had been
known? If so, it is hardly possible that advantage should not have had
an equivalent in loss, or risk of loss to someone else and if so, there
310 Soshi B h u s h a n , (1893) 15 All. 210, 2 1 8 .

311 Ibid.; See also Dalmia RK v. Delhi Administration, AIR 1962 SC 1 8 2 1 : (1962) 2
Cri LJ 8 0 5 (SC): (1963) 1 SCR 2 5 3 .
31^ Balkrishna V a m a n (1913) 15 Bom. LR 708: 37 Bom. 6 6 6 .
213
was fraud."3i3 Courts have made it clear that loss need not necessarily
be of property, it may be infringement of any right of a person.si^
Bannerji, J. opined that where there is an intention to deceive and by
means of deceit to obtain an advantage there is a fraud, and if a
document is fabricated with such intent, it is forgery.îs The
expression 'intent to defraud' is said to involve intent to cause injury.
It involves something more than mere deceiving.îe The Supreme
Court has stated that even in those rare cases, where there is a
benefit or advantage to the deceiver, but no corresponding loss to the
deceived, it still is injury.î^ An intent to defraud may be inferred from
the willful use of a forged instrument to support a genuine claim.^^^
Patna High Court has opined that it is immaterial that the deception
does not succeed, or that if it had succeeded it could not have exposed
the accused to an action for damages.319 Further, it is not required
that the deceiving person must have had present in his mind an
intention to defraud, but there must, at all events, be a possibility of
some person being defrauded by the forgery, ^ô
Justice Maule explained the situation with the help of an

example where a man may have an intent to defraud, and yet there
may not be any person who could be defrauded by his act by stating
that suppose, a friend of a person having a good account at his
bankers, with the knowledge of the account-holder, forges his name to
313 Stephen, History of Criminal Law, Vol. II, 121 as quoted in Supra Note 12 at
pp.2313-2314.
3H Robinson, (1921) 22 Cri LJ 681, 682: 63 IC 617 (Lah); Surendra Nath Ghose,
(1910) 38 Cal. 75; Ahmed Ali, AIR 1926 Cal. 224: (1925) 26 Cri LJ 1574 (Lai);
Ram Chand Gorwala, AIR 1926 Lah. 385: (1926) 27 Cri LJ 1383 (Lah.).
315 Muhammad Saeed Khan (1898) 21 All. 173, 115.
316 Nga Ton Sein, AIR 1935 Ran 2 0 3 : (1935) 3 6 Cri LJ 1025 (Ran).
317 Supra Note 21; See also Bansal G.S. v. Delhi Administration (1963) 2 Cri LJ 439
(SC):, AIR 1963 SC 1577.
318 S a m u e l Hopley, (1915) 11 Cr. App R 2 4 8 .
319 Mahesh Chandra Prasad, AIR 1943 Pat. 227: (1943) 44 Cri LJ 652 (Pat.).
320 Marcus, (1846) 2 C & K 356; Trenfield (1858) 1 F & F43; Mazagora (1815) Russ
&Ry291.
214
a cheque either to try his credit or to imitate his handwriting, there
would be no intent to defraud, though there would be parties who
might be defrauded; but where a person though not having an
account at his bankers, but supposing that he has, and on that
supposition forges his name, there would be an intent to defraud in
that case, although no person could be defrauded.^21 A case, where a
person's name is put on a bill of exchange without his prior authority,
still he is informed of it at the time and he does not repudiate it, it is
not forgery. 322 But, if a person put the name of another person as
acceptor without latter's authority, with the expectation that he
himself would be able to meet it when due, or the person whose name
is forged, would overlook it, this is forgery.323 Likewise, putting an
amount larger than the sum authorised with intent to defraud either
the acceptor or any other person, is forgery.324 Even, the fact of
guarantee to a bank of an amount greater than the amount forged,325
paying of bill by the accused after a forged act,326 would be of no help
in negating the charge of forgery.
Making a False Document
The second essential of the offence of forgery is 'making a false

document'. As to what constitutes making a false document is
explained by Section 464 of the Indian Penal Code, 1860. Section 464
was substituted for by the Information Technology Act, 2000 to cover
electronic record and digital signature under protection of law on
making of false document though without altering the title of the
321 Nash, (1852) 2 Den CR C 4 9 3 , 4 9 9 : 21 U (MC) NS 147. See also, Parish (1837) 8
C 85 P 94; Crowther (1832) 5 C&P 3 1 6 .
322 Smith, (1862) 3 F&F 5 0 4 .
323 Forbes, (1835) 7 C & P 2 2 4 .
324 Hart, (1836) 7 C & P 6 5 2 : (1836) 7 C & P 6 5 2 : (1837) 1 Mood 486; The Indian
Penal Code, 1860, Section 4 6 4 , Illustration (d).
325 J a m e s , (1836) 7 C & P 5 5 3 .
326 Geach, (1840) 9 C & P 4 9 9 .
215
Section.327 Generally, one says that a document is falsely made, if the
signature, date or seal is false. Section 464, however provides a wider
definition to cover cases of dishonest or fraudulent alteration within
its ambit, rendering not only actual making, but also altering of a
genuine/ document, electronic record liable to be punished as 'making
a false document'. Section 464 provides for three modes of making a
false document. These three modes of making a false document can be
elaborated as follows:
1) Dishonest or fraudulent making, signing, sealing or execution of

a document or electronic record etc.
The making of a document untrue in certain particulars for the

mere purpose of deceiving, does not amount to making a false
document. It must be shown that it was made with such an intention
as is implied in the term 'fraudulently' or in the term 'dishonestly'. 328
The mere making of a false statement in a document will not amount
to forgery.329 Mere ante dating, without element of fraud or dishonesty
327 The Indian Penal Code, 1860, Section 464. Making of false document - A person
is said to make a false document or false electronic record -
First - Who dishonesty or fraudulently -
(a) Makes, signs, seals or executes a document or part of a document;
(b) Makes or transmits any electronic record or part of any electronic record.
(c) Affixes any digital signature on any electronic record.
(d) Makes any mark denoting the execution of a document or the authentication
of the digital signature, with the intention of causing it to be believed that such
document or a part of document, electronic record or digital signature was made,
signed, sealed, executed, transmitted, or affixed by or by the authority of a
person by whom or by whose authority he knows that it was not made, signed,
sealed, executed, or affixed; or Secondly - Who without lawful authority,
dishonestly or fraudulently, by cancellation or otherwise, alters a document or
an electronic record in any material part thereof, after it has been made executed
or affixed with digital signature either by himself or by any other person,
whether such person be living or dead at the time of such alteration; or Thirdly -
Who dishonestly or fraudulently cause any person to sign, seal, execute or alter
a document or an electronic record or to affix his digital signature on any
electronic record knowing that such person by reason of unsoundness of mind
or intoxication cannot, or that by reason of deception practiced upon him, he
does not know the contents of the document or electronic record or the nature of
alteration.
328 Gudappa, (1879) 1 Weir 542.
329 Moti S i n g h , AIR 1961 G u j . 117: (1961) 2 CriLJ 7 6 (Guj.).
216
has been held not to be 'making a false document' under Section
454 330 It has been held that mere alteration of the bill by itself was
not sufficient to constitute the offence of forgery. It must further be
proved that the alteration was made dishonestly or fraudulently.33i
Signing or sealing a document completes its execution. Putting

a seal to a genuine signature to a document which is invalid without a
seal is a forgery.332 This offence may be complete though no use
whatever has been made or attempted to be made of the document.333
At common law, forgery must consist of some writing or document,
thus putting of a painter's name on a copy of his painting would not
amount to forgery at common law, though attempted to be passed off
as original, it may amount to cheating.^^^ However, under the code, it
would amount to forgery. With the amendment through the
Information Technology Act of 2000, the ambit of forgery has been
extended to dishonest or fraudulent making or transmission of any
electronic record or part of it or, affixation of any digital signature on
any electronic record or making any mark denoting the execution of a
document or the authenticity of the digital signature.
The latter part of the definition requires that aforementioned

fraudulently or dishonestly done acts must be performed with the
intention of causing it to be believed that such document or part of
document, electronic record or digital signature was made, signed,
sealed, executed, transmitted or affixed by or by the authority of a
person whom or by whose authority he knows that it was not made,
signed, sealed, executed or affixed. Thus, this Section applies to the
330 S u d e r s a n Behara, AIR 1927 Pat. 87: (1926) 27 Cri LJ 1263 (Pat.); State v. Joti
Prasad, AIR 1962 All. 582; (1962) 2 Cri LJ 722 (AIL): 1962A11. LJ 6 3 9 ; C a n t r a
See also, Shiv B a h a d u r Singh, AIR 1954 SC 3 2 2 : 1954 Cri LJ 9 1 0 (SC).
331 Hiralal, (1955) S a u LR 2 2 6 .
332 Collins, (1844) 1 Cox 5 7 .
333 M a d . H C P r o .
334 Class (1857) 7 Cox 4 9 4 .
217
unauthorised acts of a person. Therefore, false entries by an authority
would not amount to forgery, but it would be forgery if advancement
was forged by some unauthorized person with a view to make it
appear that it was duly issued by a public officer.^ss A document
purporting to have been executed on a date other than the one on
which it was actually executed, is a forgery.336 Antedating a document
to save an appeal constitutes forgery.337 it is forgery to make a deed
fraudulently with a false date when the date is a material part of the
deed.338
When a person made alteration in the date on a cheque in

presence of shopkeeper as though he was the drawer but made no
representation about the actual drawer, his brother who had an
account at the bank with which the cheque was created, the Calcutta
High Court on appeal reversing the order of the lower court held that
the cheque in question was not a false document, and the accused
was guilty of cheating, but not of forgery. 339
However, with respect to entries in accounts, the charge of

forgery has different regard. Making false entries in a ledger which
consisted of rough loose sheet, has been held to be forgery, on the
part of the maker.340 But a beat constable writing signature of a
headman whose village he had not visited,3^1 a supervisor making
entries of payment in muster-rolls in excess of the actual payments,342
335 Brahmayya, AIR 1958 AP 9 1 7 ; See also P r a s r a m , AIR 1965 Raj. 9: (1965) 1 Cri
LJ 2 1 3 (Raj.).
336 Rangaswami Chettyar v. M a u n g Po Ku (1927) 6 Ran. 4 9 .
337 Sookmay Ghose (1868) 10 WR (Cr.) 2 3 ; Taylor (1843) 1 C8sK 2 1 3 9 , Harjee Mull v.
I m a n Ali Sircar (1903) 8 CWN 2 7 8 : (1900) 1 Cri LJ 124 (FB).
338 Rilson, (1869) LR IC CR 2 0 0 .
339 Martindate, AIR 1925 Cal. 14: 26 Cri LJ 4 0 1 : (1924) 52 Cal. 3 4 7 .
^^ (1865) 1 Mad. J u r II: 1 Ind J u r NS 4 6 .
341 Nga Aungh Ba, (1899) 1 UBR (1897-1901) 3 5 6 .
342 Ram G h u l a m Singh, AIR 1929 All. 3 9 6 : (1929) 30 Cri LJ 4 0 8 (All.).
218
accused making wrong entry in a language unknown to the debtor,343
accused adding a clause subsequent to the signing of the debtor in the
account book,^^^ have been held not to be making a false document,
though it may have amounted to attempt to cheat at times.
With respect to unauthorised signature, unless there is a

fraudulent or dishonest intention, it has been held not to be making a
false document. 345 However, a person falsely putting his name down
as an attesting witness to the signature of somebody who he knew has
never signed at all, he is guilty of forgery just as well as the scribe.3^6
2) Dishonest or fraudulent cancellation or otherwise alteration of a

document or an electronic record in any material part thereof,
without lawful authority, after it has been made or executed by
a person who may be living or dead.
The second clause of Section 464 deals with subsequent

dishonest or fraudulent cancellation or alteration of a document or an
electronic record without lawful authority of the maker thereof.
However, the alteration must be in a material part of the document.
Thus, the interpolation of the name of a person as an attesting
witness to a document not required by law to be attested, subsequent
to its execution and registration is not an alteration of the document
in a material part.3^7 Alteration of date in a bond, even though the
alteration was not required to bring the claim within limitation,3'*^
alteration in dates of certified copy of a decree in order to bring it
within the time for execution on the erroneous impression that the
3« Kunju Nayar, (1888) 12 Mad. 114; Balwant, (1892) Cr.R No. 15 of 1892; Unrep
Cr. C 595; Jawala Ram, (1895) PR No. 12 of 1895.
344 Barolan Singh, AIR 1923 Lah. 11 (L): 2 5 Cri LJ 3 3 7 : (1922) 3 Lah. 3 7 3 .
345 Poshin, (1906) 4 LBR 4 5 : (1905) 6 Cri LJ 2 8 3 ; See also R a m S a r u p , AIR 1918
Pat. 6 4 0 : (1918) 19 Cri LJ (Pat.); Adaikalammai v. R a m a n , (1908) 32 Mad. 9 0 .
346 Ambar Ali, AIR 1929 Cal. 5 3 9 : (1930) 31 Cri LJ 5 6 4 (Cal.). Contra See,
Motisingh, AIR 1961 Guj. 117: (1961) 2 Cri LJ 76 (Guj.).
347 Surendra Nath Ghose, (1910) 38 Cal. 75.
348 R a m N a r a i n , (1881) PR No. 14 of 1 8 8 1 .
219
decree was time barred,349 tampering with a document to support a
just claim in court and to counteract a fraud perpetrated by the
opposite party,350 all these acts were held to be forgery. Likewise,
without evidence of fraudulent or dishonest intention, alteration of
date in a document to get it registered within time prescribed was held
not to be forgery.^si On similar lines, a promissory note which
expressed no time for payment and in the possession of the payee,
words 'on demand' were added without the assent of the maker. In an
action, it was held that as the alteration only expressed the effect of
the note as it originally stood, and was therefore immaterial, it did not
affect the validity of the instrument.352
Thus, it can be said that it is only the alterations made

dishonestly or fraudulently, attract this provision, not just any
alteration.
3) Dishonestly or fraudulently causing any person to sign, seal,

execute or alter a document or an electronic record or affix his
digital signature on any electronic record knowing that such
person could not by reason of (a) unsoundness of mind, (b)
intoxication or (c) deception know the contents of the document
or the nature of the alteration.
The third clause covers fraudulent or dishonest causing of

execution of document or electronic record under three specified
states of mind, and none other. Thus, when the accused had obtained
a genuine signature upon a false document, by inserting the
document in a heap of papers placed for signature before the person
signing it, it was held not to be forgery, as there was no deception
3« Gobida Mai, (1895) PR No. 6 of 1895.

350 Baiji Nath Bhagat, AIR 1940 Pat. 456: (1940) 41 Cri LJ 427 (Pat.).
351 Mir Ekrar All, (1880) 6 Cal. 482.
352 Aldous V. Comwell, (1868) LR 3QB 5 7 3 .
220
practiced on the person signing it to prevent him from knowing the
nature of the document.^ss
With respect to document made to conceal previous dishonest

or fraudulent or negligent act, opinions of various High Courts are
available. The Calcutta High Court held that if the intention is to
conceal a fraudulent or dishonest act which has been previously
committed, it cannot be other than to commit fraud; and if the
intention is to commit fraud, the making of a false document with that
intention will come within the definition of forgery.354 it has also been
held that the making of false entries in a book or register by any
person in order to conceal a previous fraudulent or dishonest act falls
within the purview of Section 477A in as long as the intention is to
defraud.355 However in a subsequent case, Calcutta High Court held
that the alteration of accounts to show receipt of a sum of money
criminally misappropriated and in order to remove evidence of
misappropriation was not an offence either under Section 465 or 477A
as the entry in this case showed that the accused was liable and it
was a statement of the true position of affairs.^56
The Madras High Court also opined similarly that a debtor who
forges a release to screen himself from liability to pay the debt is guilty
of forgery, because he intended by the forgery to cover a dishonest
purpose.357 Likewise, Bombay High Court also held an accused guilty
of forgery who had forged certain challans showing payment of sums
to government treasury to prevent persons already defrauded from
ascertaining this fraud practiced on them, and thus to secure the
353 Nujeebutoolah, (1868) 9 WR (Cr.) 20; See also, D w a r k a n a t h Ghose (1868) 9 WR

(Cr.) 2 0 .
354 Lalit Mohan S a r k a r v. Queen, (1894) 22 Cal. 3 1 3 , 3 2 1 ; D a s WC (1909) UBR PC
29: (1910) 11 CriLJ 185.
355 Rash Behari Das (1908) 35 Cal. 450, dissenting from Jiwanand (1882) 5 All.
221; GirdharilaJ (1886) 8 All. 653 and Abdul Hamid (1886) 13 Cal. 349, 351.
356 Jyotish Chandra Mukerjee (1909) 36 Cal. 955.
357 Sabapati (1888) 11 Mad. 411.
221
culprit who practiced the fraud in the illicit gains which he secured by
the fraud. It was held that the offence of forgery was complete
although it was effected to conceal a fraudulent or dishonest act
previously committed.358 However, falsification of a record made in
order to conceal a previous act of negligence, not amounting to fraud,
does not amount to forgery.359 Allahabad High Court has held that the
concealment of an already committed fraud is a fraud.3ô The
Supreme Court has also approved of the opinion of the Allahabad
High Court.361
The entire banking business is done through documents or

electronic record. The deposit, withdrawal, borrowing etc. all is done
through receipts or other kinds of documents. Thus, whenever, there
is a fraudulent or dishonest making or otherwise any way dealing with
banking transactions, it would most likely attract offence of forgery.
The Indian Penal Code, 1860 has recognised forgery of valuable
security etc. as an aggravated form of forgery under Section 467, and
made it punishable with imprisonment for life, or u p to ten years and
fine. This provision will be particularly applicable in case of banking
frauds.
Further, as it appears from the earlier discussion on the

opinions of various High Courts and endorsement of Allahabad High
Court's opinion by the Supreme Court, when banks try to
falsify/fabricate accounts to conceal a banking fraud already
committed, it would be covered by the provision of forgery under
358 Supra Note 312.

359 Shankar (1880) 4 Bom. 657.
360 Emperor v. Ragho Ram (1933) 55 All. 783; Shuka-al-din Ahmad, AIR 1922 All.
435: (1922) 23 Cri LJ 610 (All.); Dissented from Jiwanand (1882) 5 All. 221 and
Girdhari Lai (1886) 8 All. 653.
361 Dalmia R.K. v. Delhi Administration, AIR 1962 SC 1821: (1962) 2 Cri LJ 805
(SC): (1963) 1 SCR 253.
222
Indian Penal Code; though such fabrication in cases of negligence may
not be punishable as forgery.
4.2.4 (ii) Forgery of Currency Notes and Bank Notes
Sections 489A to 489E of the Indian Penal Code deal with the
offences relating to currency notes and bank-notes. Sections 489A to
489D were inserted in the Indian Penal Code in the year 1899 by
Currency Notes Forgery Act 12 of 1899 and Section 489E was inserted
by Act 6 of 1943.
These Sections were inserted with an object to provide

protection to currency notes and bank-notes against forgery. Each
Section can be elaborated as under:
(a) Counterfeiting Currency Notes or Bank Notes
Section 489A provides punishment for counterfeiting currency

notes or bank notes. This offence is punishable with imprisonment for
life or with imprisonment of either description for a term up to ten
years and fine. The explanation attached to the Section, makes it clear
that expression iDank note' means promissory note or engagement for
the payment of money to bearer on demand issued by any person
carrying on the business of banking in any part of world or issued by
or under the authority of any state or sovereign power, and intended
to be used as equivalent to, or as a substitute for money.362 The Law
Commission of India has recommended to include traveller's cheque
too in the expression "bank-note" and to insert another explanation to
expressly include a foreign currency note in the expression "currency
note".363 The Supreme Court has interpreted the term "any currency
note" as all currency notes issued in India as also in foreign
362 The Indian Penal Code, 1860, Section 489A, Explanation.

363 It is worthwhile to mention here that the Baking Regulation Act, 1949, Part II,
Section 6(l)(a) also acknowledges dealing in travelers' cheques as one of the
forms of business in which a banking company may engage.
223
countries.364 This Section is similar to Sections 231 and 235 of the
Code dealing with counterfeiting of coins.
(b) Using as genuine, forged or counterfeit currency notes or

bank-notes .
The object of this Section is to stop circulation of forged notes

by punishing all persons, who, knowing or having reason to believe
them to be forged, do any act that would lead to their circulation.
Selling or buying^ or receiving or otherwise trafficking in or using as
genuine, any forged or counterfeit currency note or bank-note, with
such knowledge or reason to believe is punishable with imprisonment
for life or with imprisonment of any description for a term up to ten
years and fine.
(c) Possession^^^ of forged or counterfeit currency notes or

bank-notes.
Possession of a forged or counterfeit currency note or bank note,

knowing or while having reason to believe the same to be forged and
intending to use it as genuine, makes a person liable to imprisonment
of either description up to a term of seven years or fine or both under
Section 489 C.
Possession coupled with a specific state of mind, of knowledge

or reason to believe is required for the purpose of this Section. The
state of mind is gathered from the circumstances. Thus, where thirty-
eight counterfeit currency notes were found in the possession of the
accused, it was held that the only reasonable presumption that could
be drawn was that the accused was in possession of those notes with
364 s t a t e V. Mathai Verghese, AIR 1987 SC 33: 1987 Cri LJ 3 0 8 (SC): 1987 SCC (Cri)
3; Mahommed Yusuff, 1986, Cri U 2011 (Mad.).
365 See, The Indian Penal Code, 1860, Section 27.
224
the intention of using them as genuine.3^6 But where at the time of
recovery of forged notes, the accused was sitting in the verandah of
his house by himself, it was held that it could not conclusively be
inferred that, while possessed of the forged notes, he also intended to
use them as genuine.^67 Likewise when a possibility existed that the
accused was in possession of forged notes for the purpose of
conversion of notes with the Reserve Bank, he could not be convicted
under this Section.^ss Where, concealed dollar bills were recovered
from in between the refill and outer cover of a flask, in the absence of
any explanation by the accused, the presumption that the accused
had reason to believe that the dollar bills were counterfeit and also
had intention to use them as genuine, was taken.^^^ When, the
accused, a shop owner gave the victim in need of change for rupees
ten note, currency which included a counterfeit two rupee note, and
on investigation by police, he produced thirteen such notes from his
pocket and one note from a shaving box, he was held guilty of offence
under Sections 489B and 489C.370 But where the accused is not
found in exclusive possession of forged or counterfeit notes, it was
held that the offence was not proved.371 Punjab and Haryana High
Court highlighted the principle that mere possession of forged or
counterfeit notes is not an offence under the Penal Code.372
366 Public Prosecutor v. R o n t h u l a Kondal Rao, AIR 1939 Mad. 9 6 : (1939) 4 0 Cri LJ
4 5 8 (Mad.); Basi Reddy 1972 Cri LJ 1141 (Mys.).
367 Ragho S a r a n , AIR 1961 Pat. 4 0 5 : (1961) Cri LJ 36 (Pat.); Basi Reddy 1972 Cri LJ
1141 (Mys.).
368 B a c h a n Singh 1982 Cri LJ 32 (P&H).
369 Md. Yusuff 1986 Cri LJ 2 9 1 1 (Mad.).
370 s t a t e V. R a m d a s KS, 1976 Cri LJ 2 2 8 (Kam.).
371 Ibid.
37^ Supra Note 3 6 8 .
225
(d) Making or Possessing Instruments or Materials for Forging
or Counterfeiting Currency notes or bank notes.
A person who makes or performs any part of the process of

making, or buys or sells or disposes of, or has in his possession, any
machinery, instrument or material for the purpose of being used, or
knowing or having reason to believe that it is intended to be used, for
forging or counterfeiting any currency-note or bank-note, is
punishable with imprisonment for life, or imprisonment of either
description u p to a term of ten years an fine under Section 489D.
(e) Making or Using Documents Resembling Currency notes or

bank-notes.
This Section was added by the Indian Penal Code (Amendment)

Act (VI of 1943). Sub-section (1) of Section 489E makes use of any
document resembling a currency-note or a bank-note punishable with
times up to 100 rupees. Sub-section (2) deals with the situation where
the name of the accused appears on a document referred to in Sub-
section (1) and the accused refuses to disclose the name of the person
by whom it was made and makes him liable for fine up to Rs. 200.
Sub-section (3) deals with the cases where a presumption is drawn
against a person whose name appears on a document which is the
subject matter of the offence.
This Section was inserted to fill an existing lacuna of law,

whereby illiterate and ignorant masses were being deceived by
reproduction of currency notes and bank-notes.
With introduction of bank-notes and currency-notes, resulting

from invention of paper, a new form of money/currency was devised.
This new and presently most widely used form of money is more
susceptible of forgery. Keeping this in mind, special provisions dealing
with currency-notes and bank notes were introduced in the year 1899
and 1943 in the Indian Penal Code of 1860.
226
Since 19* Century, till 21^* Century, it is evident that
counterfeiting or forgery of bank-notes and currency-notes has been
and still is a grave problem. Thus, the researcher is of the opinion that
Section 489E needs updating with time and at present the prescribed
fine of Rs. 100 and 200 fail to serve the intended purpose.
The Law Commission of India suggested addition of Section

489F to provide for punishment for preparation for committing
offences under Section 489A to Section 489E. The recommended
punishment is imprisonment for a term which may extend to one-half
of the imprisonment provided for that offence, or fine or both. This
recommendation, if implemented, can help curb the menace of forgery
or counterfeiting of bank-notes and currency notes at the initial stage.
The observations made so far reveal that the Indian Penal Code
of 1860 is attracted in cases of banking frauds due to the reason that
the ambit of its general provisions is so wide that it covers each and
every possible criminal wrong including banking fraud. Otherwise,
this study reveals that this legislation of 19*^^ Century does not
recognize banking fraud as an independent offence even in the 21^*
Century.

BANKING FRAUDS UNDER THE INDIAN CONTRACT ACT,
1872
The banking Business is essentially contractual in nature and

in governed by the provision of Indian Contract Act. The relationship
between civil liability under the Contractual Law and the problem
banking frauds has been proved numerous times. Thus, study of the
provision of Indian Contract Act 1872 and problem of banking frauds
has been taken up together to explain the impact of general
contractual law on the curtailment or cure of the civil wrong of
banking fraud.
227
In the realm of private laws, no other law can claim to have
such a pervasive effect on the individuals of the society, as the law of
contract. Sir Federick Pollock says:
"The Law of Contracts may be described as the

endeavour of public authority.... To establish a positive
sanction for the expectation of good faith which has
grown up in the mutual dealings of men.''373
Sir William Anson says:
"The Law of Contracts is intended to ensure that what

a man has been promised to him shall be
performed.''374
Every 'banking fraud' committed definitely violates the
customer-banker relationship in one of its various manifestations,
such as debtor and creditor, trusteeship, agency, bailment or as an
account-holder. All these forms of relationship emerge from the
formation of contract between the customer and the banker. Hence, it
is pertinent to elaborate on the nature and essentials of a contract
under the Indian Contract Act, 1872.
4.3.1 The Problem of Banking Frauds and Indian Contract Act,

1872
Truly speaking, in the realm of law of contract, various other

basic principles of law come into play. Whatever be the nature of the
contract, simple contract or a contract containing complex provisions,
the basic fact is that it should conform to the basic requirements of
the elements of contract as laid down in the Indian Contract Act.
Retrospectively before the British rule, Indian society had

developed its system of governing voluntarily created social obligations
amongst themselves. This system consisted of religions dicta of
373 Quoted by V. K r i s h n a m c h a r i et al, (Rev. a n d Enlarged), T.S. Venkatesa Iyer's The

Law of Contracts & Tenders, Vol. 1, 3 {S. Gogia & Company, Hyderabad, 6'^ edn.,
1994).
374 Ibid., p . 3 .
228
Hindus and Muslims, and other religious bodies, and customary
practices. Like many other laws of that time, the law of contract also
lacked uniformity, though this lack of uniformity affected the British
only. Thus, the British brought into force the Indian Contract Act,
1872 to define and amend certain parts of the law relating to
contracts. 375
The formulation contract can be reached by the process of offer

and acceptance. It has been held that every transaction, to be
recognized as a contract, must in its ultimate analysis, rescue it self
into a proposal and its absolute and unqualified acceptance. When
one person signifies to another his willingness to do or to abstain from
doing anything, with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal.376 The term
'proposal' under Indian law has been used in the same sense as 'offer'
under the English Law.377 The definition of 'proposal' under Indian
Contract Act emphasises on the 'signifying' of the willingness.
'Signifying' here means 'communicating' the offer to the other party.
Section 3 of the Indian Contract Act, 1872 defines the modes of
communication.378 Thus, the offer and acceptance can be spelt out
from the conduct of the parties which covers not only their acts but
also omissions.379 Further, implied offer and acceptance has been
3^5 The Indian Contract Act, 1872, The Preamble.

376 Id., Section 2(a).
377 R.G. P a d i a (ed.). Pollock 85 MuUa, Indian Contract and Specific Relief Act, Voll 4 5
(Lexis Nexis Butterworths Wadhwa, Nagpur \3^ edn., 2009).
378 The Indian Contract Act, 1872, Section 3. Communication on acceptance and
revocation of proposals - The communication of proposals, the acceptance of
proposals, and the revocation of proposals and acceptance, respectively, are
deemed to be made by any act or omission of the party proposing, accepting or
revoking by which he intends to communicate such proposal, acceptance or
revocation, or which has the effect of communicating it.
379 Coffee B o a r d v. C o m m r . Of C o m m e r c i a l T a x e s , (1989) 3 S C C 2 6 3 : AIR 1 9 8 8 S C
1487: (1988) 70 STC 162.
229
recognized by Section 9.380 ^^he communication of a proposal is
complete when it comes to the knowledge of the person to whom it is
made.381
Another important point for consideration with respect to

proposal is the distinction between proposal and invitation to
proposal/treat. So long a s one of the parties to the transaction could
back out of it at his choice, there can be no binding or concluded
contract between the parties, although they have an agreement on the
material terms.3^2 An express statement that a declaration is not an
offer, is held effective to prevent it from being a n offer,383 but, the mere
use of the words 'offer' or 'invitation' doesn't make the statement a
proposal. As it has been held that a statement may be an invitation to
treat even if it contains the word 'offer'.384 However, it may still be a
proposal even if it invites the addressee to make an offer,385 or even if
it is expressed as an 'acceptance'.386 A notice communicating to its
constituents the decision of the bank to raise the rate of interest from
a certain date was not an express proposal within the meaning of
Section 2(a), but it nevertheless gave the terms on which the
constituents could propose to keep alive their overdraft account with
the bank or to take further advances from the bank.387 f h e Privy
Council explained the distinction in Harvey v. Facei/,388 which was
allowed by Indian Supreme Court in Mcpherson v. Appama,^^^ A
380 The Indian Contract Act, 1872, Section 9, Promises, express or implied - In so
far as the proposal or acceptance of any promise is made in words, the promise
is said to be express. In so far as such proposal or acceptance is made otherwise
than in words, the promise is said to be implied.
381 The Indian Contract Act, 1872, Section 4.
382 Baijnath v. Kshetrahari Sarkar, AIR 1955 Cal. 210.
383 Financings Ltd. v. Stimson (1962) 3 All ER 386 (CA).
384 Clifton V. Palumbo (1944) 2 All ER 4 9 7 .
385 Harvela I n v e s t m e n t s Ltd. v. Royal T r u s t of C a n a d a (CI) Ltd. (1985) 2 All ER 9 6 6 .
386 Bigg V. Boyd Gibbins Ltd. (1971) 2 All ER 183.
387 Hulas Kunwar v. Allahabad Bank Ltd., AIR 1958 Cal. 644.
388 (1893) AC 552.
389 AIR 1951 SC 184: 19 51 SCR 161.
230
bank sending forms to a person at his request for depositing money
does not thereby make an offer neither is a banker's catalogue of
charges, an offer. 390 An informal talk between an Honorary Secretary
of bank and another person enquiring whether the person would
purchase land belonging to the bank on certain conditions, followed
by an assurance from the person, and a report by the Secretary to the
bank about the assurance, was held to be merely an inquiry and an
assurance, and neither an offer nor a contract.^î Pollock and Mulla
(13* edn.) opine that the test lies in the intention of the maker. The
statement is an offer if the person making the statement shows the
intention to be bound immediately on acceptance.^92
Thus, when the person to whom the proposal is made signifies

his assent thereto, the proposal is said to be accepted. A proposal,
when accepted becomes a promise.3^3 An acceptance may be
communicated by an act or omission of the party accepting, by which
he intends to communicate such acceptance or which has the effect of
communicating it.3^4 This communication is complete as against the
proposer when it is put into a ^course of transmission to him so as to
be out of the power of the acceptor, and as against the acceptor, when
it comes to the knowledge of the proposer.395 An acceptance may be
revoked at any time before the communication of the acceptance is
complete as against the acceptor, but not afterwards.^96 Such
revocation can be made in four specified ways.397 The acceptance
must be absolute and unconditional, and must be expressed in some
usual and reasonable manner or in a manner, prescribed by the
390 State Aided Bank of Travancore Ltd. v. Dhrit Ram, AIR 1942 PCS.
391 Central Bank v. V y a n k a t e s h Bapuji, AIR 1949 Nag 2 8 6 .
392 Supra Note 377, a t p . 5 1 .
393 The Indian Contract Act, 1872, Section 2 (b).
394 Id., Section 3.
395 Id., Section 4.
396 Id., Section 5.
39V Id., Section 6.
231
proposal.398 Acceptance can be implied through performance of the
conditions of a proposal or through acceptance of any consideration
for a reciprocal promise which may be offered with a proposal.399 The
acceptance may be express or implied."ôo
Upon acceptance, the proposal becomes a 'promise'. A promise

under Section 2(b) is different from agreement under Section 2(e). An
agreement enforceable by law is a contract.'ôi The conditions required
for an agreement being enforceable by law are contained in Chapter II
of the Indian Contract Act, 1872. Section 10 of the Indian Contract
Act states what agreements are contracts."ô^ An agreement which is
enforceable by law at the option of one or more of the parties thereto,
but not at the option of the other or others is a voidable contact.'ô^
Thus, as a matter of fact, the banking institution invites customers to
offer themselves to open the account in Banking Institution. On the
fulfillment of prerequisite requirements it's the bank who accepts the
offer of the customer and a person becomes the customer of the
banking institution. After formulation of this contractual obligation
both of them carry on banking business as prescribed under Section 6
of Banking Regulation Act, 1949. Once the relationship is established,
it lays down the foundation of numerous banking activities through
negotiations.
A contract which ceases to be enforceable by law becomes void

when it ceases to be enforceable.^04 A contract becomes voidable at
two stages under the Indian law, at the time of inception by reason of
398 Id., Section 7.

399 Id., Section 8.
^00 Id., Section 9.
401 Id., Section 2(h).
"ô^ Id., Section 10. What agreements are contracts - All agreements are contracts if
they are made by the free consent of parties competent to contract for 9 lawful
consideration and with a lawful object, and are not hereby expressly declared to
be void.
-"Ja Id., Section 2(i).
"04 Id., Section 2 (j)-
232
coercion,405 fraud,406 misrepresentation,'ô'7 undue influence;'*^^ and
then at the later stage by subsequent default of any party such as
refusal to perform promise whollyj'ô^ impossibility created by act of a
partyîo or failure to perform at the fixed time, when time is of
essence.'îi A contract which becomes void is a valid contract at its
inception, but is rendered void by some later event such as, when the
event on which its enforcement is contingent becomes impossible;"^ 12
or when enforcement of a contract is contingent on happening of
specified event within fixed time, the specified event does not happen
before the time fixed, or becomes impossible within that time;'^^^ or
when an act promised becomes impossible or unlawful by reason of
some event which the promisor could not prevent."*i"* A contract
becomes void, when it is rescinded by the party at whose option it is
voidable.'* 15 ^ny person who has received any advantage under any
void agreement or a contract that becomes void, is bound to restore
the advantage so received, it or to make compensation for it to the
person from when he had received it."**^
Essentials of a Valid Contract under Indian Law
Even in banking transaction, some rules plays important rule.

Section 10 enumerates essential requirements of contract like.
Competent Parties (Section 11, 12); Free Consent (Section 13, 14-22);
Lawful Objects and Consideration (Section 2(d) 23, 24, 25); Agreement
not hereby expressly declared to be void (Section 23-30).
405 Id., Section 19, 15.

"we Id., Section 17.
'^07 Id., Section 18.
410 Id., Section 5 3 .
415 S a t g u r u P r a s a d v. Har Narain Das, AIR 1932 PC 89.
416 The Indian Contract Act, 1872, Section 6 5 .
233
The second part of Section 10 declares that nothing herein
contained shall affect any law in force in India and not hereby
expressly repealed, by which any contract is requested to be made in
writing, or in the presence of witnesses or any law relating to the
registration of documents.
4.3.1 (i) Competence of Parties
As already explained, a contractual relationship is brought into

existence between two or more parties. No person can enter into a
contract with himself.'*^'' These two parties may be natural or legal
persons, such as companies, universities, statutory bodies, Banks or
even the state itself. However, what is required irrespective of the
personality of the persons entering into a contract is that they must
be competent to contract. Section 1 l^î^ explains who are competent to
contract.
(a) A Person of Age of Majority
The Indian Majority Act, 1875 declares that every person

domiciled in India shall be deemed to have attained his age of majority
when he shall have completed the age of 18 years and not before.'î^
But, in case of a minor for the case of whose person or property or
both, a guardian has been appointed under the Guardian and Wards
Act, 1890, the age of majority is extended u p to completion of 21
years.
"^'^ An exception is found in the Transfer of Property Law, which permits a person to
transfer property to himself. See, The Transfer of Property Act, 1882, Section 5.
In this Section, the words 'to himself were added to this Section by the
Amendment Act of 1929 to person makes any settlement of his properly in a
trust and appoints himself as the sole trustee.
'^^^ The Indian Contract Act, 1872, Section 11. Who are competent to contract -
Every person is competent to contract who is of age of majority according to the
law to which he is subject, and who is of sound mind and is not disqualified
from contracting by any law to which he is subject.
419 The Indian Majority Act, 1875, Section 3.
234
Thus, under the Common Law, a minor's contract is voidable at
his option, but under the Indian Contract Act, 1872, courts have
declared an agreement with a minor, void ab initio, though the Act
itself does not declare such agreements either void or voidable.
However, contract for 'necessaries' is protected under Section 68 of
the Act. In 1903, in the well-known case of Mohori Bibi v.
Dharmodas Ghose,'^^^ the Privy Council held mortgage made by a
minor void. The moneylender was held not entitled to repayment of
the money under Sections 64 and 65 of the Act as the mortgage was
declared invalid. Further, the Privy Council declined the plea to make
payment under Section 41 of the Specific Relief Act, 1877 (presently
Section 31 of the Specific Relief Act, 1963), as the money-lender had
knowledge of the minor's minority. In Khan Gul v. Lakha Singh,'^^^
the Lahore High Court ordered money compensation in a case where
the minor had misrepresented his age, relying on the use of word
'compensation' in Section 41 of the Specific Relief Act, 1877 in place of
the word 'restitution' giving relief on equity against fraud, not basing
its decision on contract. This view of Lahore High Court is now
legislatively approved in Section 31 and 33 of the Specific Relief Act,
1963.
If a minor has undertaken liability jointly with an adult,

immunity of the minor cannot absolve the adult promisor from
liability.^^22 ^ minor may become agent, but he will not be responsible
to the principal.423 Likewise, a minor may draw, endorse, deliver and
negotiate any negotiable instrument so as to bind all parties except
himself.424
«o 30 lA 114.
"'21 AIR 1928 Lah 609 (FB).
422 S u l o c h a n a v. Pandiyan B a n k Ltd., AIR 1975 Mad. 70.
"23 The Indian Contract Act, 1872, Section 184.
424 The Negotiable I n s t r u m e n t s Act, 1881, Section 26.
235
Whenever a person comes to the bank and wants to open a new
account, there are number of precautions which the bank must take
in case the person is unknown to the bank. In fact, the bank besides
other requirements in supposed to confirm the age of customer
whether he is minor or major. To avoid the possibility of committing
fraud by the minor who fraudulently represent himself as major, these
precautions are very essential.
(b) A Person of Sound Mind
In England, a contract with a person of unsound mind, is

voidable at his option^zs but an agreement with a person of unsound
mind in India is void.'^ê His position is like that of a minor.'^s? ^
person is said to be of sound mind for the purpose of making a
contact, if at the time when he makes it, he is capable of
understanding it and of forming a rational judgment as to its effects
upon his interests."^28 ^ person who is usually of unsound mind, but
occasionally of sound mind, may make a contract when he is of sound
mind.'^^g j ^ the same way, a person who is usually of sound mind, but
occasionally of unsound mind, may not make a contract when he is of
unsound mind.'^ô
The provision of supplies of necessaries to persons of unsound

mind is treated under contract law in a manner alike the making of
such necessaries to persons incapable of making contracts is dealt
with under Section 68 of the Indian Contract Act of 1872. In fact, the
possibility of committing fraud increased in case, the banking
employee or outsider, by taking advantage of unsoundness of mind,
425 I m p e r i a l Loan Co. v. S t o n e ( 1 8 9 1 - 9 4 ) , All E R R e p . 4 1 2 (CA).

426 Johri V. Mahila Draupati, AIR 1991 MP 340; Jyotindra Bhattacharjee v. Sona
Bala Bora, AIR 1994 Gau. 99.
427 M a c h a i m a n v. U s m a n Boari (1907) 17 Mad. LJ 7 8 ; Amina Bibi v. Saiyad Yusuf,
44 All. 748; See also, Sheoratan v. Kali Charan 79 IC 955.
429 Id., Section 12, Illustration (a).
430 Id., Section 12, Illustration (b).
236
intentionally takes or compels the unsound person to make payment
and cause wrongful gain or loss to himself or to any person. Hence,
this provision remains important to avoid this kind of depravity.
(c) A Person Not Disqualified from Contracting by Law
Sometimes, law disqualifies some otherwise competent persons

from entering into particular kind of contracts. Such persons also
become incompetent for the limited purpose of capacity to enter into
those contracts. Instances of such incompetence would be, judges or
legal practitioners or officers connected with court of law with respect
to holding/agreeing to hold any share or interest in any actionable
claimj'^si forest officers from trading in forest products or forests
generally,432 or officers or employees of patent office from buying any
right or interest in any patent issued by that office.^ss Thus, banks are
supposed to take proper care to avoid frauds by taking into
consideration various factors.
Two or more persons are said to consent when they agree upon
the same thing in the same sense.^^34 jvjo effective contract can come
into existence unless the parties are ad idem on the essential terms of
the transaction.435 This is known as consensus ad idem.
The consent, so obtained, must be free. Consent is said to be

free when it is not caused by coercion, undue influence, fraud,
misrepresentation or mistake.^36 There are cases, where there is no
consent at all, as the mistake under which parties are working is so
complete that there is no formation of any real agreement 'upon the
"31 The Transfer of Property Act, 1882, Section 136.

^•32 The Patents Act, 1970, Section 75 (Exception in case of inheritance or bequest).
433 The Indian Forests Act, 1927, Section 75.
'3'» The Indian Contract Act, 1872, Section 13.
«5 Dhulipudi Namayya v. Union of India, AIR 1958 AP 533.
«& The Indian Contract Act, 1872, Section 14.
237
same thing'. Such error may relate to the identity of the party,'^^'^ or
the nature of transaction,438 or the subject matter of the agreement.'^^g
In such cases, there is not contract at all. In other cases, consent may
be there, but it may not be free due to undue influence, coercion,
fraud, misrepresentation or mistake. In such cases, the contract is
voidable at the option of the party, whose consent is not free.
A contract, wherein consent has been caused by coercion,

undue influence, fraud or misrepresentation, is voidable at the option
of the party whose consent was so caused ;'^'ô while in case of consent
caused by mistake, the agreement is void.44i
The Privy Council has emphasized that a general averment that

consent was not freely obtained is not enough, it is necessary to set
u p one of the vitiating elements enumerated in this Section.'^'^s
Section 14 defines "Free Consent". In fact. Section 14 provides a

negative definition, illustrating when the consent is not free. According
to Section 14, consent is said to be free when it is not caused by:
(a) Coercion, as defined in Section 15, or

(b) Undue influence, as defined in Section 16, or
(c) Fraud, as defined in Section 17, or
(d) Misrepresentation, as defined in Section 18, or
(e) Mistake, subject to the provisions of Sections 20, 21 and 22.
••s? Bouton V. Jones (1857) 27 LJ Ex. 114; Cundy v. Lindsay (1878) 3 A.C. 459; Said
V. Butt, (1920) 3 K.B. 497; See also, Phillips v. Brooks, (1919) 2 K.B. 243.
"•38 Foster v. Mackinnon (1869) L.R. 4 C.P. 704, the defendant purported to endorse
a bill of exchange which he was told was a guarantee. It was held that he was
not liable even to a bona fide holder for value, for his signature was fraudulently
obtained to a document which he never intended to sign; Oriental Bank v.
Flemming, 3 Bom. 242, 267, a deed executed by a person in such circumstances
is a mere nullity.
«9 Raffles V. Wichelhaus, 2 H & C , 906.
440 The Indian Contract Act, 1872, Section 19 a n d 19A.
442 Bal Gangadhar Tilak v. Shrinivas Patil, AIR 1915 PC 7.
238
Section 14 further elaborates that consent is said to be so
caused when it would not have been given but for the existence of
such coercion, undue influence, fraud, misrepresentation or mistake.
Elements vitiating 'Free Consent' can be briefly discussed as under:
(a) Coercion
Under Indian law, "Coercion" is the committing or threatening to

commit, any act forbidden by the Indian Penal Code or the unlawful
detaining or threatening to detain any property to the prejudice of any
person whatever, with the intention of causing any person to enter
into an agreement.'*'*^ It's immaterial whether the Indian Penal Code is
or is not in force in the place where the coercion is employed.'^'^'^
Clearing the conceptual difference between 'coercion' and

'duress' Madras High Court has held that 'coercion' under the Indian
Contract Act is much wider than what was duress in the English law.
It includes unlawful detention of property and may be directed against
any person, even a stranger; and unlike duress, causing of immediate
violence or unnerving a person of ordinary firmness of mind is not
necessary under the Indian Law.445 The coercion may proceed from a
third person who is not a party to the contract, and it may be directed
against any third person whatever.^ê This point is a major basis of
distinction between 'coercion' under Indian law and 'duress' under the
English law. It also renders the Indian definition of duress wider than
its English counterpart, 'duress' or 'menace'. Under English Law,
'duress' must be such as to affect a person of ordinary firmness of
mind. In India, it is sufficient to do or threaten to do any act forbidden

444 Id., Explanation to Section 15.
445 K a r u p p a y a A m m a l v. K a r u p p i a h Pillai (1987) 2 Mad. LJ 1 3 8 .
446 Ranganayakamma v. Alwar Chetty (1889) 13 Mad. 214; See also Ammi Raju v.
Seshamma (1918) 13 Mad. 214; See also Ammi Raju v. Seshamma (1918) 41
Mad. 33:, AIR 1917 Mad. 288, on the question whether threat to commit suicide
amounts to coercion.
239
by Indian Penal Code, 1860 or to detain or threaten to detain property
wrongfully.
Coercion is the committing or threatening to commit any act

forbidden by the Indian Penal Code. It is immaterial whether the
Indian Penal Code is applicable or not in the place where the coercion
is employed.'^'^'^ The Law Commission of India h a s recommended
amendment to Section 15 to cover the offences under different Penal
laws other than those covered under the Indian Penal Code.'^'^^
When proved, a contract caused by coercion is voidable at the

option of the party whose consent was so caused'^'^^ and a person to
whom money has been paid, or an5^hing delivered under coercion
must repay or return it.^so
(b) Undue Influence
Undue influence is said to be a subtle species of fraud whereby

mastery is obtained over the mind of the victim by insidious
approaches and seductive artifices. Sometimes the result is brought
about by fear, coercion or other domination calculated to prevent
expression of victim's true mind. It is a resistance, bringing about a
submission to an overmastering and unfair persuasion, to the
detriment of the other.'^si
In contrast to duress (known as coercion under the Indian law),

undue influence may exist without violence or threats of violence
against the victim. It depends upon the existence of a relationship
between two parties which, while it continues, causes one to place a
447 The Indian Contract Act, 1872, Explanation and Illustration to Section 15.
448 The Law Commission of India, 13* Report, 1958, Para 15.
451 Mahboob Khan v. Hakim Abdul Rahim, AIR 1964 Raj. 250.
240
confidence in the other which produces a natural influence over the
one which that other abuses to his own advantage."^52
A contract is said to be induced by 'undue influence' where the

relations subsisting between the parties are such that one of the
parties is in a position to obtain an unfair advantage over the other.'^sa
A person is deemed to be in a position to dominate the will of another,
where he holds a real or apparent authority over the other; or where
he stands in a fiduciary relation to the other; or where he makes a
contract with a person whose mental capacity is temporarily or
permanently affected by reason of age, illness or mental or bodily
distress."^54 The burden of proving absence of undue influence in case
of an unconscionable transaction is on the person, who is in a
position to dominate.'^ss xhe reason for this rebuttable presumption is
that a person, who has obtained an advantage over another by
dominating his will, may also remain in a position to suppress the
requisite evidence in support of the plea of undue influence.^se
As per the Indian law on this issue, persons having real or

apparent authority such as police officers and detainee; or persons in
fiduciary relations such as solicitor and client,457 doctor and
patient,'*58 trustee and cestuique trust,"^^^ spiritual advisor and his
devotees,460 parent or guardian and child,46i creditor and debtor,'*^2
^•52 Saxon V. Saxon (1976) 4 WWR 300, 305, 306 (BCSC) Canada.
^53 The Indian Contract Act, 1872, Section 16 (1).
454 /d.,Section 16 (2).
455 Id., Section 16 (3).
456 Ladli Prasad v. Komal Distillery Co., AIR 1963 SC 1279 at p. 1290.
457 Moody V. Cox (1917) 2 C H 7 1 ; (1916-17) All ER Rep. 5 4 8 , CA; P u s h a n g v. Mania
Halwani (1868) BLR AC 9 5 ; Brijendra Nath v. S r e e m u t t y (1910) 6 CWN816;
Sandersons 8s Morgans v. Mohanlal, AIR 1955 Cal. 319.
458 Mitchel V. Homfray (1881) 8 QBD 587; Williams v. J o h n s o n (1937) All ER 34.
459 R a g h u n a t h v. Varjivandas (1906) 30 Bom. 5 7 9 ; Fox v. Mackreth (1788) 30 ER
1482; Davies v. London Insurance Co. Chd.
460 Mannu Singh v. Umadat Pandey (1890) 12 All. 523.
461 Laxmi Dass v. Roop Lai (1907) 30 Mad. 169.
462 Dilaram v. Sarga, AIR 1927 Lah. 536.
241
and persons contracting with a person in mental distress'^^s whether
temporarily for permanently have been held to be upon facts of each
case, under undue influence, and thus entitled to avoid the
agreement.
However, urgent need of money by borrower is held to be

sufficient evidence of mental distress.'*64 Illustration (d) to Section 16
explains the law on this issue, wherein A applies to a banker for a
loan at a time when there is stringency in the money-market. The
banker declines to make the loan except at an unusually high rate of
interest. A accepts the loan on these terms. This is a transaction in
the ordinary course of business and the contract is not induced by
undue influence.^65 Thus under the Indian banking system, unlike the
old and ordinary debtor-creditor relationshipj^^ê in case of market
crisis, banks can charge an unusually high rate of interest, and such
contracts cannot be set aside on the ground of undue influence under
Section IQ-A.^^^
When consent to an agreement is caused by undue influence, it

is a contract voidable at the option of the party whose consent was so
caused. The Courts have power to set aside the contract absolutely or
if the party who was entitled to avoid it, has received any benefit there
under, upon such terms and conditions as to the court may seem
^•^3 Rannee Annapumi v. Swaminatha (1910) 34 Mad. 7.

464 Raghunath Prasad v. Sarju Prasad, AIR 1924 PC 60.
465 The Indian Contract Act, 1872, Section 15, Section 16 Illustration (d).
466 See, Rannee Annapumi v. Swaminatha, (1910) 34 Mad. 7.
467 The Indian Contract Act, 1872, Section 19-A. Power to set aside contact induced
by undue influence - when consent to an agreement is caused by undue
influence, the agreement is contract voidable at the option of the party whose
consent was so caused. Any such contract may be set aside either absolutely or,
if the party who was entitled to avoid it has received and benefit there under,
upon such terms and conditions as the court may deem just.
242
just.468 A similar provision is found under the Specific Relief Act,
IQGS,'*^^ in furtherance of the principle of equity.
(c) Fraud47o
There is no precise definition of fraud. What constituted fraud

was viewed differently at common law and equity. Common law
identified fraud with dishonesty and maintained a distinction between
fraud and negligence. Moral fraud alone was recognized by it. Equity
had developed a doctrine of "constructive fraud" in regard to cases
lying in its domain, which, though classified as cases of fraud, did not
necessarily import the element of dolus malus, where the court took
upon itself to present a man acting against the dictates of conscience
as defined by the court and to grant injunctions in anticipation of
injury as well as relief where injury has been done.'^'î
(d) Misrepresentation
When a person makes a false statement knowingly with an

intention to make the other party to enter into the contract, it is
'fraud'; however, when the same false statement is made with the
honest belief in its truthfulness and without any intention of
misleading the other party into the contract, it is 'Misrepresentation'.
The Indian Contract Act, 1872 provides an inclusive definition

of misrepresentation, and classifies misrepresentation in three
categories:'^^^
(i) positive assertion, in a manner not warranted by the

information of the person making it, of that which is not true,
though he believes it to be true;'^'^^
•^8 The Indian Contract Act, 1872, Section 19 A.

"fi^ The Specific Relief Act, 1963, Section 30.
'^'^^ For more on effect of fraud, See, infra 4.3.2. Consent vitiated by fraud a n d
Banking Frauds.
471 Nocton V. Lord A s h b u r t o n , (1914) AC 9 3 2 .
"•^^ The Indian Contract Act, Section 18.
243
(ii) breach of duty which, without an intent to deceive, gains an
advantage to the person committing it, or any one claiming
under him, by misleading another to his prejudice or to the
prejudice of anyone claiming under him;'^74
(iii) Causing, however innocently, a party to an agreement, to make

a mistake as to the substance of the thing which is the subject
of the agreement."^'^5 jf H^Q false statement is known to be false
by the person making it, it is called fraudulent
misrepresentation or fraud; if it is honestly believed to be true; it
is called an innocent misrepresentation or misrepresentation.'^'^^
The 'intention to deceive' is what distinguishes
'misrepresentation' from 'fraud'.
In Derry v. Pcck,477 Lord Herschell held,
"On the whole I have come to the conclusion that the

statement though in some respects inaccurate and not
altogether free from imputations of carelessness, was a
fair, honest and bona fide statement on the part of the
defendant and by no means exposed them to an action
of deceit.''478
The Karnataka High Court highlighting the importance of the
factors of misrepresentation and fraud said that the charge of
misrepresentation and fraud is of very serious nature. High standard
473 See, Derry v. Peek, (1889) 14 App c a s 3 3 7 .

474 This clause covers concealment of material facts, (held in Martin C a s h i n v. Peter
J . Cashin, AIR 1938 PC 103); This clause h a s been applied in case of fiduciary
relationships, a n d c o n t r a c t s Uberr in fidei.
475 See, Re Nursey Spinning a n d Weaving Co. (1880) ILR 5 Bom. 92; Maredelanto
Compagnia Naviera SA v. Bergban Handel G m b h (The Mihalis Angelas), (1970) 3
All ER 125; J o h n s o n v. Crowe, (1874) 6 NWP 350; S o r a b s h a h Perstonji v.
Secretary of State for India, AIR 1928 Bom. 17; Smith v. Hughes (1861-73) All
ER Rep632; Hartog v. Colin a n d Shields (1939) 3 All LR 566, a n d Bismillah v.
J a n e s h w a r Prasad (1990) ISCC 2 0 7 ; Merchantile Credit Co Ltd. v. Namblin
(1964) 3 All ER 592; Gallie v. Lee, (1969) 1 All ER 1062; S a n n d e r s v. Anglia
Building Society, (1970) 3 All. ER 9 6 1 .
476 j . D . J a i n , The Indian Contract Act 85 (Allahabad Lav^r Agency, Allahabad8'h Ed.,
1971).
477 14 A.C. 3 3 7 .
478 Id. at p . 3 8 0 .
244
of proof is requisite which is almost equal to a criminal trial which
requires proof beyond all doubt.'^'^^
Section 18 of the Indian Contract Act, 1872 recognizes three

types of misrepresentation, namely: Unwarranted statements; Breach
of duty; and inducing mistake about subject matter. These types can
be briefly elaborated as under:
(1) Unwarranted Statemenf^ô
When a person .^positively asserts that a fact is true when his

information does not warrant it to be so, though he believes it to be
true, this is misrepresentation."^î However, if the representation is
based on wrong information from the right source, it would not
amount to misrepresentation."^^^ g ^ t relying on a second-hand
information to make a representation has been held to be
unwarranted, and thus, a misrepresentation."^^^
In case of a contact based on unwarranted statement, the party

whose consent has been induced thereby has been allowed to claim
damages for breach of warranty,'^^'^ compensation for
misrepresentation,'^^s and even avoidance of sale.'*^^
(2) Breach of Duty
Any breach of duty which brings an advantage to the person

committing it by misleading the other to his prejudice is a
479 S a v i t h r a m m a v. H. G a r a p p a Reddy, AIR 1996 Kant. 99.

"80 The Indian Contract Act, 1872; Section 18(1).
"•SI See Oceanic S t e a m Navigation Co. v. Soonder Das Dharamsey, (1890) 14 ILR
Bom. 2 4 1 ; O s c a s C h e s s Ltd. v. Williams, (1957) 1 All. ER 525 CA.
"•82 See, Haward Marine & Dredging Co. Ltd. v. Ogden & Sons (Excavations) Ltd.,
(1978) 2 All. ER 1134 CA; See also, Routtedge v. Mckay, (1954) 1 All. ER 8 5 5 CA.
"83 Mohanlal v. Sri Gungaji Cotton Mills. Co., (1900) 4 Cal. WN 369. See also, In re
Nursery Spng. & Wing Co., ILR (1880) 5 Bom. 92; Banarsi Devi v. New Delhi
A s s u r a n c e Co., AIR 1959 SC 540; Bimla bai v. Shankerlal, AIR 1959 MPS.
"84 Richview Construction 6 v. R a s p a (1975) 11 Ontario Reports (2d) 3 7 7 ; Birch v.
P a r a m o u n t E s t a t e s (Liverpool) Ltd., (1956) 168 EG 3 9 6 CA.
"85 Dick Bently Production Ltd. v. Flasold Smith Motors Ltd., (1965) 2 All. ER 6 5 .
"86 Alessio V. Jovica (1973) 42 DLR (3d) 242, C a n a d a .
245
misrepresentation. In Oriental Bank Corporation v. John
Flentming,^^^ it was observed:
"This clause is probably intended to meet all those

cases which are called in the court of equity - cases of
'constructive fraud', in which there is no intention to
deceive, but where the circumstances are such as to
make the party who derives a benefit from the
transaction equally answerable in effect as if he had
been actuated by motives of fraud or deceit."
In cases of breach of duty, the affected party has been allowed
to set aside the contract,'*^^ or to claim damages.^89
(3) Inducing Mistake about Subject-matter
Causing, however, innocently, a party to an agreement, to make

a mistake as to the substance of the thing which is the subject-matter
of the government is misrepresentation.^90 in Nursey Spg. and Wvg.
Co. Re,'^'^'^ the directors of a company, while acting within their
authority, sold on the company's behalf, a bill of exchange to a bank.
The company later refused to accept the liability on the bill. The court
held that the bank was entitled to recover the amount of the bill from
the company as money received to the use of the bank. Likewise, in
another case, a contract vitiated by misrepresentation entitled the
purchaser to recover damages for loss.'*^^
Generally speaking, misrepresentations should be of vital

facts493 which are material to the contract.'^^'^ Sometimes statement of
^87 (1879) 3 Bom. 2 4 2 , 2 8 7 .

488 Oriental B a n k Corporation v. J o h n Flemming (1879) 3 Bom. 2 4 2 ; K h a n d u
C h a r a n Polley v. C h a n c h a l a Bhuniya, AIR 2 0 0 3 Cal. 2 1 3 .
489 T h a k e v. Maurice (1986) 1 All ER 4 9 7 CA; Parkinson v. St. J a m e s a n d Seacraft
University Hospital NHS Trust, (2001) 3 All ER 9 7 CA; See Cantra, Eyre v.
Measday (1986) 1 All ER 4 8 8 CA.
490 The Indian Contract Act, 1872; Section 18 (3).
491 ILR (1880) 5 Bom. 9 2 .
492 D a m b a d u d h a r v. State of Orissa, AIR 1980 Ori. 188.
493 R V. K y l s a n t (1932) 1 K B 4 4 2 : ( 1 9 3 1 ) All E R R e p . 1 7 9 .
494 Smith V. Land & House Property Corporation (1884) 2 8 Ch.D. 7; Oscar C h e s s
Ltd. V. Williams (1957) IWLR 370; B a k e r v. Asia Motor Co. Ltd. (1962) MLJ 4 2 5 .
246
opinion may also amount to misrepresentation.'^^s ^ representation of
one's state of mind is also a representation of factj'^ê and thus can be
considered misrepresentation within the meaning of Section 18.
However, it is necessary that misrepresentation must be the cause of
the consent to a contract of the party to whom such misrepresentation
was made; otherwise it will not render the contract voidable.''97
Further, if the party, whose consent was so caused, had the means of
discovering the truth with ordinary diligence, the contract is not
voidable.498
Some interesting judicial insights have emerged in cases dealing

with misrepresentation such as, misrepresentation as to a part would
make the whole transaction voidable;'^99 when the misrepresentation is
merely about the contents of the document, the transaction becomes
voidable, but where it relates also to the nature or character of the
transaction, the transaction is void;5oo negligence on the part of the
executant is a bar to the plea on non est factum;^^^ the pleading of
misrepresentation must be specific, not general;502 and the burden of
proof rests on the person alleging the misrepresentation.^^^
A contract caused by misrepresentation is voidable at the option

of the party who was induced by misrepresentation to enter into the
495 Smith V. Land & House Property Corporation (1884) 2 8 ChD7; Affirmed by Privy
Council in Bisset v. Wilkinson (1927) AC 177; (1926) All. ER Rep. 3 4 3 .
"''e Edgington v. Fitzmaurice (1885) 29 ChD 4 5 9 : (1881-5) All.ER Rep. 8 5 6 Ch.
'»''7 The Indian Contract Act, 1872, Section 19, Explanation.
•'"s Id., Section 19, Exception.
499 Pertap C h u n d e r v . M o h e n d r a n a t h R u k h a i t 16IA 2 3 3 (PC).
500 Ningawwa v. B y r a p p a S h i d d a p p a Hirekncabar, AIR 1968 SC 9 5 6 ; Dularia Devi v.
J a n a r a d h a n Singh, AIR 1990 SC 1173.
501 At first, negligence w a s held to apply to negotiable i n s t r u m e n t s only in Carlisle &
Cumberland B a n k i n g Co. v. Bragg [1908-10), All. ER Rep Ext. 9 7 7 (CA), b u t later
w a s extended to all d o c u m e n t s , a s held in S a u n d e r s v. Anglia Building Society
(1970) 3 All. E R 9 6 1 .
502 Yog Raj V. Kuldeep Raj G u p t a , AIR 1991 J&K 26 at p . 2 8 ; The Code of Civil
Procedure, 1908, Order VI, Rule 4.
503 Kuppuswami Chettiar v. ASPA A r u m u g a m Chettiar, AIR 1967 SC 1395; Satya
Narain v. Nanki Devi, AIR 1968 All. 2 2 4 .
247
contraction or he can insist on performance of the contract and seek
that he be put in the position in which he would have been if the
representation(s) so made had been true.sos if the party so entitled,
chooses to rescind the contract, the court may require the party to
whom such relief is granted to restore, so far as may be any benefit
which he may have received from the other party and to make any
compensation to him which justice may require,506 and the other
party need not to perform any promise contained therein, and gets
restoration of any benefit received by the party rescinding the
contract.507 The party rescinding the contract is also entitled to
restitution.508 These provisions are based on the principle of 'doing
equity to get equity'.
Under the English Law, there have always been provision for
claiming of damages for fraudulent misrepresentation on the same
measure as is available under law of torts,^09 but with the enactment
of the Misrepresentation Act, 1967, the remedy of damages is
extended for action based on negligent misrepresentation as well.îo in
absence of any express provision in this regard, Indian judiciary has
read relief into the second Para of Section 19 of Indian Contract Act,
1872 to provide for damages in lieu of performance as would place the
representee in a position as if the contract were performed.^n On
rescission. Section 75 of the Indian Contract Act, 1872 has been used
to provide for damages. Under the law of torts also damages have been
awarded.512 in Dambarudhar Behera v. State ofOrissa,^^^ the basis
so-* The Indian Contract Act, 1872, Section 19; also See, Explanation to Section 19.
505 Ibid.
506 The Specific Relief Act, 1963, Section 30.
509 Archer v. Brown (1984) 2 All. ER 267.
510 The Misrepresentation Act, 1967, Section 2(1).
5" S o r a b s h a h Pestonji v. Secretary of State for India, AIR 1928, Bom. 17.
5>2 s . Chatterjee v. K.L. Bhave (Dr.), AIR 1960 MP 3 2 3 .
5'3 AIR 1980 Ori. 188.
248
for damages was not discussed. And in R.C. Thakkar v. Gujarat
Housing Board,^^"* though the contract was performed, still the
compensation/damages were granted under Section 19.
(e) Mistake
The last stated element to vitiate free consent is mistake.sis The

effect of mistake on agreement is dealt with under Section 20, 2 1 , and
22. Mistake vitiates the element of free consent, as it is a
misunderstanding which h a s led to the creation of agreem.ent between
the parties. If the mistake is such that there is no consensus ad idem,
there is no agreement under Section 13. But if there is an agreement
albeit with a mistake as to a matter of fact relating to that agreement,
such mistake has different effects on the validity of the agreement
under Section 20, 21 and 22.
'Mistake' is of two types (i) of fact and (ii) of law. Section 20

deals with the effect of mistake of fact on contracts and Section 21
deals with the effect of mistake of law on contracts, and Section 22
deals with the provision of law with respect to a contract caused by
one of the parties to it being under a mistake as to a matter of fact.
Section 20 lays down that where both the parties to an
agreement are under a mistake as to a matter of fact essential to the
agreement, the agreement is void. To hold an agreement void due to
mistake, the mistake must be mutual i.e. of both the parties, not a
unilateral one.si^ Generally such a mistake arises with respect to the
identity of personSi^ or with respect to the subject-matter of a
contract.sis Sometimes, an essential fact unknown to both the parties
514 AIR 1973 Guj. 34.

515 The Indian Contract Act, 1872, Section 14 (v).
516 Id., Section 22. For e x a m p l e s of unilateral m i s t a k e s , See, Ratlaji Abdul R e h m a n
Allarakhia v. Bombay a n d Persia Steam Navigation Co., (1892) 16 Bom. 5 6 1 ;
Ayekam Angahal Singh v. The Union of India, AIR 1970, Manipur 16.
517 C u n d y v. Lindsay (1878) 3 AC 459.
518 Raffles V. Wichelhans 2 H & C 906; Courtierier v. Hastie *1856) 5 H.L. cas. 6 7 3 .
249
can also vitiate the contract.si^ However, if the mistake of fact is only
on behalf of one party, Section 22 makes it clear that the contract
shall not be voidable merely because of such fact. This means that the
mistake must be mutual. Only then the agreement becomes void or
voidable.
Further, the mistake must be of fact, and not of law in force in

lndia,520 and the mistake must be regarding a fact essential to the
agreement; and what is essential to an agreement, depends on facts of
a particular contract.52i Through the case-law, it has been established
that generally speaking, if the mistake is as to the existence of the
subject-matter, the contract is void,522 but if it is regarding its quality
only, it is valid.^23 Likewise, legally impossible^s^ or physically
impossible525 to perform contracts are also void. In case of a mistake
as to title, the contract is also void,526 and it is void in case of a
mistake as to promise not reflecting the promisor's intention.^27 if the
mistake relates to the identity of the parties, generally it leads to an
unenforceable agreement, as the offer is not made or accepted by the
person to whom it was intended to be made, but by someone else.528
However, in cases of contract entered by parties in each other's
presence, inter praesentes, the position is different. In such cases the
519 Nursing Dass v. Chutto (1923) 59 Cal. 615.

521 See, Bell v. Lever Brothers Ltd., (1932) AC 161.
522 See, Asfar v. Blundell, (1896) 1 Q.B. 123; Barrow, Lane and Ballard Ltd. v.
Phillip, Phillip & Co., (1929) 1 KB 574; Courtierier v. Hastie (1856) 5 HLC 673;
Galloway v. Galloway (1914) 30 T.L.R. 531; Law v. Harragain, (1917) 33 TLR
381.
523 See, Cooper v. Phibbs (1867) LR 2 HL 149.
524 See, Sheikh Brothers Ltd. v. Ochsner, (1957) AC 136.
525 Supra Note 524; J o n e s v. Clifford, (1876) 3 C h . D 7 7 9 ; Allcord v. Walker, 1896
2Cb. 369.
526 See, Hartog v. Colins & Shields, (1939) 3 All ER 566.
527 See, Boulton v. Jones, (1857) 2 H&N. 564; Said v. Butt ,(1920) 3 K.B. 497.
528 See, Cundy v. Lindsay (1878) 3 AC 459.
250
courts have held that the contract is not void on the ground of
mistake, however it may be avoided on the ground of fraud.^29
Section 21 deals with mistake of law. It provides that a contract

is not voidable because it was caused by a mistake as to any law in
force in India, but a mistake as to law not in force in India has the
same effect as a mistake of fact. Based on the maxim 'Ignoratia Juris
non excusaf, mistake of law does not vitiate a contract. However, in
some cases, mistake of law can also vitiate the contract. Those
instances are mistake as to private right of property^ô, a contract
caused by willful misrepresentation of law, and a mistake as to any
foreign law.^î
A contract vitiated by mistake carries the remedy of getting

restoration or compensation,^22 and repayment of money or return of
article533 under the Indian Contract Law.
4.3.1 (iii) Lawful Objects and Considerations
Lawful objects and considerations are an essential element of a

contract under the Indian Law.534 Every agreement, of which the
object or consideration is unlawful, is void.^^s
Under Section 23 of the Indian Contract Act, 1872 following

objects and considerations have been held to be unlawful:
529 Phillips V. Brooks Ltd., (1919) 2 KB 2 4 3 : See also, Lewis v. Averay (1972) 1 QB
198: (1971) 3 All ER 9 0 7 (Similar facts); See also, Lake v. S i m m o n s , (1927) AC
4 8 7 ; See Ingram v. Little (1961) 1 QB 3 1 : (1960) All ER 3 3 2 .
530 Cooper v. Phibbs (1867) 2 M.C. 149, wherein it was held that mistake as to
general ownership is on the same footing as a mistake of fact; followed in India
in Ram Jiwara v. Hanuman Prasad (1940) O.W.N. 782 and Ganesh Chand v.
Ram Chand 21 C.W.N. 404 and Kanwar Lime and Stone Co. v. Secretary of State
for India, AIR 1937 Patna 65.
531 The Indian Contract Act, 1872, Section 21...but a mistake as to a law not in
force in India has the same effect as a mistake of fact.
251
(a) Object or consideration forbidden by law
(b) Object or consideration of such nature that, if permitted, it
would defeat the provisions of any law
(c) Fraudulent object or consideration
(d) Object or consideration, involving or implying injury to the
person or property of another
(e) Immoral object or consideration
(f) Object or consideration, opposed to public policy.
Thus, under Indian Law of Contract, it is not only required that
there must be consideration, without which it would be a void
agreement,536 but also that the consideration so forming part of the
contract, it must be lawful as per Section 23. An act is forbidden by
law, if it is punishable by the criminal law or is prohibited by some
other legislations or regulations. Thus, by virtue of Section 23 of the
Indian Contract Act, an agreement to commit an offence under the
Indian Penal Code, 1860, or to commit a tort or to do any act
forbidden by any other legislation, is void.^^v However, an agreement
to do an act not forbidden by law, but merely to circumvent a
provision to make profit for oneself may be outside the purview of this
provision,538 the court has to see the real purpose of the Act, merely
failure to observe certain statutory requirements does not render the
contract void.539
Moreover, what is not prohibited/forbidden by law, may still not

be acceptable to it. Thus, an agreement to do an act which is not

537 See, Spiers v. Hunt, (1908) 1 KB 729; Wilson v. Camley (1908) 1 KB 729; Shaw
V. Shaw (1954) 2 QB 429; Bloxsome v. Williams (1824) 3 B&C 232. Re Mahmond
and Ispahani (1921) 2KB 716; S.L. Femandes v. V.M. Femandes, AIR 1981 Goa
18; Brij Mohan v. MPSRT Corporation, AIR 1987 SC 29; Universal Plastic Ltd. v.
Santosh Kumar, AIR 1985, Delhi 383; Nutam Kumar v. Additional District Judge
(II), Banda, AIR 1994, All. 298.
538 See, Sujan Singh v. Mohkam Chand, AIR 1983 P 85 H 180; Abdul Jabbar v.
Abdul Muthaliff, AIR 1982 Mad. 12; Banarasi Dass v. Shakuntala, AIR 1989
Delhi 184; Raj Kishore Sahay v. Binod Kumar, AIR 1989 Pat. Ill; St. John
Shipping Corporation v. Jaseph Rank Ltd. (1957) 1 Q.B. 267.
539 See, Smith v. Mawhood (1845) 14 M & W 4 5 2 .
252
expressly forbidden, yet resulting in defeating the purpose of any law
in force, is void. What is not permitted to be done directly cannot be
permitted to be done indirectly as well.^ô
Further the Section provides that if the object of^î or

consideration forS'*^ ^n agreement is commission of fraud, the
agreement is void, as the consideration or object is unlawful.^43 Thus,
secret agreement with one creditor to mislead the other creditors in
agreeing to forego part of their claims,^^^ or making a contract through
somebody else as the person really performing the contract is barred
by Railways company from entering into a contract with itself,^^s have
been held to be void under Section 23 as the purposes of these
agreements were fraudulent. However, mere agreement to avoid
competition,546 have been held to be not void under Section 23.
The subsequent provision covers those instances, wherein the

purpose of entering into a contract is to harm another person, rather
than mutual benefit of the parties. Agreements resulting into
slavery,547 exorbitant high rate of interest,548 assault to a person,549
s-'o See, S u n d a r a Gownder v. B a l a c h a n d r a n , AIR 1990 Ker. 324; Administrator,

H i n d u s t a n Cables etc. Society Ltd. v. J i t e n d r a Kumar Das C h a u d h u r y , AIR 1968
Cal. 146; See also, Illustration (i) to Section 2 3 .
5"! See, The Indian Contract Act, 1872, Illustration (e) to Section 2 3 .
5''2 See, Id., Illustration (g) to Section 2 3 .
544 Mallailie v. Hodgson (1851) 16 Q. B 6 8 9 ; See also, Atamal Ramoomlal v.
D e e p c h a n d Kessumal, AIR 1939 Sind 3 3 .
545 Manni Ram v. P u r s h o t t a m Lai, AIR 1930 All. 7 3 2 ; See also G a n e s a Naicken v.
A r u m u g h a Naiken, AIR 1954 Mad. 8 1 1 ; Ram Nath Misra v. R a j e n d r a n a t h Sangal
142 IC 5 2 5 .
546 Sujan Singh v. Mohkam C h a n d , AIR 1983 P & H 180; J a i Ram v. K a h n a Ram,
AIR 1963 H.P. 3. (Though s u c h agreement may be prohibited u n d e r The
Competition Act, 2002).
547 Ram S a r u p v. Bansi Mandor (1915) 42 Cal. 7 4 2 .
548 Ibid.; See also, Satish C h a n d r a v. Kashi S a h u (1918) 3 Pat. LJ 4 1 2 ; 46IC418: cf.
Kanakal v. P a m b a y a n , AIR 1927 Mad. 5 3 1 : 101 IC 39.
549 Allen V. R e c o n s , (1677) 2 Lev. 1 7 4 : 1 F r e e m KB 4 3 3 .
253
fraud or deceit,550 libel against a person^si have been declared void
under this provision.
Further explanation of the Section deputs that if the court finds

object or consideration of an agreement to be immoral, it can declare
such agreement as unlawful and thus void.552 What is immoral, is a
question relative to times and prevalent standards in a society at a
given point of time. In the past, renting a house to let run a brothel,553
agreement of loan for the purpose of getting divorced and then
marrying the creditor,554 illicit cohabitation,^ss adulterous living^se
have been held to be immoral agreements, and thus void under
Section 23.
In Gherulal v. M. Maiya,^^'^ the Supreme Court citing the case

law on this point, has said that the word 'immoral' being a very
comprehensive one, must be given restricted meaning and it has been
restricted to mean sexual immorality.
While dealing with the Public policy in Ratanchand Hirachand

V. Askar Nawaz Tung,^^^ the Andhra Pradesh High Court said:
"The twin touchstones of public policy are advancement of public good

and prevention of public mischief...".
The Supreme Court of India in Rattan Chand Hira Chand v.

Askar Nawaz Zunc^^^ opined that going by prevailing social values,
550 Brown J e n k i n s o n 8& Co. Ltd. v. Percy Dalton (London) Ltd. (1957) 2 QB 6 2 1 .
551 Clay V. Yates (1856) I H&N 7 3 : 25 LJ Ex. 2 3 7 .
552 See, The Indian Contract Act, 1872, Section 2 3 , Illustration (J) & (k).
553 Chogalal v. Piyari (1909) 31 All. 58; Kali Dassi v. Kunai Lai De, AIR 1921 Cal.
4 8 6 ; Pranballav v. Tulsibala, AIR 1958 Cal. 7 1 3 ; Beni M a n c h a r a m v. Regina
Stranger (1907) 32 Bom. 5 8 1 .
554 Bai Vijli v. Nansa Nagar (1885) 10 Bom. 152.
555 Manicka G o u n d e r v. Muniammal, AIR 1968 Mad. 392; G u m m a v. Ram C h a n d r a
Rao, AIR 1925 All. 4 3 7 .
556 Narayani v. Pyare Mohan, AIR 1972 Raj. 2 5 .
557 (1959) 2 5 C A 3 4 2 .
558 AIR 1 9 7 6 A P 1 1 2 .
559 (1991) 3 s e c 6 7 .
254
an agreement having tendency to injure public interest or public
welfare is opposed to public policy. The Kerala High Court in M.K.
Usman Koya v. C.S. Santha^^^ said that the term 'public policy' has
an entirely different and more extensive meaning than the meaning of
term 'policy of law'. It does not remain static. Judges have to interpret
it taking a substantial guidance from precedent. However, there has
been dispute as to invention of new heads of public policy beyond the
established categories in England.56i Lord Atkin has opined:
"The doctrine should only to invoked in clear cases in which the

harm to the public is substantially incontestable, and does not depend
upon the idiosyncratic inference of a few judicial minds.^^^
The Indian courts have endorsed this viewês and the Supreme
Court of India, in Gherulal v. Mahadeoda^^"^ opined:
"Public policy or the policy of the law is an illusive

concept; it has been described as an "untrustworthy
guide", "variable quality", "unruly horse" etc; the
primary duty of a court of law is to enforce a promise
which the parties have made and to uphold the
sanctity of contract which forms the basis of society,
but in certain cases, the court may relieve them of
their duty on a rule founded on what is called public
policy, ... this doctrine of public policy is only a branch
of common law, and just like other branches of
common law, it is governed by precedents, the
principles have been crystallized under different heads
and though it is permissible for courts to expand and
560 AIR 2 0 0 3 Ker. 191.

561 See, Egerton v. Brownlow (1853) 4 HCL 1, 123: lOER 359, 4 0 8 ; Fender v. J o h n
Mildmay (1938) AC 1; Richardson v. Mellish (1824) 2 Bing 2 2 9 , 2 5 2 ; Monakland
V. J a c k Barclay Ltd. (1951) All. ER 7 1 4 , 7 2 3 ; Mirams, Re (1891) 1 QB 594, 595;
Printing & Numerical Registering Co. v. S a m p s o n (1875) LR 19 Eq 4 6 2 , 4 6 5 ;
J a n s o n v. Driefontein Consolidated Mines (1902) AC 4 8 4 , 500.
562 In Fender v. ST. J o h n Mildmay (1938) ACL
563 See, Srinivas Das Lakshmi Narayan v. Ram R a t t a n d a s ILR (1920) 6 Bom. 20;
B h a g w a n t Genuji v. G a n g a b i s a n Ram Gopal, ILR 1914 Bom. 7 1 ; Gopi Tinadi v.
Gokhei P a n d a ILR 1953 C u t 5 5 8 ; Indian Oil Corporation Ltd. v. Raj Unocal
Lubricants, (1997) 2 Mah LJ 281 T r a n s o c e a n Shipping Agency, P. Ltd. v. Black
Sea Shipping, AIR 1998 S C 7 0 7 .
564 AIR 1959 SC 7 8 1 : (1959) 2 SCA 3 4 2 , 370.
255
apply them to different situations, it should only be
invoked in clear and incontestable cases of harm to
the public; though the heads are not closed and
though theoretically it may be permissible to evolve a
new head under exceptional circumstances of a
changing world, it is advisable in the interest of
stability of society not to make any attempt to discover
new heads in these days."
Lord Denning had expressed an opinion to the contrary,565 and
in the later part of the twentieth Century, the decisions of Indian
Courts have indicated towards change is the stand of judiciary on the
issue of expansion of the principle of public policy. In Rattan Chand
V. Asfcar,566 the Andhra Pradesh High Court opined:
"In a modem progressive society with fast changing

social values and concepts, it becomes more and more
imperative to evolve new heads of public policy,
whenever necessary, to meet the demands of new
situations."
If considerations and objects are unlawful in part, the
agreement is void.567 But where there are two sets of distinct promise,
and the void part of the contract can be properly separated from the
rest, the latter does not become invalid.5^8
565 In, Enderly Town Football Club v. Football Association Ltd. (1970) 3 WLR 1 0 2 1 .
566 AIR 1976 A.P. 1 1 2 . For u n d e r s t a n d i n g t h e working of t h e doctrine of 'public
policy', See, Central Inland Water T r a n s p o r t Corpn. Ltd. v. Broja Nath AIR 1 9 8 6
SC 1 5 7 1 ; Delhi T r a n s p o r t Corpn. v. DTC Mazdoor Congress, AIR 1991 SC 1 0 1 ;
Associated C e m e n t C o m p a n i e s Ltd., AIR 1991 SC 1 0 1 . To u n d e r s t a n d w h a t is
not covered u n d e r 'Public Policy', See P.K.K. N, AIR v. State of Kerala, AIR 1989
Ker. 2 5 3 ; ABC L a m i n a r t Pvt. Ltd. v. A.P. Agencies, Salem, AIR 1989 SC 1 2 3 9 ;
Vipul Rai S h a r m a v. L u d h i a n a I m p r o v e m e n t Trust, AIR 1992 P 85 H 4 2 ; T.T.
Angustine v. C h a n g a n a Cherry Municipality, AIR 1982 Ker. 3 7 ; Oswal Agra
Finance Ltd. v. Oswal Arya P u r a n c e Workers Union, AIR 2 0 0 5 SC 2 3 0 6 ;
Z o r a a s t r i a n Cooperative Housing Society Ltd. v. District Registrar, Cooperative
Societies (Urban), AIR 2 0 0 5 SC 2 3 0 6 ; State of Rajasthan v. B a s a n t N a h a t a , AIR
2 0 0 5 SC 3401;B.A. Kanakadevi v. CSID, Kerala M a h a Idavaka,AlR 2 0 0 8 Ker. 3 8 .
567 The Indian Contract Act, 1872, Section 24; See also. Illustration to Section 24.
See, Alice Mary Hill v. William Clarke, ILR (1905) 28 All. 266; Roshen v.
Muhammad (1887) Punj. Rec. No. 46.
568 L i e of India v. Devendroppa, AIR 1 9 8 7 Kant 199; Central Inland Water T r a n s p o r t
Corpn. V. B.N. Ganguly (1986) 3 S C C 156: AIR 1 9 8 6 SC 1 5 7 1 . See also, U.K.
U s m a n Koya v. C.S. S a n t h a , AIR 2 0 0 3 Ker. 1 0 1 : (2003) 41CC 2 3 9 .
256
4.3.2 Consent Vitiated by Fraud and its Legal Implications
From the elaboration hitherto, it is clear that contract is an act

of consent. Considerably, the presence and absence of any ingredient
in formulation of contractual obligation, is very important. It means
when the parties sustain any contract, the law impliedly postulates all
the elements, which ultimately resolve themselves into a bilateral
contractual obligation. Consent of the parties is one distinct and
important part of these postulated elements. When, the parties enter
into a contract to carry on the banking transactions the factors of
consent may not be present due to fundamental errors like coercion,
under influence, fraud, misrepresentation or mistake. In case, any
kind of ambiguity occurs, and a party to the contract pleads that the
consent which is one of the essential elements of Section 10 of Indian
Contract Act, 1872 is not free, the legality of the contract is in danger
and can be challenged. The apparent and real consent in the
transactions of banking is very important. If the parties never really
intended to enter into a contract, but the compulsive forces in the
nature of undue influence, fraud etc. as above mentioned, exist, in
those situations, the contract can be challenged in the court of law.
The researcher would like to point out here that if the consent which
is taken from the parties is mala fide, instead of bona fide, the
repercussions of such transaction creates an intentional act which
amounts to fraud. To understand the magnitude or ambit of
emergence of these situations, which amount to coercion, under
influence, fraud, misrepresentation and mistake, the broad analysis of
relevant provisions under Indian Contract Act is proposed to be
deliberated critically in this study.
Consent vitiated by Fraud
The most sinister of all the elements vitiating the consent of a

party to a contract is 'fraud'. 'Fraud' as an element vitiating
contractual consent contains an apparent evil character, known as
257
'mens rea' in the field of criminal law, which is not so prominent in the
other four factors vitiating consent under Section 14 of the Indian
Contract Act, 1872, namely, coercion, undue influence,
misrepresentation and mistake.
Fraud is something much more than mere misrepresentation.^^^

To buy goods with the intention of not pa5dng for it is fraud.^ô To
obtain a loan by misrepresenting the purpose for which it was needed,
is also fraud through the purpose may not be unlawful.57i However,
mere failure to fulfill a promise is not fraud unless from the outset the
promisor intended not to fulfill it. 572 "And a mere false statement is
not fraud.573 it is fraud when one man causes another to act on a false
belief by a representation, which he does not believe to be true. He
need not have definite knowledge or belief that it is not true.574 j \ mere
nod or a wink or even an indicative smile may amount to
misrepresentation, if it is intended to induce the other party to believe
in a certain state of facts.^75
One thing that must always be kept in mind is that under the
Contract Act, the effect of fraud is studied only so far as consent to a
contact is brought about by it. Fraudulent acts during the course of
performance of the contract are not covered by Section 17^76 but the
types of conduct that give rise to an action of deceit at common law
have been narrowed down to rigid limits."^77
In the celebrated case of Derry v. Peek, Hannen, J. said:
569 Niaz A h m a d v. P u r s o t a m C h a n d r a , AIR 1931 All. 154.

570 C l o u g h V. L.86N.W.R. Co., (1871) LR of E x 2 1 , i n Exch: (1861-73) All E R Rep 6 4 6 .
571 Edington v. Fitzmaurice, (1885) 29 Ch.D. 459-480, 483.
572 Moung Shwe v. Chet, 42 I C 113.
573 Kamal Kant Paliwal v. P r a k a s h Devi Paliwal, AIR 1976 Raj. 79.
574 R.c. Thakkar v. Gujarat Housing Board, AIR 1973 Guj. 34.
575 Avon County Council v. Hawleh (1983) 1 All ER 1073 (Payment of money); R. v.
Williams (1980) Crim. LR 589 (tendering absolute foreign bank notes to a
currency dealer).
576 See, Fazed D. Allana v. M a n g a l d a s M. P a k v a s a (1922) ILR 4 6 B o m . 4 8 9 .
577 Cheshire and Fifoot, Law of Contract 264 (11* edn.).
258
"I take the law to be that if a man takes upon himself
to assert a thing to be true, which he does not know to
be true and has no reasonable ground to believe to be
true, in order, to induce another to act upon the
assertion, who does act and is thereby damnified, the
person damnified is entitled to maintain an action for
deceit-^s^s
In the same case in appeal. Lord Herschell opined:
"Fraud is proved when it is shown that a false
representation has been made (1) knowingly, or (2)
without belief in its truth, or (3) recklessly, careless
whether it is true or false."^79
Honesty of representor's belief negatives fraud. In testing such
honesty, the representor's statement must be considered according to
its meaning as understood by him.^so jt is not necessary to show that
in making the statement the representor's motive was dishonest.^si
However negligent a person may be, he cannot be liable for fraud, nor
will carelessness on his part suffice to prove fraud. To amount to
fraud the conduct of the representor must be deliberately
dishonest.^^2
The law of fraud is a very wide and extensive branch of

legislature and it plays a very important part in the administration of
justice, not only in civil cases but also in criminal trials. It has to be
applied in many tangled cases of great niceties. As fraud is infinite in
variety and is ever increasing and as the fertility of man's invention in
devising new schemes of fraud is interminably great, the true and
correct scope and import of fraud eludes the fixation of boundaries,
and courts have always avoided hampering themselves by defining or
578 (1887) 37 Ch.D. 541 (578).

579 (1889) 14 App. Case 3 3 7 , 374.
580 See, Akerhielm v. Mare (1959) 3 All. ER 4 8 5 : (1959) AC 789; Gros v. Lewis
Hillman Ltd., (1969) 3 AH. ER 1476: (1970) 1 Cb. 4 4 5 .
581 See, PolhiU v. Walter (1832) 3 B&Ad. 1 ] 4 ; Denton v. G.N. Ry. (1856) 5 E & B 860;
Brown J e n k i n s o n 8E CO, Ltd. v. Persy Dalton (London) Ltd., (1957) 2 QB 6 2 1 .
582 R. V. S i n c l , AIR ( 1 9 6 8 ) 3 All. E R 2 4 1 .
259
laying down a general proposition what shall be held to constitute
f r a u d . 583
Keeping this perspective in mind, under the Indian Contract

Act, 1872, Section 17 provides a wide and inclusive definition as
under:
"Fraud" means and includes any of the following acts committed

by a party to a contract, or with his connivance, or by his agent, with
intent to deceive another party thereto, or his agent, or to induce him
to enter into the contract -
(i) The suggestion, as a fact, of that which is not true, by one who
does not believe it to be true;
(ii) The active concealment of a fact by one having knowledge or
belief of the fact;
(iii) A promise made without any intention of performing it;
(iv) Any other act fitted to deceive;
(v) Any such act or omission as the law specially declares to be
fraudulent.
For an actionable fraud it must be proved, that:
(1) A material representation has been made to the victim by the

person committing fraud;
(2) Which is false to his knowledge or is recklessly made without
knowledge of its truth;
(3) With the intention that the other party be induced to act upon
it;
(4) That the other party did act upon such representation; and
(5) Thereby suffered injury.^s^
Under Section 17, the person committing fraud may be the
party to a contract, or he may be making someone else commit the
fraud with his connivance or be his agent, and it may be committed
583 Raddaway v. Barban, 65 LJ. Q.B. 381; Allcard v. Skinner (1887) 36 Ch.D. 145.
58'* People's Insurance Co. v. Sardul Singh, AIR 1762 Punj. 543 at 547.
260
against the party thereto or his agent or to induce him to enter into a
contract. Thus, fraud by a stranger does not attract Section 17.
It is further required that the alleged fraud must be relied on. As

held in Hersfall v. Thomas^^^ a representation that does not deceive
is not fraud. Though it has been held that an intention to deceive is
not necessarily an intention to injure or to cheat.586
Explanation to Section 19^87 makes this point clear. Based on

the maxim, 'Hand enim deciptur qui scit se decipi', meaning thereby
that it does not constitute fraud if the other party knows the truth and
sees through the artifices or devices. Though, no person can take
advantage of his own fraud.^88
Indeed, of fraud no definition is possible. It is infinite, crescit in

orbe daZus. 589
"Fraud is infinite in variety... and it is the fraud, not

the manner of it, which calls for the interposition of
the Courf.sô
Fraud has a wider meaning, far wider than the definition given
in the Act. Thus, a decree may be set aside for fraud.59i
To further deliberate the exploration of this conceptualized term,

to know the proper identification and magnitude, the different
manifestations of fraud further critically interpreted as under:
(i) Firstly, Suggestion, as a fact, of that which is not true by one

who does not believe it to be true.
585 6 LT 862.
586 The Indian Contract Act, 1872, Section 19. Explanation - A fraud or
misrepresentation which did not c a u s e the consent to a contract of the party of
whom s u c h fraud w a s practices, or to whom s u c h misrepresentation w a s m a d e ,
does not r e n d e r a contract voidable.
587 United Motor Finance Co. v. Addison & Co. Ltd., AIR 1937 PC 2 1 .
588 M u t h a p p a Chettiar v. Venus A s s u r a n c e Co. Ltd., AIR 1944 Mad. 2 8 1 .
589 Umrao Begum v. Sheikh Re-hmat Ilahi, 186 I.C. 77: 1939 Lah. 4 3 9 .
590 Reddayay v. B a n h a m , 1896 AC 199.
591 Shinhomal v. Manager, E n c u m b e r e d Estates, 25IC 7 8 9 .
261
Suggestio falsi, an untrue or false statement by a person is
fraud, if made by a person not believing in its truth and the person to
whom it has been made, relies and acts on the basis of such
statement. If A makes a statement to B, which A knows to be untrue
and does so with a view to induce B to enter into a transaction, there
is sufficient basis for an action of deceit provided B relied upon the
statement. If, however, it can be shown that A did not appreciate that
it was not the truth, this will be consistent with honesty and will
ground no charge of fraud.^^2 7he degree of falsity of statement
required under Section 17 to establish fraud also depends on the
nature of contract being entered into. For instance, contract of
insurance are contracts uberrima fides,^"^^ thus every fact material to
such contracts must be disclosed and if not done so, it is a good
ground for rescission of contract. The question that arises here in
context of present study is if the contractual relationship between
bank and customer is also of utmost good faith? Because, if it is, then
not only the false statement by either party, but non-disclosure of
material information also can lead to rescission of contract.
(ii) Secondly, the active concealment of a fact by one having

knowledge or belief of the fact.
The concealment or suppression of material facts is falsehood

and fraud as bad as a direct lie.594 in Peek v. Gumey,^^^ the House of
Lords upheld the liability for a suppressio veri, which if it did not
amount to an allegatio falsi, at least amounted to a suggestio falsi."
However, mere concealment will not be sufficient to give a right of
action to a person who, if the real facts had been known to him, would
592 U n i t e d M. F i n a n c e Co. v. A d d i s o n & Co., 4 1 CWN 4 8 2 .

593 See, London Assurance v. Mansel, 11 Ch.D. 63, 367:; S. Subramaniam v. H.G.I.
Society, AIR 1972 Mad., 196.
594 v.G. Ramchandran, The Law of Contract in India, Vol. 1, 579 (Eastern Book
Company, Lucknow, 2"^ edn. 1984).
595 (1873) LR6 HL403.
262
never have entered into the contract; there must be something actively
done to deceive him and draw him to deal with the person withholding
the truth from him.596
(iii) Thirdly, a promise made with the intention of breaking it stands

on the same footing with a contract of purchase of goods with
intent not to pay.597
However, there must be proof that there was no intention of

performing the promise. A mere breach of contract does not raise the
presumption of lack of intention to perform the contract at the time of
making it.^^s When advance of loan was taken to improve property
and develop business, but the amount was actually used to pay old
debts, it was held to be a representation made without the intention of
performing it, it was further elaborated in this case that a declaration
as to one's intention is indeed a representation of an existing fact,
namely, the state of his mind. Representing the intention without the
desire to carry it out is fraud within the meaning of clause (3). A
statement of a man's mind is as much a fact as the state of his
digestion. 599
Under the banking functions, a loan taken with the intention of

appropriating the money to some purpose other than for which it was
sought to be approved, would amount to fraud under clause (3) of
Section 17.
(iv) Fourthly, it deals with any other act fitted to deceive.
As per V.G. Ramachandran, this clause is based on the dictum

of Lord Coke in Twynes ccLse,^^^ wherein he observed:
596 Perk V. G u m e y , LR 6 HL 3 7 7 , 3 9 1 .
597 Clough V. L & NWR & Co., (1871) LR 7 Ex. 2 6 .
598 D a d u V. N a n a (1910) 12 Bom. LR 9 7 2 ; Hargovindas, 9 BHC 4 4 8 .
599 E d d i n g t o n v. Fitz Maurice (1885) 2 9 C h D 4 5 9 .
^°o Smith's leading cases 1.
263
"Because fraud and deceit abound in these days more
than in former times it was resolved by the whole court
in this case that all statutes made against fraud
should be liberally and beneficially expounded to
suppress the fraud."
V.G. Ramchandran further opines that hence, the words 'any
other act filled to deceive' are found in clause (4). He further holds
that this is to provide for all possible cases of fraud which man's
ingenuity can invent by surprise trick, cunning, and other unfair way.
However, to fall under clause (4), the intention to deceive and the
fitness of the act for deceit must be present.ôi
This clause is provided with intent to help law to stay a step

ahead of the innovative and ingenious fraudster. As it has been seen
that the fraudster devise new and hitherto unthought-of ways of
defrauding people and in the present times, when money is moving
electronically, banks are becoming a alluring target to fraudsters.
Thus, this clause will come handy in dealing with new-age banking
frauds.
(v) Lastly, any such act or omission as the law specially declares to
be fraudulent.
Sometimes, law itself expressly requires a party to a contract to

disclose a fact, and non-compliance with such laws is expressly
declared to be fraud. A commonly quoted example is of Section 55 of
the Transfer of Property Act, 1882, whereby the seller of immovable
property is required to disclose to the buyer any material defect in the
property of which the seller is, and the buyer is not, aware and which
the buyer could not with ordinary care, discover. An omission to make
such disclosure is fraudulent under the very same Section.
60' Supra Note 595 at pp. 582- 583.
264
As held in Steel Equipment and Construction Co. (P) Ltd.*s
case,^^^ where a contract is against the policy of bankruptcy law or is
brought about through a secret agreement between the bankrupt and
the third party; it is nothing short of a fraud on bankruptcy law. No
bankruptcy court will allow proof of such a contract.
Silence as Fraud
Explanation to Section 18,^03 rnakes it clear that silence as to

facts, is not fraud per se, unless there is a duty to speak or when
silence is equivalent to speech. Lord Selboume is said to have laid
down the law on this subject in Cooks v. BosweW^'^
"Inasmuch as a purchaser, generally speaking, is

under no antecedent obligation to communicate to his
vendor facts which may influence his own conduct or
judgment when bargaining for his own interest, no
deceit can be implied from his mere silence unless he
undertakes or professes to communicate them. This,
however, he may be held to do, if he makes some other
communication which, without the addition of these
facts, would be necessarily or naturally or probably
misleading. If it is a just conclusion that he did this
intentionally and with a view to mislead on any
material point, that is fraud, and it is a sufficient
ground for setting aside a contract, if the vender was
in fact so misled."
However, disclosure of part of known facts and suppression of
some facts which render the whole statement misleading, will make
the statement false in substance and the willful suppression of some
facts, fraudulent.^05 j ^ Budha Singh v. Lakshmi Chand^^^ it was
602 (1967) 1 Com. LJ 172.

603 The Indian Contract Act, 1872, Section 18, Explanation - Mere silence as to
facts likely to affect the willingness of a person to enter into a contract is not
fraud, unless the circumstances of the case are such that, regard being had to
them, it is duty of the person keeping silence to speak, or unless his silence is,
in itself, equivalent to speech.
604 11 App cases 232, 235, 236.
605 Peek V. G u m e y (1873) LR6 HL 392; S u b r a m a n y a Chetly v. Official Assignee, AIR
1931 Mad. 603.
606 (1930) 11 Lah 167; Peek v. Gumey (1873) 6 HL 377-392.
265
held where it is not his duty but yet one speaks, he has to do it whole
hog and not partially lest he mislead the other party. In R.C. Thakkar
V. Gujarat Housing Board,^^'^ it was held that the explanation to
Section 17 cannot be invoked in positive cases of active fraudulent
representation which is instrumental in formation of the contract. The
representation must be false in substance as well as in fact,
An Insurance Company can avoid a contract if policy-holder's

statement on a material matter is (1) wrong or there is suppression
thereof (2) such suppression is fraudulent (3) he had knowledge at the
time of making of the statement that it is false and it pertains to a
material fact.ôs Such duty arises in cases of contract of insurance, on
part of the party having means of knowledge of all material facts.^^^
This need of disclosure arises either due to fiduciary

relationship between the parties e.g. in case of insurance contracts,
trust and partnership etc. or due to statutory requirement e.g. in case
of principal agent.îo buyer-seller,6ii lessor-lessee,^!^ surety-
creditorî^ and the like.
With reference to the present study under hand, the question

arises whether contractual relationship between Banker and
Customer can be covered under this explanation to make disclosure of
material facts compulsory. Since voluntary disclosure becomes all the
607 AIR 1 9 7 3 Guj. 3 4 , relied o n 4 1 CWN 4 8 2 (PC): AIR 1 9 3 7 PC 2 1 ; Govinda Naik v.

G u r u Rao, AIR 1971 Mys. 3 3 0 .
608 Lie of India, South Zone v. B. Chandravadhamma, AIR 1971 and Pr 41; LIC of
India v. Canara Bank Ltd., AIR 1974 Mys. 51.
609 Western India Life Insurance Co. v. Asuna Sarkar, AIR 1942 Cal. 412. See also,
AIR 1939 Cal 8;, AIR 1944 Mad. 281.
611 The Transfer of Property Act, 1882, Section 55.
612 Id., Section 1 0 8 .
266
more important keeping in view latest development that RBI has done
away with the requirement of introducer for opening an account.î"*
Criticism of keeping silence out of fraud's domain, this principle

may be good between seasoned businessmen but ignorant and neon
party such as individual, customer of banking service is unnecessarily
burdened by this provision.
Proof of Fraud
In cases grounded on fraud, it is incumbent on the plaintiff to

place on record the precise and specific details of the fraud alleged
and it is for the court to insist upon it even if no objection is taken by
the parties.615 Order 6, Rule 4 of Code of Civil Procedure, IQOSîs
provides that particulars of fraud should be given in the pleading.
Though as fraud is committed in deceitful and hidden manner,

it is difficult to be proved, still it can be inferred from other facts.^^'^
However, it must be kept in mind that the facts of frauds or collusion
are to be drawn by inference from positive materials on record and not
on surmise sî^ , though no fraudulent motive beyond that of obtaining
the agreement need be made out.î^
^'4 T h u s KYC n o r m s are i m p o r t a n t a n d a s per RBI Directions, all B a n k s are

s u p p o s e d to comply with t h e s e r e q u i r e m e n t s .
615 B h a r a t D h a r m a Syndicate Ltd. v. Harish C h a n d r a , AIR 1937 PCI 46: (1937) 2
MLJ650; Gunga Narain v. Tiluckram, 15 lA 119.
<^'6 The Code of Criminal Procedure, 1908: Order VI, Rule 4. Particulars to be given
where necessary - In all c a s e s in which t h e party pleading relies on any
misrepresentation, fraud, b r e a c h of trust, willful default, or u n d u e influence,
a n d in all other c a s e s in which particulars may be n e c e s s a r y beyond s u c h a s are
exemplified in t h e forms aforesaid p a r t i c u l a r s (with d a t e s a n d items, if
necessary) shall be stated in the pleading.
61^ See, T h a n g a c h i v. Ahmed Husain, AIR 1957 Mad. 194; Giribale v. Ashandini
Debi, AIR 1955 Ass 177.
618 Passarilal Manroolal v. C h u t a n b a l , 1957 MPLJ 7 6 9 .
619 Yog Raj V. K u l d e e p Raj G u p t a , AIR 1 9 9 1 , J & K 2 6 .
267
Burden of Proof
Since the law generally presumes in favour of the validity of a

contract, the person who alleges that he has been induced to enter
into a contract by fraud must establish the fact.620 Lord Blackburn
emphasized that the party seeking the annulment of decree on the
ground of fraud is under an obligation to specifically state the
particulars as to how he was kept out of knowledge of his rights by the
fraudulent acts of the other party and the time when he discovered
it.^21 Numerous judgments of different High Courts in India have time
and again re-affirmed the principle that the burden of proof is very
high on the plaintiff in cases of allegations of fraud.^22
Legal Implications of Lack of Free Consent
'Free Consent' is one of the essential elements for creation of a

contract.623 xhe absence of 'free consent' vitiates the agreement. The
degree of effect of lack of free consent is different with respect to
different elements vitiating free consent namely, coercion, undue
influence misrepresentation, fraud and mistake.
In case of consent being caused by coercion, fraud or

misrepresentation, the party where consent has been so obtained can
rescind the contract or affirm it with the option of being put in
position in which he would have been if the consent had not been so
caused.624 The affirmation of the contract may be express or
620 Boo J i n a t h o o v. S h a Nagar Valab (1886) ILLR 11 Bom. 7 8 ; Davis v. National Fire
Insurance Co., (1891) A C 485.
621 Smith V. Chadwick (1884) 9 AC 187, See, Feset v. Hill (1854) 139 ER 400:
100RR318.
622 See, Hims Enterprise v. Ishak Bin Subari (1992) 1 CLJ 132 (HC); Krishna Wanti
V. Lie of India, AIR 2000 Del. 63; John Thomas v. Jaseph Thomas, AIR 2000
Ker. 408; Dinesh Tulsidas Sheth v. Hem Chandra Ganpat Desai, 1999 AIHC
1719 (Bom.); Jibrail Mian v. Talu Turi, AIR 2004, J h a r 139.
268
implied.625 ^ ^ election once made cannot be revoked.^26 whatever the
choice made, it is enforceable with respect to both the parties.^27
However, the right to rescind can be lost in case the wronged party
has affirmed it,628 or by the lapse of reasonable time after discovery of
misrepresentation,629 QJ- mistake before the contract has run its full
period;630 or/and under the Limitation Act, 1963, within three years
from the date of discovery of the mistake or fraud;^^! or when a third
party, acting in good faith has acquired rights in the subject-matter of
the contract.632 Further, the right to rescind can be exercised only if
the party seeking the rescission is in a position to restore the benefits
received from the other party to the contract. ^33 Further, the remedy of
recession can be availed only if restitutio in integrum^^'^ is possible. The
mode of recession is the same and subject to the same rules as
applies to the communication or revocation of a proposal.^35 And the
party rightfully rescinding the contract is entitled to compensation for
any damage which he has sustained due to the non-fulfillment of the
contract.636 The measure of damage is same as applicable for tort of
<^25 Murlidhar Chatterjee v. International Film Co., AIR 1943 PC 34.

626 Beale v. Kyte, (1907) 1 Cb. 564; T h o m p s o n v. Hickman (1907) 1 Ch 550;
Mackenzie v. Childers (1889) 8 Fq. 3 6 8 .
627 The Indian Contract Act, 1872, Section 6 4 . Ppa Hire Kurabar, AIR 1968 SC 9 5 8 .
628 Ningawwa v. Byrappa S h i d d a p p a Hirekurabar, AIR 1968 SC 9 5 6 , 9 5 8 : (1968)
2SCR 7 9 7 , 8 0 0 - 1 ; Quoted from Clough v. London & N.W. Rly Co. (1871) LR 7 Ex
26, 34.
629 Christineville Rubber Estate Ltd. Re (1911) 81 LJCR 6 3 ; J a g a n n a t h Pd, Re, AIR
1938 All. 193; See also Ram Rattan v. Sushil C h a n d , (1985) 87 Punj LR 2 8 3 .
630 Oriental I n s u r a n c e Co. Ltd. v. Mantora Oil Products P. Ltd., (2000) 10SCC26;
Surjit Kaur v. Naurata Singh (2000) 7 SCC 379, AIR 2 0 0 0 SC 2 9 2 7 .
631 See, The Limitation Act, 1963.
632 Phillips V. Brooks Ltd., (1919) 2 KB 2 4 3 ; also known a s 'just tertiV, IVS, p . 2 3 2 .
See Also, O a k e s v. T u r q u a n d , (1867) 2HL374 cf. Hirji Khetsey v. Indian Specie
Bank, 27 I C 5 0 5 ; Clarke v. Dickson (1858) 120 ER 4 6 3 : 113 RR 4 8 3 .
635 Jd., Section 7 5 ; See also (English) Misrepresentation Act, 1967, which provides
remedy of d a m a g e s for innocent misrepresentation a s well, which w a s till t h e n
available only for against fraud.
636 Article 'Restitutio in integram (1939) 55 LQR 9 0 - 1 0 5 . Quoted in Supra Note 3 7 3
at p. 23\.'Restitutio in Integrum' m e a n s if the court finds it possible to p u t the
parties b a c k in the position which they occupied before t h e contract w a s m a d e .
269
deceit.637 Such damages include all the actual loss directly flowing
from the transaction induced by the fraud, including the head of
consequential loss and not merely the loss which was reasonably
foreseeable.638
However, in case of misrepresentation or by fraudulent silence

as per Section 17, if the party, whose consent was so caused, had
means of discovering the truth with ordinary diligence, cannot avoid
the contract.639 Likewise, a fraud or misrepresentation which did not
cause the consent to a contract of the party on which such fraud was
practiced or to whom such misrepresentation was made, does not
render a contract voidable.^ô
Further, the party whose consent is not free due to mistake,

misrepresentation or fraud can also successfully defend action for
damages due to breach of contract or action for specific
performance.^'* 1
Section 72 of the Indian Contract Act provides for liability of a

person to whom money has been paid or thing delivered by mistake or
coercion. By virtue of this provision, if money is paid by mistake or
upon a consideration which happens to fail to coercion or oppression
or undue advantage taken of a party's situation in a manner contrary
to law. Protection is provided to the aggrieved party under this
Section. This provision provides that when a person to whom money
has been paid or delivered by mistake or under coercion must repay
or return it.
f'37 Anson's Law of Contract 241 (27'h edn.).

638 Smith New Court Securities Ltd. V. Scrimgeour Vickers (Asset Management) Ltd.
[1997] AC 254, (1996) 4 AllER 769(HL).
<^39 The Indian Contract Act, 1872, Section 19, Exception.
(>'^ Id., Section 19, Explanation.
(^î Supra Note 373, p. 230.
270
The Indian Contract Act under Chapter VI deals with
consequences of breach of contract. Section 73 provides that where a
contract is broken, the party suffering from breach of contract is
entitled to receive compensation from the party which has committed
the breach of it. To the extent for any loss or damage which naturally
arose in the usual course of things from such breach or which the
parties knew, when they made the contract, to be likely to result from
the breach of it. However, the second paragraph of this Section
specifically excludes the remote or indirect loss or damage. It means
that any damage suffered by the aggrieved party is to be recompensed
by the banks in case of breach of contract. Additionally, a
consequential economic loss occurring directly due to such breach in
the eyes of the court of law, such loss can also be compensated.
Whereas the plain reading of Section 74 of the Indian Contract

Act further provides remedy of pre-determined compensation for
breach of contract. The party in default is to pay the stipulated sum of
money to the other and agree that in the event of breach by one party
any amount paid by him to the other shall be forfeited. It is the pre-
estimated sum of damages that is likely to flow, is called liquidated
damages.
It is pertinent to mention here that so far Section 72 is

concerned; it is invoked when breach of contract is because of mistake
or coercion; whereas this Section general in nature provides remedy to
compensate the aggrieved party by restoring them to previous
condition.
The understanding of this provision will remain in abeyance in

case of Usurious Loans Act, 1918. This Act empowers court to relieve
against exorbitant interest in case of excessive interest and
271
substantially unfair transaction.^^2 Under the Banking Regulation Act
of 1949 restricts the power of the court to reopen a transaction
between a banking company and its debtor on the ground that the
rate of interest charged is excessive.^^3 The Supreme Court has held
that the court cannot interfere and reduce the amount of interest
agreed to be paid on loans taken, even when the rate is prescribed at a
compound rate.^'*'* However, the Supreme Court has held banks to be
bound by the circulars issued by the RBI.645
In the light of above observations, it is clear that this legislation

on inter-vivos contractual relationships provides ample scope for every
kind of implication for contractual obligations to every possible extent.
Direct recognition of 'fraud' as a factor vitiating contract has been
done by this legislation and covers certain instances of banking frauds
under its ambit. The remedy of compensation attracts the victims of
banking frauds towards this civil remedy, and the long pendency of
court cases discourages them.
4.4 LEGAL PERSPECTIVE TO CURB THE MENACE OF BANKING

FRAUDS UNDER THE LAW OF TORTS
The law of torts, a creation of common law system, is that

branch of justice delivery mechanism which provides relief in those
civil matters wherein otherwise the legislature scheme has failed to
provide. A tort is generally understood as a civil wrong other than
6^2 The Usurious Loans Act 1918, Section 3.

643 The Banking Regulation Act 1949, Section 21 A.
s-^^ The State Bank oflndiav. Yasangi Venkateshwara Rao, AIR 1999 SC 896.
6« Corporation Bank v. U.S. Gowda (1994) 5 SCC 213; in this case the Supreme
Court reversed the Kamataka HC decision of Corporation Bank v. D.S. Gowda,
AIR 1983, Kant. 143.
272
breach of contract and breach of trust,646 the remedy for which is a
common law action for unliquidated damages.^'*'^
Fraud as a civil wrong has its originating roots in law of torts.

As the discussion so far has shown in contractual issues also courts
have looked towards common law meaning of fraud to apply it as an
element vitiating contract. Under law of torts, 'Deceit or Fraud' is
covered under the head 'Liability for misstatements', alongwith the
sub-heads of 'Liability for Negligent Misstatements' and 'Liability for
Innocent Misrepresentation'. This classification of misstatements
makes evident the distinction between fraudulent statements on one
hand and negligent a n d / o r innocent misrepresentations on the other.
Fraud or Deceit
The tort of fraud or deceit is committed when a person

knowingly makes a false statement or representation thereby inducing
the plaintiff to act upon it and becomes actionable when the plaintiff
suffers loss by acting upon it. Thus, the essentials of tort of fraud or
deceit are:
1. A false statement or representation of fact

2. Knowledge of falsity of such statement
3. Intention to deceive the plaintiff, and
4. Plaintiff being actually deceived and suffering loss/damage
caused thereby
646 See, The Limitation Act, 1963, Sec. 2(m).

^"'^ Salmond defined tort a s a civil wrong for which the remedy is a c o m m o n law
action for unliquidated d a m a g e s a n d which is not exclusively the b r e a c h of a
contract or the breach of a t r u s t or other merely equitable obligation. Winfield
said, "Tortuous liability a r i s e s from the breach of a d u t y primarily fixed by the
law. This d u t y is t o w a r d s p e r s o n s generally a n d its b r e a c h is redressible by a n
action for unliquidated d a m a g e s " a s quoted by R.K. Bangia, Law of Torts 4
(Allahabad Law Agency, F a r i d a b a d (Haryana), 22"^ edn., 2 0 1 0 , Reprint 2011).
273
These elements can be understood better with the help of the
following explanation:
1. A false statement or representation of fact
First and foremost, there must be a false statement or

representation of fact to constitute the tort of fraud or deceit. The
statement may be by words of mouth, in writing^'*^ or by conduct^^Q of
the defendant. Like Law of Contract, under law of torts also mere
silence generally would not constitute fraud,^ô except when there is a
duty to speak,651 QJ- there is a sub-sequent discovery about falsity of a
statement,652 only half truth is told causing misstatement,^^^ and if
there is active concealment of defects.654
2. Knowledge of Falsity of Such Statement
Another requirement of imposing liability for tortuous act of

fraud or deceit is that the defendant must have knowledge of the fact
that the statement is false or at least did not believe it to be true. An
honest belief howsoever mistaken cannot be treated fraudulent. While
holding mere negligence insufficient for holding a person liable for
deceit,
In Derryw. Peek,^^^ Lord Herschell observed:
"To prevent a false statement being fraudulent, there

must, 1 think, always be an honest belief in its
truth."656
s^s See, Edington v. Fitzmaurice (1885) 29 Cb. D 459.

649 See, R.V. B a r d a r d (1837) 7 C&P784.
650 See, Sri Krishan v. K u r u k s h e t r a University, AIR 1976 SC 376.
651 See, Jones v. Bowden (1813) 4 Taunt 847; O' Flanagan (1936) Ch. 575: 1936 1
All.ER 727; Kiran Bala v. B.P. Srivastava, AIR 1932 Ail. 242.
652 B r i e s V. Woolley (1954) AC 3 3 3 .
653 See, Arkwright v. Newbold (1881) Ch.D. 3 0 1 .
654 Schneider v. Health (1813) 3 C a m p . 506; Horsfall v. T h o m a s (1862) 1 H8&C 9 0 ;
See Centra, Ward v. Hobbs (1878) 4 AC 13.
655 (1889) 14 AC 3 3 7 .
656 Id., at p.374.
274
Thus, it is only a false statement made with knowledge or
without belief in its truth that attracts the liability for tort of deceit or
fraud. Otherwise, it would be case of highlight misstatement on
innocent misrepresentation:
3. Intention to deceive the plaintiff
The false representation must be made with an intention that

the plaintiff should rely and act upon the representation so made.
However, it is not necessary that the statement must be made to the
party defrauded, it would be sufficient if the defendant knew or had
reason to believe that the statement which is making may be acted
upon by the plaintiff.^57 j ^ ^j-^g same manner, a statement though false
yet not intended to be acted upon by the will not make its maker liable
for fraud or deceit.^^8
4. PlaintifT being actually deceived and suffering loss/damage

caused thereby
The fraud or deceit must be complete by the plaintiffs actually

acting on its basis and having suffered loss due to that. If the
defendant tried but could not deceive he would not be liable.^^^ and
the fact of damage has got to be proven.^ô
All those cases of banking frauds which would fall outside the
ambit of Indian Contract Act, 1872 shall be covered for civil remedies
under the law of torts. As tort law is that branch of civil law which has
remedy for all those wrongs not finding redress anywhere else basing
657 See, Laugridge v. Levy (1837) 2 M&W 5 1 9 ; Also See, Denton v. G.N. Rly. Co.
(1856) 5 E a n d B 3 5 0 .
658 See, Peek v. G u m e y (1873) LR 6 HL 3 7 7 .
ss"* See, Horsfall v. T h o m a s (1862) 1 H 86 C. 20.
660 Dobell V. Stevens (1825) 3 B 86 C 6 2 3 .
275
its scope on the principle of ubijus ibi remedium i.e. where there is a
right, there is a remedy.

BANKING FRAUDS UNDER THE INDIAN EVIDENCE ACT,
1872 WITH SPECIAL REFERENCE TO THE BANKERS'
BOOKS EVIDENCE ACT, 1891
The law of evidence is a component of adjective laws^^^ in

distinction with substantive laws,662 and forms the very foundation of
procedural laws in India along with the Civil Procedure Code, 1908
and the Code of Criminal Procedure, 1973 (which are applicable in
civil and criminal matters respectively). It is the law of evidence which
works to stop the litigation from straying away from the true subject-
matter of the dispute, thereby making the litigation process
structured, precise and less time-consuming from the procedural
point of view.
The law of evidence is peculiar feature of the English-speaking

countries and is believed to be a child of jury system. In India, being a
former colony of the United Kingdom, the British law of evidence got
implanted in the Indian legal system, and it continued to be a part of
procedural laws of Independent India's legal system even after India's
independence from foreign rule in 1947.
&6' Adjective law, also known as 'Procedural Law', is that branch of law that
regulates the process of litigations. In India, presently the Code of Civil
Procedure, 1908, The Code of Criminal Procedure, 1973, and Evidence Act,
1872, primarily constitute this branch of law.
•'^2 Substantive laws are those which define the rights, duties, liabilities, liberties,
restrictions, powers and privileges of their subject-matters. In fact, the area of
substantive and procedural laws is usually determined by exclusion of each
other, and their fields may not always be mutually exclusive. In India, presently
the Contract Act, 1872 Law of Torts, Indian Penal Code, 1860, Transfer of
Property Act, 1882 etc. are major substantive laws along with others.
276
The Indian Evidence Act was enacted to consolidate, define and
amend the law of evidence.^^3 The Act was passed in 1872 and came
into force on l^t September, 1872. The Indian Evidence Act, 1872 is
divided into three Parts (Part I, II, III), XI Chapters and one hundred
and sixty seven Sections, the purpose and scheme of the Act gets
highlighted by the titles of each of the three Parts.
The first part deals with the relevancy of facts, Admissions,

statement of persons, opinion of experts, and relevancy of character.
Part II deals with oral as well as documentary evidence and its
admissibility under various situations. The subsequent part III deals
with production and effect of witnesses where burdens of proof,
estoppels, examination of witnesses etc are discussed. The way in
which evidence is elicited and brought to the notice of the Judge
varies. Two major systems are recognized in Legal history. The
inquisitorial system originated in Romano-canonical procedure. In it
the Judge himself investigates the facts and may call for evidence
additional to that put before him by counsel. This system underlies
criminal procedure in most continental legal systems and system
derived from them. The other is the accusatorial or adversary system
in which the parties and their counsel put before the court the
evidence which they think necessary and sufficient. The Judge doesn't
himself make investigation of the facts save exceptionally, though he
may ask questions of witnesses in supplement of those put by
counsel.
With reference to the study under hand in 1891, a special

legislation on evidence titled 'Bankers' Book Evidence Act, 1891' (Act
No. 18 of 1891) was enacted to amend the law of evidence with respect
to Bankers' books,^^^ and this special legislation is extending to the
<^63 See, The Indian Evidence Act, 1872, Preamble.

66^ The Bankers' Books Evidence Act, 1891, Preamble.
277
whole of India except the State of J a m m u and Kashmir.665 jt lays
down a few special rules of evidence with respect to bankers' books^^^
to ease the prevalent cumbersome job to produce the original bank
documents in every case. The Act does so by accepting and admitting
a certified copy of any entry in a banker's books as prima facie
evidence of existence of such entry.667 However, inspection of books by
order of court or judge may still be done.^ss
The success of administration of justice depends upon the

proper presentation and appreciation of presented evidence in almost
all the cases before the Courts of law. So far as the banking business
is concerned, it is based on written instruments or documents which
are used for negotiation and other purposes. These
instruments/papers are documentary evidences which can
authenticate legality or otherwise of banking transaction. In case any
disparity emerges or there is confusion in any manner relevant to the
banking transactions, this documentary evidence can be produced in
the court of law to find out the true position of fact. Being a
comprehensive legislation, the Evidence Act is applicable in almost all
the cases having whether civil or criminal nature. The Evidence Act
admits evidence only if it is relevant, material, related to subject-
matter and deals with the issues involved in the case. As a procedural
requirement, the parties try to prove other party's intention or
objective beyond a reasonable doubt, which is the standard required
by law.
Till the end of the 2 0 ^ Century, only the oral and documentary
evidence were admissible in the Court of Law as per the provisions
mentioned under the Indian Evidence Act, 1872. In the last decade of
665 Id., Section 1(2).

666 Id., Section 2(3). "Bankers' banks" include ledgers, day-books, cash-books,
account-books and all other books used in the ordinary business of bank.
667 Id., Section 4 .
668 Id., Sections 5 and 6.
278
20th Century, as is well-known, the UNCITRAL gave suggestions to the
UN member nations to enact information technology legislation to
cope with and to meet out the technology related to legal challenges of
21st Century. Responding on the call of UNCITRAL, India also enacted
the landmark legislation i.e. the Information Technology Act, 2000 to
saw the seeds of statutory and regulatory law to control and manage
electronic transactions; and to facilitate and provide legal sanctity to
e-transactions. The Information Technology Act when first came into
existence also amended those legislations which were relevant and
were supposed to facilitate the former in overall legal transformation
due to technological development that is why Section 92 of the
Information Technology Act, 2000 has amended various provisions of
Indian Evidence Act as a result of which the admissibility of
electronic-records along with paper based documents is now
permitted under Indian Law. The major Sections which acknowledge
oral and documentary evidences also start admitting the e-documents
(electronic records) within its purview. For this purpose, the
circumstances mentioned in Section 17 under which an admission is
considered after this amendment acknowledges that a statement
whether oral or written or contained in electronic form, suggesting an
inference as to any relevant fact or issue, made by any of the parties
under various circumstances. An admission which is a statement of
fact which dispenses with the production of evidence by conceding
that the fact asserted by the opponent is true, now considers oral,
documentary and information in electronic form. These amended
words show that whenever there is mis-utilization, alteration,
concealment, ambiguity, doubts about legitimacy of any information
in electronic form, that e-records gets legal sanctity to be produced in
the Courts of Law to facilitate booking the fraudster
defrauders/intruder/any other person responsible for such forbidden
activity with respect to electronic documents. Even the newly inserted
Section 22A provides for relevance of oral admissions as to contents of
279
electronic records in when the genuineness of the electronic record
produced is in question.
More significantly, the entries in the books of accounts

including those kept in electronic form, regularly kept in the course of
business are relevant, whenever they refer to a matter in which the
court has to inquire.669 This is also a relevant provision to fix the
liability of wrongdoer. Similarly, another provision depicts the
relevancy of entries in pubic or official electronic record made in
performance of official duty.^ô Moreover, Section 39 further provides
that the evidence of conversation, document, electronic record books,
series of letters or papers are also important to be acceptable in the
Court of law. Another freshly inserted provision provides that when
the Court has to form an opinion as to the digital signature of any
person, the opinion of certifying authority who has issued the digital
signature certificate, is considered a relevant fact.^î Moreover, special
provisions relating to electronic record has been enshrined under
Section 65A and 65B acknowledging the admissibility of electronic
record. To use digital signature as evidence and to affix electronic
signature Section 85C,672 88A,673 90A,674 131675 deal with
innumerable situations to respond the admissibility of electronic
*>&' The Indian Evidence Act, 1872, Section 34.

671 Id., S e c t i o n 47A.
672 Presumption as to Digital Signature certificate is that it is correct, unless
contrary is proved, except for information specified as subscriber information
which has not been verified, if the certificate was accepted by the subscriber.
673 Presumption as to electronic messages is that the electronic message forwarded
by the originator corresponds with the message as fed into his computer for
transmission.
674 Presumption as to electronic records five years old when produced from proper
custody is that the digital signature which purports to be the digital signature of
any particular person was so affixed by him or any person authorized by him in
this behalf.
675 No person shall be compelled to produce documents in his possession or
electronic records under his control, which any other person would be entitled to
refuse to produce if they were in his possession or control, unless such last-
mentioned person consent's to their production.
280
record. To use digital signature as evidence, to affix electronic
signature to electronic record, Section 73A,676 82A,677 85A,678 85B,679
85C,68o 88A,68i 90A,682 131683 deal with innumerable situations which
respond to the admissibility of evidences whenever called in the Court
of law.
As a whole, to answer the questions in the form of challenges,

this legislation which is landmark in nature is now a tool to find out
the facts which ascertain the responsibilities and liabilities of parties
in given situations. In banking transactions, whenever a fraud is
committed, the legal machinery comes into operation and
procedurally, evidences play a very major role to find out the culprit or
fraudster to give justice to the parties. That is the reason why the
UNICITRAL proposed to amend the Evidence laws of the nations to
find solution to new emerging evidentiary problems. As a matter of
fact, the Bankers' Book Evidence Act, 1891 is equally important
legislations, wherein the banker's books and certified copy related
provisions684 have been amended and new Section 2A has been
inserted to lay down certain conditions in the form of printouts to be
accepted as evidence.
Being an important part of adjective laws, the Indian Evidence

Act, 1872 along with the Banker's Books Evidence Act, 1891 help both
civil and criminal law in their implementation by helping courts in
drawing inferences after proving the authenticity of facts. This
function of these legislations fulfills the primary necessity of finding
676 Proof as to verification of digital signature.

&7^ Presumption as to Gazettes in electronic forms.
6''^ Presumptions as to electronic agreements.
6^9 Presumptions as to electronic records and digital signatures.
680 Presumptions as to Digital Signature Certificates.
^81 Presumption as to electronic messages.
682 Presumption as to electronic records five years old.
683 Production of documents or electronic records which another person, having
possession, could refuse to produce.
684 The B a n k e r s ' Book Evidence Act, 1 8 9 1 , Section 2(8).
281
out the truth in administration of justice. These laws point out to the
latent and patent ambiguities through evidences and provide ample
opportunity for doing justice. This more than a Century old umbrella
legislation still in 21^* of Century after amendments caused by the
enactment of the Information Technology Act of 2000, facilitates
adjudication of matters by providing procedural support to redress the
grievances against the menace of banking frauds.
4.6 SUM UP
An analytical perusal reveals that we, the people of India look

towards the courts as provider of social and economic justice in the
independent modern India. But in a democratic Country, courts have
a positive limitation of acting as 'interpretor of law' and not as 'creator
of law', as the task of creation of an appropriate law is found to be
best suited with the democratic representatives of the people of India
in the Indian Parliament and State Legislatures.
The researcher while looking at the legislative provisions dealing

with the issue of banking frauds in India, found out that a handful of
criminal and civil legislations reveal their connection with diverse
aspects of banking frauds. Under the broad category of general
legislations, the Indian Penal Code of 1860, the Indian Contract Act of
1872, the Indian Evidence Act of 1872 along with Banker's Books
Evidence Act, 1891 and the Law of Torts, despite their antiquity have
created a ground-level to fight against the menace of banking frauds.
Out of these legislations. The Indian Penal Code in particular has
proven itself useful in containing the instances of banking frauds.
However it is evident that these 19* Century legislation despite their
more than Century old mechanism have shown courage in combating
the ever-evolving 21st Century banking frauds.
282

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Cfiapter-lV

LegaCPerspective under generaCLaws

LEGAL PERSPECTIVE UNDER GENERAL LAWS TO CURB

With the passage of time, many legislative steps have been

Under this Chapter, the researcher has tried to incorporate and

4.2 LEGISLATIVE PERSPECTIVE TO CURB THE MENACE OF

Looking at the gravity and the likely effect of banking fraud, it

"A crime is a legal wrong for which the offender is

The Indian Penal Code is a pre-independence legislation,

Ironically the Indian Penal Code of 1860 does not recognize

Penal provisions covering 'banking fraud' are broadly

4.2.1 Conceptual Explanations of Relevant Terms Dealing With

Under Chapter II of the Indian Penal Code titled 'General

4.2.1 (i) Wrongful gain and Wrongful loss

Under the Indian Penal Code, "Wrongful gain" is defined as a

4.2.1 (ii) Dishonestly

Section 24 of the Indian Penal Code defines "Dishonestly" as

10 Id., Sections 23.

4.2.1 (iii) Fraudulently

Under the Indian Penal Code, a person is said to do a thing

In Abbas Ali's case^^ CJ Maclean highlighted the discrepancy in

^3 Boddepalli L a s h m i n a r a y a n a v. S u w a r i Sanyasi Appa Rao, AIR 1959 AP 530.

The word 'defraud' is of double meaning in the sense that it

"...whenever the words 'fraud', 'intent to defraud', or

"By fraud, I understand an intention to deceive;

"The word 'defraud' includes an element of deceit.

^4 Muhammad Saeed Khan, (1898) 21 All 113, 115.

A person is said to "counterfeit" who causes one thing to

The 'thing' referred to in this definition may be a coin, a piece of

31 The Indian Penal Code, 1860, Sections 28.

Altering used stamps so as to resemble genuine unused stamps

In the present study with respect to banking frauds in India, the

4.2.1 (v) Document

The word "document" denotes any matter expressed or

38Ibid., See also, Supra Note 33.

The term 'document' seems to include ever5rthing done by the

The judiciary has further explained the term 'document' by

figures, or marks, or by more than one of those means, intended to be used, or

4.2.1 (vi) Electronic Record

The term 'electronic record' was inserted by the Information

4.2.1 (vii) Valuable Security

The words "valuable security" denote a document which is, or

57 Kapalavaya Saraya (1864) 2 MHC 247

Every valuable security is, ex hypothesi, a document, but the

4.2.2 Offences relating to Coin

Counterfeiting both foreign and Indian coin is punished. With

78 P r a y a g D a s , AIR 1 9 6 3 All 1 3 1 : (1963) 1 C r i L J 279(A11)

Coin need not be a legal tender received at a value in rupees

The test of whether a particular piece of metal is money or not

81 The Indian Penal Code, 1860, Section 230.

The illustrations to Section 230 make it clear that cowries,

This decision highlights the fact that a foreign coin is protected

The terminology 'counterfeit' is defined and explained under

8^ Ranchhod Mula (1961) 2 Cri LJ 472 (Guj).

Generally the State leaves the property disputes to be solved out

Chapter XVIII titled 'Offences against Property' covering Sections

4.2.3 (i) Theft

Whoever, intending to take dishonestly any movable property

89 The Indian Penal Code, 1860, Section 378-382.