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Kerala HC Rules Out No Cheating Offense when Failure to Repay Deposits with Received Interest

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Kerala HC Law Insider

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Published on: 22 September 2023 at 22:25 IST

The Kerala High Court has determined that the offense of cheating under Section 420 IPC is not applicable, at least prima facie, when the depositor has already received interest payments, even though deposits were not repaid.

The court’s decision came in response to a case where the petitioner faced allegations of financial misconduct. 

Justice Bechu Kurian Thomas, presiding over a Single Judge Bench, stated that collecting deposits from the public without permission from the Reserve Bank of India (RBI) is a violation of Section 45S of the Reserve Bank of India Act, 1934. However, this action does not, prima facie, constitute an offense under Section 420 of the IPC unless there is evidence of dishonesty or fraud from the outset.

The court clarified that the purpose of the Banning of Unregulated Deposit Schemes (BUDS) Act is to prohibit the collection of deposits through unregulated schemes, but the offense under this act is not a predicate offense.

Similarly, the offense under the Kerala Protection of Interests of Depositors in Financial Establishments Act, 2013, is also not a predicate offense. To establish cheating, the deception must be done with a dishonest or fraudulent intent.

The petitioner had sought regular bail under Section 45 of the Prevention of Money Laundering Act, 2002 (PMLA), facing allegations of cheating depositors by collecting fixed deposits without authority and failing to repay either the interest or the principal amounts. The case also involved allegations of money laundering and breach of trust.

Although the crimes were transferred to the Central Bureau of Investigation (CBI), and offenses under the BUDS Act and IPC Sections 406 and 420 were alleged, the court noted that these offenses are not scheduled offenses under the PMLA and cannot be considered predicate offenses.

The court further emphasized that no charge sheet had been filed for the predicate offenses, even after three and a half years of investigation, making it significant while considering the bail application of an accused who had been in custody for over a year and seven months.

Consequently, the High Court ruled that the petitioner was entitled to be released on bail upon executing a bond for Rs. Two lakhs.

Case Title: Thomas Daniel v. Enforcement Directorate and Ors.