Movie making is high risk business; failure to earn profit not cheating: Supreme Court

The Supreme Court on Thursday quashed a cheating case against a film producer who failed to return the money invested in a movie project after the movie flopped [V Ganesan vs State of Rep By The Sub Inspector of Police & Anr].

A Bench of Justices PS Narasimha and Manoj Misra observed that movie making is a high risk business and mere failure to make profit cannot constitute the offence of cheating unless there was an intention to deceive.

To constitute the offence of cheating, the intention to deceive must exist at the time the inducement is made and that mere failure to keep a promise cannot by itself show dishonest intention from the outset.

“In order to constitute an offence of cheating the intention to deceive should be in existence when the inducement was made. It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise. Mere failure to keep the promise subsequently cannot be the sole basis to presume that dishonest intention existed from the very beginning,” the Court said.

In the present case, the Court found that the allegations did not disclose any dishonest intention on the part of the producer when the promise to give a share in the profits was made to money lender.

The Bench also flagged the high-risk nature of filmmaking and the inherent uncertainties involved.

“In our view, the High Court overlooked that movie making is a high risk business. No one can be sure whether a movie would earn profits or would be a flop. If one agrees to share profits in lieu of his investment in a movie, he takes the risk of a possible zero return. Thus, the nature of transaction between the parties was a crucial factor in determining whether the investor party should be allowed to bring in a criminal action or pursue civil remedies. Unfortunately, the High Court overlooked this vital aspect.”

The Court was hearing an appeal by the producer challenging a Madras High Court order which had quashed the charge of criminal breach of trust but allowed the cheating case to continue.

The case arose from a film project that ran into financial trouble midway. The producer had approached the complainant to lend him money on the assurance that it would be returned through a 30% share in profits.

Later, when the project needed more funds, more money was lent on the promise of an additional 17% share in profits.

Ultimately, two post-dated cheques of ₹24 lakh each were issued by the producer to the complainant towards the return of the principal amount. However, the cheques were dishonoured due to insufficient funds.

Based on this, it was alleged that the producer had cheated the complainant and had also committed the offence of criminal breach of trust.

Aggrieved by the police report and the proceedings that followed, the producer moved the High Court seeking quashing of the criminal case on the ground that it was essentially a civil dispute that had been given a criminal colour.

The High Court partly allowed the plea, quashing the charge of criminal breach of trust while refusing to quash proceedings for cheating.

Aggrieved by this, the producer approached the top court.

The top court said that the allegations disclosed only a civil cause of action and that the High Court was wrong in not quashing the case

It thus went on to allow the appeal and set aside the High Court’s judgment, quashing the criminal proceedings.

“For the foregoing reasons, the appeal is allowed. The impugned judgment and order of the High Court is set aside to the extent it declined quashing of the proceedings under Section 420 IPC. The impugned criminal proceedings under Section 420 IPC are also quashed. Pending applications if any stands disposed of,” the judgement stated.

[Read Judgment]