No one can be sure whether a movie would earn profits or would be a flop, said the Supreme Court. (Image generated using AI)Supreme Court news: Drawing a sharp line between commercial risk and criminal liability, the Supreme Court on Friday quashed cheating charges against a film producer, ruling that failure to generate profits from a movie project cannot, by itself, amount to cheating.A bench of Justices Pamidighantam Sri Narasimha and Manoj Misra was hearing a criminal appeal by filmmaker V Ganesan against the Madras High Court’s April 6, 2023 order, which had allowed cheating charges (Section 420 IPC) to proceed despite quashing breach of trust allegations. The Madras High Court overlooked that movie making is a high risk business, the Supreme Court noted. (Image enhanced using AI)“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,” the court said on March 19 outlining that investments in films are inherently speculative.The court said criminal law cannot be used to penalise business failure in such uncertain ventures.Film industry = Speculative investmentIn a broader observation with industry-wide implications, the court underscored the volatile economics of filmmaking.The bench said this commercial reality fundamentally weakens claims of cheating in such arrangements.Also Read | Supreme Court draws clear line on Aravalli ecology, says invasive green cover not ‘forest’; upholds Bijwasan projectIn our view, the Madras High Court overlooked that movie making is a high risk business.In the present case, what the high court overlooked is that money was advanced for movie making and initially the agreement was to share the profits.Case trigger: Film investment turns sourThe case arose from a dispute between filmmaker V Ganesan and an investor who had financed his movie project.According to the prosecution, the investor had advanced nearly Rs 48 lakh in multiple tranches between December 2013 and April 2014, based on assurances of profit-sharing, initially 30 per cent and later increased to 47 per cent.When the film failed to generate expected returns, the producer issued two post-dated cheques of Rs 24 lakh each to repay the principal.Also Read | Writ Petition No.13029: How a 40-year legal battle forced Delhi’s buses to go greenHowever, these cheques were dishonoured due to insufficient funds, prompting criminal proceedings under Sections 406 (criminal breach of trust) and 420 (cheating) of the IPC.The Madras High Court, in its April 6, 2023 order, had quashed the breach of trust charge but allowed the cheating case to proceed, observing that inducement and false assurances required trial scrutiny.Madras High Court split viewOn April 6, 2023, the Madras High Court partly intervened.Section 406 IPC (breach of trust): Quashed- no entrustment made out.Also Read | Supreme Court let off Sandesaras with Rs 5,100-cr deposit, banks say dues Rs 19,000 crSection 420 IPC (cheating): Allowed to proceed, prima facie inducement found.The high court reasoned that repeated assurances and undertakings could indicate deception, warranting trial.SC’s intervention: Criminal law not recovery toolThe Supreme Court disagreed, holding that the high court “overlooked a vital aspect”, the nature of the transaction itself.The investment was linked to profit-sharing, not guaranteed returns.The film was actually completed and released, negating any false promise.There was no allegation of profits being earned and withheld.Also Read | Chandigarh police destroyed phones despite SC order to preserve evidence, says CBISince there is no denial about the completion of the movie and its ultimate release, what is clear is that the promise to make a movie was not false, the Supreme Court said.The top court said that in absence of a dishonest intention at the time of making the initial promise, no offence under Section 420 of IPC is made out.‘Dishonest intention’ must exist from startReiterating settled law on cheating, the bench stressed that criminal liability under Section 420 IPC requires fraudulent intent at inception.A mere breach of contract or failed promise is insufficient.Business setbacks or inability to repay do not automatically imply deception.Also Read | Supreme Court reiterates support for UCC, calls it ‘most effective answer’ to discriminatory lawsIn order to constitute an offence of cheating the intention to deceive should be in existence when the inducement was made, the Supreme Court said.It is necessary to show that a person had fraudulent or dishonest intention at the time of making the promise, the apex court said.Mere failure to keep a promise subsequently cannot be the sole basis to presume dishonest intention from the very beginning, said the Supreme Court.Cheque Bounce ≠ CheatingThe court also dismantled the reliance on cheque dishonour.The cheques were post-dated, issued to settle an existing liability.They were not inducements to secure investment.Dishonour may trigger action under the Negotiable Instruments Act, but not cheating per se.“Dishonour of a post-dated cheque by itself is not sufficient to presume dishonest intention,” the bench clarified.Insofar as dishonour of those two cheques are concerned, it is clear that those were post-dated cheques issued not as an inducement to obtain delivery of money from the de facto complainant.Also Read | Supreme Court’s move towards gender justice wasn’t ‘Harvard-oriented’The cheques were issued to discharge an existing obligation at a future date.In essence, those cheques were not by way inducement to lend money or invest money in the proposed movie.Therefore, dishonour of those cheques, though may give right to initiate proceedings under Section 138 of the Negotiable Instruments Act, 1881, would not ipso facto amount to an offence of cheating.For an offence of cheating dishonest intention must exist from the very beginning.Verdict: Purely civil disputeConcluding that the case disclosed only a civil cause of action, the court allowed the appeal.Set aside the high court order to the extent it sustained cheating charges.Quashed criminal proceedings under section 420 IPC.Also Read | Where separation of powers is respected, constitutionalism survives: Supreme Court judgeHence, institution and continuation of criminal proceedings is nothing but abuse of the process of law, said the top court.Therefore, there was no dishonest intention and the dispute between the parties is purely civil in nature, the Supreme Court concluded.Why this ruling mattersThe judgment delivers a clear message that criminal proceedings cannot be used as pressure tactics in business disputes.Courts must scrutinise the nature of the transaction before allowing prosecution.High-risk sectors like films, startups, and speculative ventures demand higher thresholds for criminal intentIn essence, the Supreme Court has reinforced a critical boundary: commercial failure is not a crime, fraud is.Vineet Upadhyay is an Assistant Editor with The Indian Express, where he leads specialized coverage of the Indian judicial system. Expertise Specialized Legal Authority: Vineet has spent the better part of his career analyzing the intricacies of the law. His expertise lies in "demystifying" judgments from the Supreme Court of India, various High Courts, and District Courts. His reporting covers a vast spectrum of legal issues, including: Constitutional & Civil Rights: Reporting on landmark rulings regarding privacy, equality, and state accountability. Criminal Justice & Enforcement: Detailed coverage of high-profile cases involving the Enforcement Directorate (ED), NIA, and POCSO matters. Consumer Rights & Environmental Law: Authoritative pieces on medical negligence compensation, environmental protection (such as the "living person" status of rivers), and labor rights. Over a Decade of Professional Experience: Prior to joining The Indian Express, he served as a Principal Correspondent/Legal Reporter for The Times of India and held significant roles at The New Indian Express. His tenure has seen him report from critical legal hubs, including Delhi and Uttarakhand. ... Read More © IE Online Media Services Pvt Ltd