New Delhi, March 19 Observing that filmmaking is a high-risk business, the Supreme Court on Thursday quashed criminal proceedings against a producer for fraud after he failed to return money to a financier.
A bench of justices PS Narasimha and Manoj Misra said that to constitute an offense of fraud, there must be an intention to deceive.
Setting aside an order of the Madras High Court, the top court said it is necessary to show that a person had a fraudulent or dishonest intention when making the promise.
Simply failing to keep the promise later cannot be the sole basis for assuming that a dishonest intention existed from the beginning, it said.
"In our view, the High Court overlooked that filmmaking is a high-risk business. No one can be sure whether a film will be profitable or a failure. If someone agrees to share profits in exchange for their investment in a film, they take the risk of a possible zero return."
"Thus, the nature of the transaction between the parties was a crucial factor in determining whether the investor party should be allowed to initiate criminal proceedings or pursue civil remedies. Unfortunately, the High Court overlooked this vital aspect," the bench said.
The apex court said there is nothing to indicate that the appellant had a dishonest intention from the beginning.
"Had it been a case where the appellant had not made the film despite borrowing funds to make one, an inference about the existence of a dishonest intention would have been permissible. However, here there is no allegation that the film was not made. Rather, it was made and released," the bench said.
The top court said, in the absence of allegations that the film made a profit, the complaint and supporting materials failed to indicate that the appellant harbored a dishonest intention from the beginning.
"In conclusion, the allegations only disclosed a civil cause of action, and the High Court erred in not quashing the criminal proceedings," it said.
In this case, V Ganesan was producing a film and ran short of funds. He, therefore, requested the complainant (S Senthil Babu) to lend him money on the assurance that it would be returned by a share in profits to the extent of 30 per cent.
Later, more money was lent on the promise of an additional 17 per cent share in profits.
Ultimately, two postdated cheques of Rs 24 lakh each were issued by Ganesan to the complainant towards the return of the principal amount, which remained unpaid due to insufficient funds in the account.
Based on this, it was alleged that the accused had defrauded the complainant.