–By Shreyas Sinha
The Latin term ‘mens rea’ refers to the mental element of a criminal act, i.e., a legally-determined state of mind required to convict an individual of a criminal offence. A person can be said to possess the requisite mens rea vis-à-vis a criminal offence when – (1) they are aware that their conduct is of the same nature as that envisaged by the criminal offence provision; and (2) they are aware that it is certain that their conduct will cause a result proscribed by the criminal offence provision (Weigend 2014). According to the Indian Supreme Court, mens rea comprises of “a conscious state in which mental faculties are aroused into activity and summoned into action for the purpose of achieving a conceived end”.
On the other hand, ‘fraud’, in its commonly-understood meaning, refers to “the crime of using dishonest methods to take something valuable from another person”. Under Indian criminal law, however, fraud is not a standalone criminal offence. Instead, specific acts, when combined with the element of fraud, constitute criminal offences under the Indian Penal Code, 1860 (‘IPC’). Indeed, Section 25 of the IPC, quite unhelpfully, simply defines the element of fraud (‘fraudulently’) as –
“A person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise.”
This ambiguous definition offers no guidance to courts or to law enforcement as to the constitutive elements of fraud itself (Morgan 2016). Thus, the task of construing what exactly “intent to defraud” means has fallen on the courts, who have often resorted to English common law to clarify this vague aspect of our criminal law jurisprudence. This, however, is unsatisfactory as the Indian courts’ approach, as this article will later demonstrate, sets an unreasonably high standard of proof for the prosecution and is itself outdated considering changed standards in English criminal law.
This article argues for a re-conceptualisation of fraudulent conduct in Indian criminal law based on Canadian jurisprudence. The article proceeds by – first, analysing the mental element of fraudulent conduct in Indian criminal jurisprudence; second, undertaking an analysis of the Canadian approach towards the “mens rea of fraud”; and third, utilising the Canadian analysis to discuss how Indian jurisprudence can be tweaked before concluding[CE2] .
How Indian Courts See ‘Fraud’
The language of the statutory provision (i.e., Section 25 of the IPC) does not offer much guidance as to how ‘fraud’ or ‘intent to defraud’ is to be interpreted. The question that the law must clarify is what exactly are the constitutive elements of fraud?
The Supreme Court attempted to clarify this issue in Dr. Vimla v. Delhi Administration, a 1963 decision that, to this day, serves as the leading case on the interpretation of Section 25 of the IPC. It is not necessary to aver to the specific facts of that case for the purposes of this article. Essentially, the Court, relying on the understanding of fraud that prevailed in England at the time (for example, see In Re London and Globe Finance Corporation Limited and R v. Welham), reasoned that ‘fraud’ or ‘fraudulent conduct’ would involve two essential elements – deception and deprivation. Therefore, to “defraud” someone is “by deceit to induce a man to act to his injury”. The Court also adopted an understanding that ‘deceit’ or ‘deceitful intent’ was an essential element of fraud as opposed to ‘dishonesty’ or ‘dishonest intent’. This reasoning was predicated upon a conceptual distinction between Sections 24, which defines ‘dishonestly’, and 25 of the IPC. Thus, conduct could be deemed fraudulent only when it was motivated by deceitful intent; mere dishonest intent would not cut it.
This conceptualisation of fraud has been consistently applied throughout Indian jurisprudence. Consider, for example, the case of Dr. S. Dutt v. State of U.P., where the Supreme Court applied the ‘deceit and injury’ idea of fraud to a fact scenario involving the production of a false document due to a judicial order. Or, Mohammed Ibrahim v. State of Bihar, where the Supreme Court looked at fraudulent conduct, forgery in this case, in a property sale transaction. These cases, by and large, can be taken to be representative of how Indian jurisprudence has looked at fraudulent conduct as defined under Section 25.
There are, however, issues with this interpretation of Section 25. Firstly, the linking of ‘deceit’ as an essential ingredient of fraud, as opposed to ‘dishonesty’, leads to a higher standard of proof for the prosecution. This is due to the fine distinction between the two concepts with deceit being seen as a more serious offence, thereby warranting a higher burden of proof. The second issue flows directly from the first – a higher burden on the prosecution means a higher standard of mens rea, which bears itself out in how the adjudicating authority determines whether the requisite mens rea was present or not. Because the Indian approach takes deceitful intent to be an essential element of fraudulent conduct, the mens rea of the offence is determined subjectively and not objectively, i.e., the court looks at mens rea from the perspective of the accused and not from an objective standard, such as a reasonable person test. Therefore, the determination of mens rea essentially becomes a matter of the accused’s own subjective understanding of whether their conduct is deceitful or not.
That this is the approach of Indian courts can be gleaned from an analysis of the cases involving interpretations of Section 25, such as the ones cited in this article. For instance, in Dr. Vimla, the defendant was acquitted because she did not consider herself to be acting with deceitful intent even though a reasonable person would have, all things considered, come to the conclusion that the defendant’s conduct was indeed fraudulent.
This understanding of fraud is defective from a policy viewpoint as well as it leads to situations where serious fraudulent conduct can go unpunished simply due to the high bar of deceitful intention not being met because of mens rea being determined subjectively as opposed to using a more objective standard.
This can be remedied by incorporating the Canadian approach into Indian jurisprudence as the next section of this article demonstrates.
Lessons From the Great White North
The leading case on interpreting the constitutive elements of fraudulent conduct, especially the mens rea, in Canadian jurisprudence in R v. Theroux. In this case, the accused was the ‘directing mind’ of a residential construction company. His company had entered into purchase agreements with a certain number of buyers following which preliminary deposits were taken from them on the guarantee that these were insured. This guarantee, however, was false as the company was not a participant in the relevant deposit insurance scheme. The company soon became insolvent and a significant number of buyers lost their investments. Following this, an action for fraud under the Canadian Criminal Code, 1985 (‘CCC 1985’) was initiated.
At this instance, it is pertinent to note that, unlike India, Canada specifically criminalises fraud as a standalone offence under Section 380 of the CCC 1985. However, how Canadian courts, post Theroux, look at the constitutive elements of fraud and its mental component can better inform Indian jurisprudence notwithstanding the differences in the two legal systems.
In Theroux, the Canadian Supreme Court did two things – first, it delinked deceit from fraudulent conduct, building on the law laid down in R v. Olan, thereby lowering the burden of proof on the prosecution to an acceptable modern-day standard; second, it ruled that a determination of mens rea in cases involving fraud would be via an objective standard and would not be a subjective determination of the accused’s intent from the accused’s own point of view. The second point requires elaboration.
The Court held that the determination of mens rea in cases of fraud “would consist in the subjective awareness that one was undertaking a prohibited act…which would cause deprivation” (Pg. 19). The test for mens rea in fraud was – firstly, “subjective knowledge of the prohibited act”; and secondly, “subjective knowledge that the prohibited act could have, as a consequence, the deprivation of another” (Pg. 20). Thus, the Court reasoned that the mens rea of fraud must be based on – first, the accused’s knowledge of the facts of the situation; second, the circumstances of the alleged fraudulent act; and third, the consequences of the fraudulent act (Pg. 23). Essentially, in so many words, the Court adopted a ‘reasonable person’ standard to determining whether mens rea existed in cases of fraud or not. This was a rejection of the old English approach, which India follows, wherein the mental element of fraud was determined by reference to the accused’s own conception of the (dis)honesty of their conduct and its consequences.
From a legal policy point of view, there are significant merits to incorporating the Canadian approach –
Firstly, by delinking deceit from fraud, the lower standard of dishonesty comes into the picture. This broadens the purview of the law, allowing it to cover instances that may not have been accounted for under the ‘deceit’ standard. Given the growing sophistication of fraud-based crimes in the modern day and age, especially large-scale economic and cybercrimes, it is necessary that the law be evolved to allow law enforcement the means of tackling new situations. Under current Indian law, there is a superfluous distinction between dishonest conduct and deceitful conduct which plays out in how Section 25 has been interpreted. However, this is anachronistic given how major common law jurisdictions like Canada and England itself have moved towards incorporating dishonesty as a constitutive element of fraud and not deceit. Indeed, the Indian Supreme Court, in Vimla itself, noted that there existed a “close affinity” between ‘dishonestly’ and ‘fraudulently’ and that “the definition of one may give colour to the other”. Using Section 24 of the IPC to clarify the constitutive elements of fraudulent conduct as defined under Section 25 is the more reasonable approach to take.
Secondly, by lowering the standard from that of ‘deceit’ to ‘dishonesty’, the mens rea can be determined objectively, on the lines of Theroux, thereby broadening the reach of the law and serving the ends of criminal justice. Even though fraud is not a standalone offence in Indian criminal law, adopting an objective or ‘reasonable person’ standard in fraud-based crimes would allow courts to enable the operation of these provisions to the fullest extent.
The Indian approach towards constructing fraudulent conduct and its constitutive elements has been grounded in English common law (for instance, see R v. Ghosh which sums up the old English approach). However, today, courts in England themselves take an approach that resembles the Canadian one as encapsulated in Theroux. After the U.K. Supreme Court’s decision in Ivey v. Genting Casinos (UK) Ltd., the test for fraudulent conduct in England is now a two-step enquiry which involves looking at – first, the state of the defendant’s knowledge as to the factual matrix; and second, whether the defendant’s conduct was dishonest by the reasonable (or “decent”) person standard (see the case of R v. Barton). These developments are testimony to the fact that common law jurisdictions have become aware as to the myriad number of ways in which fraud may be perpetrated. Therefore, clinging on to an outdated approach towards interpreting Section 25 of the IPC, an approach that has been overruled in its original jurisdiction, is not reasonable.
For all the aforementioned arguments, this article advocates two things – first, the Indian courts ought to de-link ‘deceit’ from fraud as an essential constitutive element and switch to the ‘dishonesty’ standard; second, Indian courts ought to adopt an objective ‘reasonable person’ test on the lines of the Canadian Supreme Court’s decision in Theroux and the U.K. Supreme Court’s decision in Ivey, to determine whether or not there was dishonest intent (mens rea) in a fraud-based offence.
Therefore, fraud should now be construed as ‘dishonestly inducing an individual to act to their detriment, with ‘dishonestly’ being determined objectively using a ‘reasonable person’ standard.
Shreyas Sinha is a third-year B.A., LL.B. (Hons.) student at the National Law School of India University (NLSIU), Bengaluru.