The Kerala High Court, while hearing bail pleas in the multi-crore Fashion Gold cheating and money laundering case on August 7, 2025, posed a crucial question on the applicability of Section 420 of the Indian Penal Code. Justice Bechu Kurian Thomas observed that if the complainants are in fact shareholders of the four accused companies, their entitlement would be limited to dividends, which are discretionary and not a guaranteed right. In such circumstances, mere non-payment of dividends may not amount to the offence of cheating. The court has sought verification of the complainants’ shareholding status before proceeding further.
Case Background
Former MLA M.C. Kamarudheen (Chairman) and his associate T.K. Pookoya Thangal (Managing Director) are accused in multiple cheating (Section 420 IPC) and money laundering (PMLA) cases tied to four companies: Fashion Gold International, Fashion Ornaments Pvt. Ltd., Qamar Fashion Gold Pvt. Ltd., and Nujum Gold Pvt. Ltd.
The Enforcement Directorate (ED) alleges they siphoned over ₹20 crore of investor funds for personal gain, including purchasing and profiting from properties, and investors remain unpaid. There are 168 FIRs, with chargesheets filed in six.
High Court’s Key Observation (August 7, 2025)
While hearing the bail petitions, Justice Bechu Kurian Thomas raised a pivotal question: If the complainants are actually shareholders, can the offence of cheating under Section 420 IPC stand?
He noted:
If complainants are shareholders, their claims pertain to dividends, which are discretionary on the part of the company—not guaranteed. Thus, non-payment of dividends per se does not constitute cheating.
The defense had submitted documents showing certain complainants indeed hold shares. The court has now asked both sides to verify this claim. The matter is scheduled for further hearing next Thursday.
Legal Implications: Section 420 IPC and Shareholding
1. Essentials of Cheating (Section 420 IPC)
To establish cheating under Section 420, prosecution must prove:
Dishonest inducement of delivery of property;
False pretense made knowingly by the accused;
Intent to cheat at the time of inducement.
2. Shareholders vs. Creditors
Investors as shareholders: They acquire equity and are entitled to dividends only if declared.
Dividends are not a legal entitlement, but a corporate discretion based on profit and board decision.
Mere expectation of dividends, without any explicit guarantee, does not amount to cheating.
Investors as creditors or depositors: They expect repayment or a fixed return under a contractual promise.
If such returns were explicitly promised and then withheld dishonestly, then Section 420 could apply.
3. Court’s Rationale
The court’s reasoning rests on this legal distinction:
If complainants are shareholders expecting dividends, non-payment is not cheating—it’s a corporate business outcome.
However, if these are depositors or investors with a contractual assurance of returns or repayment, the situation changes. In such cases, failing to deliver as promised may constitute cheating.
Summary Table
Investor Status
Nature of Right
Section 420 Applicability
Shareholder
Dividend is discretionary
Not cheating for mere non-payment
Creditor/Depositor
Guaranteed returns/payment
Possibly cheating if deceitful
Next Steps in the Case
The court will verify the shareholding status of complainants.
If confirmed as shareholders, Section 420 charges may not stand on that basis.
If they are creditors or had explicit contractual promises, the prosecution may still press cheating charges.