Two different things
A breach of contract is a civil matter. If a person agrees to pay and does not, or agrees to deliver and cannot, the remedy is a civil suit for the money or the performance. It is not a crime to fail to keep a promise.
Cheating is a criminal offence. Section 318 of the Bharatiya Nyaya Sanhita, 2023, which replaced Sections 415 to 420 of the Indian Penal Code, requires that a person was deceived, and that the deception was dishonest or fraudulent. Section 318(4), the successor to the old Section 420, covers cheating that dishonestly induces someone to hand over property.
The two can look alike from the outside. A deal that went wrong and a deal that was never meant to be honoured produce the same result for the person who lost money. The law separates them by asking what the accused intended at the start.
Intention at the time of the promise
The Supreme Court has held consistently that cheating requires a dishonest intention at the time the promise or representation was made. A dishonest intention that arises later, after an honest agreement has been entered into, does not turn the failure into cheating.
In Dalip Kaur v. Jagnar Singh (2009), the Court held that a simple breach of an agreement to sell does not constitute the offence unless a fraudulent intention existed when the agreement was made. In Vesa Holdings v. State of Kerala (2015), it held that a dispute over unpaid fees under a contract was a civil matter and quashed the criminal proceedings, because nothing suggested deception at the inception of the arrangement.
The question is not whether money was lost. It is whether the person who took it meant to deceive when they took it.
What the police may do first
In Lalita Kumari v. Government of Uttar Pradesh (2013), the Supreme Court listed commercial offences among the categories in which the police may conduct a preliminary inquiry before registering an FIR, in order to establish whether the information discloses a cognizable offence or a civil dispute. The inquiry is permitted, not mandatory; where the complaint plainly discloses cheating, an FIR must be registered.
What a court may do afterwards
If an FIR is registered in what is in substance a civil dispute, the accused may approach the High Court under Section 528 of the BNSS, corresponding to the old Section 482 of the CrPC, to have the proceedings quashed as an abuse of process. The High Court examines whether, taking the complaint at face value, the ingredients of the offence are made out at all. It does not conduct a trial.
This is a remedy for the accused, and it is not automatic. Many complaints that begin with a failed transaction do disclose deception at the outset, and those proceed. The courts intervene where the complaint, even if every word of it is true, describes a broken promise rather than a fraud.
What this means for a published FIR
An FIR under Section 318 records that a complaint of cheating was made, and lists the section the police applied on first reading. Whether the facts amount to cheating or to a civil dispute is decided later, by a court, on the evidence. The published record shows the complaint, not the conclusion.