If you are stuck in such a situation, here is what to do.
The story
Mr. Rohan Verma, a resident of Nagpur, was approached by his close friend, Mr. Sameer Joshi, in early 2023. Mr. Joshi handed over a sum of ₹10 lakhs to Mr. Verma, requesting him to invest it in the stock market on his behalf, trusting Mr. Verma’s financial acumen. Mr. Verma, acting purely out of goodwill, invested the entire amount in a portfolio of emerging technology stocks. He did not charge any commission or fee for his services. Unfortunately, due to a volatile market, the value of the portfolio decreased significantly over the next few months.
Upon learning of the loss, Mr. Joshi became agitated and is now demanding the return of the full ₹10 lakhs. He has been incessantly calling and messaging Mr. Verma, harassing him and threatening to file a police complaint for cheating and fraud. He has also threatened to hire a lawyer to initiate legal proceedings, causing immense mental distress to Mr. Verma and his family.
Advice in such cases
Document Everything: Preserve all communication with your friend, including text messages, emails, call recordings, and any other correspondence. This is crucial evidence of the nature of your agreement and the subsequent harassment.
Do Not Admit Fault Unnecessarily: While you can be empathetic about the loss, avoid making any statements that could be misconstrued as an admission of guilt or a promise to repay the lost amount from your own pocket, especially under duress.
Gather Proof of Investment: Collect all documents that prove you genuinely invested the money as agreed, such as brokerage account statements, transaction details, and portfolio reports. This will counter any allegations that you misappropriated the funds.
Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
Applicable Sections of Law
These situations often blur the line between civil and criminal law. The applicable sections under the new Indian laws would be:
Section 316 of the Bharatiya Nyaya Sanhita, 2023 (BNS): This section deals with cheating. For a case to be made under this section, the complainant (your friend) must prove that you had a dishonest intention from the very beginning to cause wrongful gain for yourself or wrongful loss to them. A simple investment loss due to market forces does not typically amount to cheating.
Section 351 of the Bharatiya Nyaya Sanhita, 2023 (BNS): This section pertains to criminal intimidation. If your friend is threatening you with injury to your person, property, or reputation to compel you to pay the money, you may have grounds to file a complaint against them under this section.
Civil Suit for Recovery: The most appropriate legal remedy for your friend would be to file a civil suit for the recovery of money. However, they would need to prove that there was a guarantee of return or that you acted with gross negligence.
If you are the complainant
If you are the person who gave the money and suffered a loss, here are the steps to consider:
Review Your Agreement: Was there a written agreement? Was there any understanding or guarantee of returns? Investment in markets carries inherent risks, and unless a specific guarantee was provided, recovering losses can be difficult.
Establish Deception: To make a criminal case, you must have evidence that your friend never intended to invest the money or deceived you in some fundamental way. Simply making a poor investment choice is not a crime.
Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
If you are the victim
If you are the one being harassed after investing a friend’s money in good faith:
Do Not Panic: Understand that a financial loss in the stock market is not a criminal offense. The burden of proof to establish cheating is very high and lies on the complainant.
Organize Your Evidence: Keep bank statements showing the receipt of money and brokerage statements showing the investment of the exact same amount. This proves your bona fide intentions.
File a Counter-Complaint: If the harassment and threats are severe and causing mental agony, you have the right to file a police complaint for criminal intimidation and harassment against your friend.
Consult with Lawyer: The very basic and important step to start is talk to Lawyer / advocate. You should not hesitate in paying his consultation fee i.e. might be in range of Rs. 10,000 to 50,000 depends case to case. He is helping you in this situation of come out. He is expert in the domain and can help you explain the procedure which you might have never explored. A good lawyer can get the issues resolved much faster than you think.
How the police behave in such cases
Initially, the police are likely to view such a matter as a civil dispute. They may be hesitant to file an FIR for cheating without clear evidence of fraudulent intent from the outset. Often, they will summon both parties to the police station to attempt a mediation and encourage a settlement. However, if the complaint includes strong evidence of threats or intimidation, they will be more inclined to register a case under the relevant sections of the BNS. The entire process of investigation will be governed by the procedures laid down in the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS).
FAQs people normally have
Is this a criminal or civil case?
It is primarily a civil dispute concerning a financial transaction gone wrong. It only becomes a criminal case if elements of cheating (deception from the start) or criminal intimidation (threats) are present and can be proven.
Can I be arrested for losing my friend’s money in the stock market?
Arrest is highly unlikely for a simple investment loss. As per law, arrest should be the last resort. The police would conduct a preliminary inquiry, and unless they find strong prima facie evidence of a cognizable offense like cheating, they will not proceed with an arrest.
What if we did not have a written contract?
A verbal agreement is still an agreement, but it is harder to prove in court. In such cases, secondary evidence like WhatsApp chats, bank transfers, and witness testimonies become extremely important to establish the terms of the understanding between you and your friend.
What evidence is required?
Bank account statements showing the transfer of funds.
Demat or brokerage account statements proving the investment was made.
All communication records (chats, emails) discussing the investment plan, the associated risks, and the subsequent demands and threats.
Proof that you did not take any commission or benefit, which supports your claim of acting in good faith.
How long will the investigation take?
If the police register an FIR, a formal investigation under the BNSS will begin, which can take a few months to conclude before a final report (chargesheet or closure report) is filed in court. If the matter proceeds as a civil suit for recovery, the judicial process can be lengthy, often taking several years to reach a final verdict.
Advocate Sudhir Rao, Supreme Court of India