"405. Criminal breach of trust. Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits "criminal breach of trust".
A careful reading of the section shows that a criminal breach of trust involves the following ingredients : (a) a person should have been entrusted with property, or entrusted with dominion over property; (b) that person should dishonestly misappropriate or convert to his own use that property, or dishonestly use or dispose of that property or willfully suffer any other person to do so; (c) that such misappropriation, conversion, use or disposal should be in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract which the person has made, touching the discharge of such trust. The following are examples (which include the illustrations under section 405) where there is 'entrustment' :
(i) An 'Executor' of a will, with reference to the estate of the deceased bequeathed to legatees.
(ii) A 'Guardian' with reference to a property of a minor or person of unsound mind.
(iii) A 'Trustee' holding a property in trust, with reference to the beneficiary.
(iv) A 'Warehouse Keeper' with reference to the goods stored by a depositor.
(v) A carrier with reference to goods entrusted for transport belonging to the consignor/consignee.
(vi) A servant or agent with reference to the property of the master or principal.
(vii) A pledgee with reference to the goods pledged by the owner/borrower.
(viii) A debtor, with reference to a property held in trust on behalf of the creditor in whose favour he has executed a deed of pledge-cum-trust. (Under such a deed, the owner pledges his movable property, generally vehicle/machinery to the creditor, thereby delivering possession of the movable property to the creditor and the creditor in turn delivers back the pledged movable property to the debtor, to be held in trust and operated by the debtor).
In Chelloor Mankkal Narayan Ittiravi Nambudiri v. State of Travancore, Cochin [AIR 1953 SC 478], this Court held :
" to constitute an offence of criminal breach of trust, it is essential that the prosecution must prove first of all that the accused was entrusted with some property or with any dominion or power over it. It has to be established further that in respect of the property so entrusted, there was dishonest misappropriation or dishonest conversion or dishonest use or disposal in violation of a direction of law or legal contract, by the accused himself or by someone else which he willingly suffered to do.
It follows almost axiomatically from this definition that the ownership or beneficial interest in the property in respect of which criminal breach of trust is alleged to have been committed, must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit."
In Jaswantrai Manilal Akhaney v. State of Bombay [AIR 1956 SC 575], this Court reiterated that the first ingredient to be proved in respect of a criminal breach of trust is 'entrustment'. It, however, clarified :
".. But when S. 405 which defines "criminal breach of trust" speaks of a person being in any manner entrusted with property, it does not contemplate the creation of a trust with all the technicalities of the law of trust. It contemplates the creation of a relationship whereby the owner of property makes it over to another person to be retained by him until a certain contingency arises or to be disposed of by him on the happening of a certain event."
A trust contemplated by Section 405 would arise only when there is an entrustment of property or dominion over property. There has, therefore, to be a property belonging to someone which is entrusted to the person accused of the offence under Section 405. The entrustment of property creates a trust which is only an obligation annexed to the ownership of the property and arises out of a confidence reposed and accepted by the owner. This is what has been laid in The State of Gujarat v. Jaswant Lal Nathalal AIR 1968 SC 700.
In Rashmi Kumar vs. Mahesh Kumar Bhada (1997) 2 SCC 397, the essential ingredients for establishing the offence of criminal breach of trust, as defined in Section 405, have been spelt out as follows:
"(i) entrusting any person with property or with any dominion over property;
(ii) the person entrusted dishonestly misappropriating or converting to his own use that property; or dishonestly using or disposing of that property or wilfully suffering any other person so to do in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract made touching the discharge of such trust."
In Chellor Mankkal Narayan Ittiravi Nambudiri vs. State of Travancore-Cochin AIR 1953 SC 478 = 1954 Crl.LJ 102, it was laid down that every breach of trust in the absence of mens rea or dishonest intention cannot legally justify a criminal prosecution.
The expressions "entrusted with property" and "with any dominion over property" used in Section 405 came to be considered by this Court in C.B.I. vs. Duncans Agro Industries Ltd., Calcutta (1996) 5 SCC 591 / AIR 1996 SC 2452 and the view earlier expressed was reiterated. It was held that the expression "entrusted" has wide and different implication in different contexts and the expression "trust" has been used to denote various kinds of relationships like trustee and beneficiary, bailor and bailee, master and servant, pledger and pledgee.
The word "property", used in Section 409, IPC means the property which can be entrusted or over which dominion may be exercised.
Apex Court in R.K. Dalmia vs. Delhi Administration, 1963 (1) SCR 253 = AIR 1962 SC 1821, held that the word "property", used in Section 405 IPC, has to be interpreted in wider sense as it is not restricted by any qualification under Section 405. It was held that whether an offence defined in that Section could be said to have been committed would depend not on the interpretation of the word "property" but on the fact whether that particular kind of property could be subject to the acts covered by that Section. That is to say, the word "property" would cover that kind of property with respect to which the offence contemplated in that Section could be committed.
Supreme Court of India
State Of Himachal Pradesh vs Karanvir on 12 May, 2006
The actual manner of misappropriation, it is well settled, is not required to be proved by the prosecution. Once entrustment is proved, it was for the accused to prove as to how the property entrusted to him was dealt with in view of Section 405 of the IPC. If the respondent had failed to produce any material for this purpose, the prosecution should not suffer therefor. The respondent was a Post Master. He was holding an office of public trust. The complainant who was a teacher entrusted the amount to the respondent for the purpose of purchasing National Savings Certificates. As soon as the amount was received by the respondent on behalf of the postal authorities, it became public money. It was required to be utilised for the purpose for which the same was handed over to the respondent. The offence becomes proved when its shown that money is not applied for the purpose for which it was given.
Supreme Court of India
Velji Raghavji Patel vs State Of Maharashtra on 11 December, 1964
Upon the plain reading of s. 405, I.P.C. it is obvious that before a person can be said to have committed criminal breach of trust it must be established that he was either entrusted with or entrusted with dominion over property which he is said to have converted to his own use or disposed of in violation of any direction of law etc. Every partner has dominion over property by reason of the fact that he is a partner. This is a kind of dominion which every owner of property has over his property. But it is not dominion of this kind which satisfies the requirements of s. 405. In order to establish "entrustment of dominion" over property to an accused person the mere existence of that person's dominion over property is not enough. It must be further shown that his dominion was the result of entrustment. Therefore, as rightly pointed out by Harris C.J., the prosecution must establish that dominion over the assets or a particular asset of the partnership was, by a special agreement between the parties, entrusted to the accused person. If in the absence of such a special agreement a partner receives money belonging to the partnership he cannot be said to have received it in a fiduciary capacity or in other words cannot be hold to have been "entrusted" with dominion over partnership properties.
in Central Bureau of Investigation v. Duncans Agro Industries Ltd., Calcutta [1996 (5) SCC 591]. It related to a complaint against the accused for offences of criminal breach of trust. It was alleged that a floating charge was created by the accused debtor on the goods by way of security under a deed of hypothecation, in favour of a bank to cover credit facility and that the said goods were disposed of by the debtor. It was contended that the disposal of the goods amounted to criminal breach of trust. Negativing the said contention, this Court after stating the principle as to when a complaint can be quashed at the threshold, held thus :
".a serious dispute has been raised by the learned counsel , as to whether on the face of the allegations, an offence of criminal breach of trust is constituted or not. In our view, the expression 'entrusted with property' or 'with any dominion over property' has been used in a wide sense in Section 405, I.P.C. Such expression includes all cases in which goods are entrusted, that is, voluntarily handed over for a specific purpose and dishonestly disposed of in violation of law or in violation of contract. The expression 'entrusted' appearing in Section 405, I.P.C. is not necessarily a term of law. It has wide and different implications in different contexts. It is, however, necessary that the ownership or beneficial interest in the ownership of the property entrusted in respect of which offence is alleged to have been committed must be in some person other than the accused and the latter must hold it on account of some person or in some way for his benefit. The expression 'trust' in Section 405, I.P.C. is a comprehensive expression and has been used to denote various kinds of relationship like the relationship of trustee and beneficiary, bailor and bailee, master and servant, pledger and pledgee. When some goods are hypothecated by a person to another person, the ownership of the goods still remains with the person who has hypothecated such goods. The property in respect of which criminal breach of trust can be committed must necessarily be the property of some person other than the accused or the beneficial interest in or ownership of it must be in other person and the offender must hold such property in trust for such other person or for his benefit. In a case of pledge, the pledged article belongs to some other person but the same is kept in trust by the pledgee. In the instant case, a floating charge was made on the goods by way of security to cover up credit facility. In our view, in such case for disposing of the goods covering the security against credit facility, the offence of criminal breach of trust is not committed."
DIRECTOR OF COMPANY AND HIS LIABILITY IN CONTEXT OF EXPLANATION 2 OF SECTION 406 :-
Supreme Court of India
Employees State Insurance ... vs S.K. Aggarwal And Ors on 31 July, 1998
The respondents were, at the material time, directors of a company M/s. Indo Japan Steel Ltd. The company has a factory and head office at calcutta. Under the provisions of Section 40 of the Employees State Insurance Act, 1948, the "principal employer" is required to pay, in respect of every employee, whether directly employer, both the employer's contribution and the employee's contribution. Under sub- section (2) of section 40 the principal employer, in the case of an employee directly employed by him, is entitled to recover from the employee the employee's contribution by deduction from his wages. Under sub-section (4) any sum deducted by the principal employer from wages under this Act shall be deemed to have been entrusted to him by the employee for the purpose of paying the contribution in respect of which it was deducted. The complainant who is the appellant before us inspected the head office of the company and found that the company had deducted a sum of Rs. 2,223.50 as employees share of contribution from their wages during the period February 1981 to September 1981. The employer, however, had failed to deposit the said amount in the Employees' State Insurance Fund within the specified time.
Thereupon the appellant lodged a complaint against the respondents of criminal breach of trust under Section 405 Explanation 2 of the Indian Penal Code read with Section 406 of the Indian Penal Code.The High Court by its impugned judgment has quashed the proceedings on the ground that the respondents cannot be considered as 'employers' within the meaning of Explanation 2 to Section 405 read with Section 406 of the Indian Penal Code. Hence they were not liable for prosecution under Section 406.
Court held - " held that a director of a company by virtue of being a director is not principal employer contemplated by Section 2(17) of the Employees' State Insurance Act. He is not personally liable to pay employer's contribution under the Act. In the context of Section 2(17) read with Section 2(15) the Court held that whether a person is occupier or not has to be ascertained with reference to whether he is in ultimate control over the factory. When the definition of principal employer in Section 2(17) refers to the "owner" or "occupier" of a factory, the principal employer can be either the owner or the occupier depending upon the facts of each case. when there is an owner of the factory that owner must be considered as the principal employer liable for contribution." Appeal dismissed.
Supreme Court of India
M/S Indian Oil Corporation vs M/S Nepc India Ltd., & Ors on 20 July, 2006
whether there is 'entrustment' in an hypothecation? Hypothecation is a mode of creating a security without delivery of title or possession. Both ownership of the movable property and possession thereof, remain with the debtor. The creditor has an equitable charge over the property and is given a right to take possession and sell the hypothecated movables to recover his dues (note : we are not expressing any opinion on the question whether possession can be taken by the creditor, without or with recourse to a court of law). The creditor may also have the right to claim payment from the sale proceeds (if such proceeds are identifiable and available).
But there is no 'entrustment of the property' or 'entrustment of dominion over the property' by the hypothecatee (creditor) to the hypothecator (debtor) in an hypothecation. When possession has remained with the debtor/owner and when the creditor has neither ownership nor beneficial interest, obviously there cannot be any entrustment by the creditor.
The following definitions of the term 'hypothecation' in P. Ramanatha Aiyar's Advanced Law Lexicon (Third (2005) Edition, Vol.2, Pages 2179 and 2180) are relevant :
"Hypothecation : It is the act of pledging an asset as security for borrowing, without parting with its possession or ownership. The borrower enters into an agreement with the lender to hand over the possession of the hypothecated asset whenever called upon to do so. The charge of hypothecation is then converted into that of a pledge and the lender enjoys the rights of a pledgee."
'Hypothecation' means a charge in or upon any movable property, existing in future, created by a borrower in favour of a secured creditor, without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallization of such charge into fixed charge on movable property. (Borrowed from section 2(n) of Securitisation and Reconstruction of Financial Assets & Enforcement of Security Interest Act, 2002)"
Supreme Court of India
Kailash Kumar Sanwatia vs The State Of Bihar And Anr on 2 September, 2003
Section 409 IPC deals with criminal breach of trust by public servant, or by banker, merchant or agent. In order to bring in application of said provision, entrustment has to be proved. In order to sustain conviction under Section 409, two ingredients are to be proved. They are:
(1) the accused, a public servant, or banker or agent was entrusted with property of which he is duty bond to account for; and (2) the accused has committed criminal breach of trust. What amounts to criminal breach of trust is provided in Section 405 IPC. Section 409 is in essence criminal breach of trust by a category of persons. The ingredients of the offence of criminal breach of trust are: -
(1) Entrusting any person with property, or with any dominion over property.
(2) The person entrusted (a) dishonestly misappropriating or converting to his own use that property; or (b) dishonestly using or disposing of that property or willfully suffering any other person so as to do in violation –
(i) of any direction of law prescribing the mode in which such trust is to be discharged; or
(ii)of any legal contract made touching the discharge of trust. The basic requirement to bring home the accusations under Section 405 are the requirements to prove con-jointly (1) entrustment and (2) whether the accused was actuated by the dishonest intention or not misappropriated it or converted it to his own use to the detriment of the persons who entrusted it. As the question of intention is not a matter of direct proof, certain broad tests are envisaged which would generally afford useful guidance in deciding whether in a particular case the accused had mens rea for the crime.
Supreme Court of India
Superintendent & Rememberancer ... vs S. K. Roy on 12 February, 1974
"The only question which arises for decision in the case before us is could the respondent be said to be acting in his capacity as a public servant when he received the monies from policy holders which he misappropriated?
Obviously, the offence punishable under Section 409 1. P. C. is not within the scope of the-prescribed duties or authority of the public servant. The law does not authorise any public servant or, for that matter, anybody else-to commit a criminal breach of trust. There are, however, two distinct parts involved in the commission of the offence of criminal breach of trust. The first consists of the creation of an obligation in relation to the property over which dominion or control is acquired by the accused. The second is a misappropriation or dealing with the property dishonestly and contrary to the terms of the obligation created.
In the case of an offence by a public servant punishable under section 409 I. P. C. the acquisition of dominion or control over the property must also be in the capacity of a public servant punishable under section 409 I. P. C. the acquisition of a public servant, to get the control or dominion over property annexed with an obligation. The gravamen of the offence is the dishonest misappropriation of the money or property which comes into the possession or under the control of a public servant who has the ostensible authority to receive it even though, technically speaking, from the point of view of the distribution of departmental duties under internal rules of an office, it may not be within the scope of his authority or duty to accept the money.
The fact that a public servant acts fraudulently in the exercise of his duties as a public servant to get dominion of control over some property will be an aggravating and not an exculpating circumstances. The "entrustment" results from what the person handing over money or property is made to think, understand, and believe about the purpose for which he hands over money or property to a public servant. If this takes place because of an due to the exercise of the official authority the requirements of Section 409 I. P. C. are satisfied. There may be cases in which a person who parts with property to a public servant, may have done so for reasons or in a manner so completely disconnected with the official capacity of the public servant that it may not be reasonably possible to conceive of it as an offence connected with or committed in the course of performance of any official duty at all so that official capacity becomes really irrelevant. Ordinarily, it is the ostensible or apparent scope of public servant's authority when receiving property and not its technical limitations, under some internal rules of the department or office concerned, and the use made by the servant of his actual official capacity which would, in our opinion, determine whether there is a sufficient nexus or connection between the acts complained of and the official capacity so as to bring within the ambit of section 409 Indian Penal Code.
To constitute an offence under section 409 I. P. C. it is not required that misappropriation must necessarily take place after the creation of a legally correct entrustment or dominion over property. The entrustments may arise in "any manner whatsoever". That manner may or may not involve fraudulent conduct of the accused. Section 409 1. P. C. covers dishonest misappropriation in both types of cases, that is to say those where the receipt of property is itself fraudulent or improper and those where the public servant misappropriates what may have been quite properly and innocently received. All that is required is what may be described as "entrustment" or acquisition of dominion cover property in the capacity of a public servant who, as a result of it, becomes charged with a duty to act in a particular way, or at least honestly.
in S. N. Puri Vs. State of Rajasthan, apex Court, after referring to decisions of different High Courts on the subject, held, that "the expression "entrusted" is used in Section 409 I.P.C. in a wide sense and include all cases in which property is voluntarily handed over for a specific purpose and is dishonestly disposed of contrary to the terms on which possession has been handed over." The obligation to act in a certain manner with regard to or to deal honestly with property, over which a public servant obtains dominion or control by the use of his official capacity, may arise either expressly or impliedly. Even if the respondent or the life Insurance Corporation, on whose behalf the respondent had purported to act, had not, at the time of receipt of money from a policyholder, the legal right to receive it, the respondent, who had certainly been entrusted with it by the policyholders by reason of his official capacity, should have correctly shown it in the account books which ought not to have been falsified by him. It could not be contended that even a mistaken receipt of money in official capacity does not create an obligation upon the receiver as a public servant. We think that it is enough if the payment is made by a person dealing with a public servant in his capacity as a public servant even if it is made on an erroneous assumption which the public servant concerned does nothing to remove. Section 409 I.P.C. seems to us to be meant for the protection, among others of those dealing with public servants purporting to have the authority to act in a certain way in exercise of their official capacities. A legal defect in the scope of the ostensible authority of a public servant does not prevent an entrustment to or an obligation to be fastened upon a public servant in his capacity as a public servant if the facts of the case establish, , the required nexus or connection between acts which create the obligation and the capacity.
Supreme Court of India
Jaswantrai Manilal Akhaney vs The State Of Bombay on 4 May, 1956
The appellant was the Managing Director of a bank and held a power of attorney to act on behalf of its Directors and authorising him to borrow money on behalf of the bank. Certain Government -Promissory Notes were pledged with the bank by another bank to cover an overdraft account up to a specified amount. There was, however, no overdraft by the pledgor. The pledgee bank was in a precarious financial condition. The appellant pledged the securities with a third party to get a loan for the bank's use and on its failure
to repay the same on demand, the creditors sold the securities for realising their dues. The pledgee bank was thus no longer in a position to return the securities on demand made by the pledgor. Information. was lodged with the police at the instance of the -Official Liquidator appointed to wind up the bank and the appellant was put up for trial under s. 409 of the Indian Penal Code. Apex Court held, that the appellant was guilty of the offence charged and the appeal must be dismissed.
law point - " For an offence under section 409, Indian Penal Code, the first essential ingredient to be proved is that. the property was entrusted. It has been argued that in this case there was no such entrustment as is contemplated by that section; and that the securities were pledged with the Exchange Bank by -the Co-operative Bank which was in the position of a debtor to the former. 'The contention is that the parties never contemplated the creation of a trust in the strict sense of the term. But when section 405 which defines "criminal breach of trust" speaks of a person being in any manner entrusted with property, it does not contemplate the creation of a trust- with all the technicalities of the law of trust. It contemplates the creation of a relationship whereby the owner of property makes it over to another person to be retained by him until a certain contingency arises or to be disposed of by him on the happening of a certain event. The person who transfers,, possession of the property to the second party still remains the legal owner of the property and the person in whose favour possession is so transferred has only the custody of the property to be kept or disposed of by him for the benefit of the other party, the person so put in possession only obtaining a special interest by way of a claim for money advanced or spent upon the safe keeping of the thing or such other incidental expenses as may have been incurred by him. In the present case the Co-operative Bank entrusted the Exchange Bank with the securities for the purpose of keeping them as a security for the overdrafts if and when taken by the former. In law those securities continued to be the property of the Co-operative Bank and as it never borrowed any money from the Exchange Bank, the latter had no interest in those,securities which it could transfer in any way to a third party so far as the two banks are concerned. The entrustment was to the Exchange Bank itself But it being a non-natural person, its business had to be transacted by someone who was authorised to do so on its behalf The appellant held the power of attorney on behalf of the directors of the bank to transact business on behalf of the bank. In that capacity the appellant had-dominion over the securities. Hence the appellant can be said either to have been entrusted with the property in a derivative 'sense or to have dominion over the securities as a banker-, and thus in either case, the first essential condition for the application of section 409, Indian Penal Code is fulfilled."
MERE RETENTION OF GOODS HOWEVER IS NOT CRIMINAL BREACH OF TRUST :-
IN CASE OF CRIMINAL BREACH OF TRUST - once it is shown that money was entrusted to the accused or was received by him for particular purpose and was not used for that purpose and the same amount was not returned or accounted for then he will be presumed to have misappropriated the same . Like if A asks B to make him a gold ring and for that purpose gives him a gold ingot , the jeweler B , doesn't make the ring , nor returns the advance amount A gave to him for making ring and also doesn't return the gold ingot . This will be an offence under 406.
But mere refusal to return or retention of goods without misappropriation will not amount to criminal breach of trust . Similarly , appropriation of a property in assertion of a lawful claim will not make it criminal breach of trust , as dishonest intention will be lacking in that case. Similar will be the case , if A keeps Rs. 5000 with B for safe keeping and B invests that money in his business but B returns the money promptly when A asks for it. It would not amount to criminal breach of trust . This illustration will not apply on special objects of value , objects pretium affectionis (a factitious value placed upon a thing by its owner because of some sentimental association or a whim) , objects of antique value or which are res extra commercium . So , if A deposits an antique vase with B for safekeeping and B sells that vase for 10,000 Rs (its market value) , then B will be liable for criminal breach of trust.
Shabbir Ahmed Sherkhan v. State of Maharashtra, Crl.A. No. 1042 of 2005 SC
On 14.7.1998 a First Information Report (in short the `FIR') was registered
on a written complaint under Section 409 IPC against the appellant wherein it
was stated that a Dog Squad Team consisting of the appellant as well as three
other police officials of Thane Police Station were required to bring the dogs
for training to be started from 5.6.1998 and for the said purpose, the D.S.P.,
Thane, Rural by his order dated 3.6.98 sanctioned T.A./D.A. to the handlers of
dogs and that on 4.6.98 the appellant had taken a cash amount of Rs. 12,000/-
towards the Traveling Allowance from the Police Cashier for himself and on
behalf of the remaining handlers of dogs and that he did not make the payment to
the concerned Police Officials and instead he went to his native place and did
not attend the training at Pune and through out the period till 14.7.98 he was
absent from his duties. The appellant was arrested on the same day and after
investigation a charge sheet was filed and the charges were framed by the 2
Learned Chief Judicial Magistrate, Thane against the appellant under Section 409
IPC. Apex court upheld the order of conviction and dismissed the appeal in these facts.
Supreme Court of India
Kailash Kumar Sanwatia vs The State Of Bihar And Anr on 2 September, 2003
Case of the prosecution was that on 23rd August, 1982 the appellant went to the State Bank of India, Jharia Branch for taking two banks drafts of Rs.75,000/- each. His servant Indradeo Ram was also with him. The appellant had carried a sum Rs.1,50,200/- with him out of which Rs.75,100/- was of Mahabir Bhandar of which appellant was owner, while balance Rs.75,100/- was of Swastik Bhandar belonging to brother of appellant. The total amount was handed over to accused- Ganauri Sao for the purpose of counting at the instance of accused- Gautam Bose – the Head Cashier. The cash peon told him that he would count the money, and return the bag in which the money was carried at 2.00 p.m. Informant-appellant handed over cash vouchers duly filled in to Amit Kumar Banerji an officer of the bank and returned to his shop on being told that the drafts will be handed over around 2.00 p.m. Around 1.00 p.m. the peon of the bank named Jagdish came to his shop and told him that the money handed over by him was missing from the cash counter. On hearing this, both the informant and his brother rushed to the bank. They were told that a complaint had already been lodged by the Manager of the bank regarding missing of money. By the time the appellant and his brother reached the bank, police had already arrived. Ganaori admitted that he was counting the money handed over by the informant. When he went outside for a short time, during that time the money had been taken away by some one. The informant filed a written report before the police officer (Ex.P-3) in the premises of the bank and on the basis of this the case was instituted and investigation undertaken. Chargsheet was later filed for several offences including 409 IPC.
Court held - "In the instant case even if it was proved as contended by learned counsel for the appellant, that money was entrusted which fact is borne out by the admitted case about missing of money from the cash counter of the bank, one factor which needs to be decided is whether the accused had dishonestly misappropriated or converted to his own use the property entrusted or dishonestly used or disposed of that property. As presented by the prosecution, the money was taken away from the cash counter. It is not the case of prosecution that money which was given to the accused-Gautam Bose and the cash peon to obtain bank drafts was taken away by accused-Gautam Bose or the cash peon Ganaori Sao. Because of an intervening situation, the disappearance of the cash due to theft by somebody else the bank drafts could not have been prepared and handed over to the appellant. Even if there is loss of money, the ingredients necessary to constitute criminal breach of trust are absent. If due to a fortuitous or intervening situation, a person to whom money is entrusted is incapacitated from carrying out the job, that will not bring in application of Section 405 IPC or Section 409 IPC, unless misappropriation, or conversion to personal use or disposal of property is established."
HIRE PURCHASE AGREEMENT AND CRIMINAL BREACH OF TRUST :-
The element of 'dishonest intention' which is an essential element to constitute the offence of theft cannot be attributed to a person exercising his right under an agreement entered into between the parties as he may not have an intention of causing wrongful gain or to cause wrongful loss to the hirer. It is appropriate to note that the term 'dishonestly' is defined under Section 24 of the IPC as follows:
"Dishonestly"--Whoever does anything with the intention of causing wrongful gain to one person or wrongful loss to another person, is said to do that thing "dishonestly".
It is also to be noticed that learned author R.M. Goode, in his book Hire Purchase Law & Practice (Second Edn.) has observed as follows at page 846:-
"It would seem that so long as the hirer is in possession of the goods they belong to him for the purpose of the Act [The Theft Act, 1968] even though his possession is unlawful, e.g. because the hire-purchase agreement has come to an end. If the owner has an enforceable right to possession then he will not be guilty of theft in seizing the goods if he knew of his legal rights since he will not be acting dishonestly but will have taken the goods in the well founded belief that he has a right to resume possession."
Supreme Court of India
Charanjit Singh Chadha And Ors. vs Sudhir Mehra on 31 August, 2001
The appellants are running a non-banking financial institution, by name, Messrs Deluxe Leasing Private Limited. The respondent, Sudhir Mehra, partner of a partnership firm, entered into a hire purchase agreement with the appellants on 3.5.1994 whereunder a motor vehicle was handed over to the respondent. The total consideration agreed to be paid by the respondent was Rs. 3,02,884/- and the respondent made an initial payment of Rs. 69,308/- and the balance amount was to be paid in 36 monthly instalments of Rs. 8,400/- each starting from 3.6.1994. According to the respondent, he had been paying the instalments regularly. The respondent filed a criminal complaint before the Judicial Magistrate, Amritsar on 3.12.1998 alleging that the motor vehicle in question had developed some trouble and it was entrusted to a motor mechanic on 14.9.1996 for carrying out repairs and that in the night of 16.9.1996 the appellants forcibly took away the vehicle from the motor mechanic and thus committed offences u/s 406/420/120-B IPC.
COURT HELD - "Hire-purchase agreements are executory contracts under which the goods are let on hire and the hirer has an option to purchase in accordance with the terms of the agreement. These types of agreements were originally entered into between the dealer and the customer and the dealer used to extend credit to the customer. But as hire-purchase scheme gained popularity and in size, the dealers who were not endowed with liberal amount of working capital found it difficult to extend the scheme to many customers. Then the financiers came into picture. The finance company would buy the goods from the dealer and let them to the customer under hire purchase agreement. The dealer would deliver the goods to the customer who would then drop out of the transaction leaving the finance company to collect instalments directly from the customer. Under hire purchase agreement, the hirer is simply paying for the use of the goods and for the option to purchase them. The finance charge, representing the difference between the cash price and the hire purchase price, is not interest but represents a sum which the hirer has to pay for the privilege of being allowed to discharge the purchase price of goods by instalments.
The hire-purchase agreement in law is an executory contract of sale and confers no right in rem on hire until the conditions for transfer of the property to him have been fulfilled. Therefore, the re-possession of goods as per the term of the agreement may not amount to any criminal offence. The agreement specifically gave authority to the appellants to re-possess the vehicle and their agents have been given the right to enter any property or building wherein the motor vehicle was likely to be kept. Under the hire purchase agreement, the appellants have continued to be the owner of the vehicle and even if the entire allegations against them are taken as true, no offence was made out against them. The learned Single Judge seriously flawed in his decision and failed to exercise jurisdiction vested in him by not quashing the proceedings initiated against the appellants. We, therefore, allow this appeal and set aside the impugned judgment. The complaint and any other proceedings initiated pursuant to such complaint are quashed."
Bombay High Court
Madhosingh And Others vs Smt. Kamla Devi And Others on 31 October, 1991
the husband of the complainant was the member of the society and after his death, the complainant became the member. It is not disputed that the plot No. 12 was allotted to the complainant. It is also not disputed that she paid the amount of Rs. 13,627.50 paise. Therefore, the money and the property i.e. plot No. 12 was entrusted to the applicants/accused (housing society), who are the members of the Executive Committee. In spite of this, they deliberately handed over the draft of the sale-deed for the land admeasuring 1800 sq. ft. only. Thereby, they have not discharged the trust reposed by the complainant and willfully sold the half of the plot No. 12 to one Laxmansingh (third pary) .
Court held - "The object of the criminal law is to protect the innocent and punish the guilty. It is not the function of the criminal court to do anything with the dispute relating to the property. It is the function of the civil courts to decide the disputes relating to the property. Where the dispute is of civil nature, a Magistrate ought not to deal with it. But, there is nothing in the law to prevent the criminal court from taking cognizance of the offence provided the ingredients of the offence are made out on the face of the complaint. Merely because the person concerned is subject to civil liability, the criminal compliant is not to be dismissed even if the civil remedy is tenable. In a case of Jaswantrao v. State of Bombay, , Their Lordships observed that :
"The same set of facts may give rise both to civil liability and a criminal prosecution."
Thus, satisfied the ingredients of S. 405 of I.P.C. and thereby committed the offence punishable under S. 406, IPC."
Supreme Court of India
Sudhir Shantilal Mehta vs C.B.I on 7 August, 2009
the ingredients of Section 409 are:
1. Accused must be a Public servant, merchant, agent, a factor, , banker , broker or an attorney.
2. In his such capacity he must be entrusted with some property or must have gained dominion thereover.
3. He must have committed criminal breach of trust.
The criminal breach of trust would, inter alia, mean using or disposing of the property by a person who is entrusted with or has otherwise dominion thereover. Such an act must not only be done dishonestly but also in violation of any direction of law or any contract express or implied relating to carrying out the trust. It is one thing to say that any Circular Letter issued by the Reserve Bank of India being not within the public domain would not be law but it would be another thing to say that it did not contain any direction of law so as to attract the liability in terms of Section 405 of the Indian Penal Code. Lawful directions were issued by the Reserve Bank of India. The Circular Letter was meant for all Scheduled Banks. The authorities and/or officers running the affairs of the Scheduled Banks therefore were aware thereof. If it is binding on the Banks, it would be binding on the officers. Any act of omission or commission on the part of any authority of the Bank would amount to acting in violation of any direction of law. A direction of law need not be a law made by the Parliament or a Legislature; it may be made by an authority having the power therefor; the law could be a subordinate legislation, a notification or even a custom.
Indisputably, the higher authorities of the bank were entrusted with or otherwise had dominion over the properties of the bank. They were dealing with public funds. Indisputably again they were required to apply the same in terms of the Circulars issued by the Bank as also the Reserve Bank of India. It has been accepted at the Bar that failure on the part of the officers of the Bank to abide by the directives issued under the Circulars would result in civil action. Subjecting the bank to a civil liability would thus attract one of the ingredients of criminal breach of trust. There cannot be, however, any doubt whatsoever that a mere error of judgment would not attract the penal provision contained in Section 409 of the Indian Penal Code. Accused No. 5 (Sudhir Mehta) is sentenced to undergo Rigorous Imprisonment for a period of one month and to pay a fine of Rs.1,00,000/- in default Simple Imprisonment for 15 days.
DOCTRINE OF PUBLIC TRUST CANNOT BE USED A MEANS TO PROSECUTE FOR CRIMINAL BREACH OF TRUST :
Supreme Court of India
Common Cause, A Registered ... vs Union Of India & Ors on 3 August, 1999
This direction consists of two parts : (a) Investigation by the C.B.I. into the offence of criminal breach of trust; and (b) Investigation by the C.B.I. into any other offence. We will take up the first part first.
The basis for the direction relating to investigation into the offence of "criminal breach of trust" are the following observations of the Court :
(a) "A Minister who is the executive head of the department concerned distributes these benefits and largesses. He is elected by the people and is elevated to a position where he holds a trust on behalf of the people. He has to deal with the people's property in a fair and just manner. He cannot commit breach of the trust reposed in him by the people.
(b) The allotments have been made in a cloistered manner. The petrol pumps -- public property -- have been doled out in a wholly arbitrary manner."
These observations indicate that the Court was of the opinion that a person on being elected by the people and on becoming a Minister holds a sacred trust on behalf of the people. This, we may venture to say, is a philosophical concept and reflects the image of virtue in its highest conceivable perfection. This philosophy cannot be employed for determination of the offence of "criminal breach of trust" which is defined in the Indian Penal Code. Whether the offence of "criminal breach of trust" has been committed by a person has to be determined strictly on the basis of the definition of that offence set out in the Penal Code .
The Court also appears to have invoked the 'Doctrine of Public Trust' which is a doctrine of environmental law under which the natural resources such as air, water, forest, lakes, rivers and wild life are public properties "entrusted" to the Government for their safe and proper use and proper protection. Public Trust Law recognises that some types of natural resources are held in trust by the Government for the benefit of the public. The 'Doctrine of Public Trust' has been evolved so as to prevent unfair dealing with or dissipation of all natural resources. This Doctrine is an ancient and somewhat obscure creation of Roman and British law which has been discovered recently by environmental lawyers in search of a theory broadly applicable to environmental litigation.
This doctrine was considered by this Court in its judgment in M.C. Mehta vs. Kamal Nath (1997) 1 SCC 388 to which one of us (S.Saghir Ahmad, J.) was a party. Justice Kuldip Singh, who authored the erudite judgment and has also otherwise contributed immensely to the development of environmental law, relying upon ancient Roman "Doctrine of Public Trust", as also the work of Joseph L. Sax, Professor of Law, University of Michigan and other foreign decisions, wrote out that all natural resources are held in 'trust' by the Govt. The Doctrine enjoins upon the Govt. to protect the resources for the enjoyment of the general public rather than to permit their use for private ownership or commercial purposes.
But this Doctrine cannot be invoked in fixing the criminal liability and the whole matter will have to be decided on the principles of criminal jurisprudence, one of which is that the criminal liability has to be strictly construed and offence can be said to have been committed only when all the ingredients of that offence as defined in the Statute are found to have been satisfied.
COURT HELD : - "For the reasons stated above, the application for Review is allowed. The direction for payment of Rs.50 lakhs as exemplary damages as also the direction for a case being registered by the C.B.I. against the petitioner for Criminal Breach of Trust and investigation by them into that offence and the further direction to investigate whether petitioner has committed any other offence are recalled. The amount of Rs.50 lakhs, if paid or deposited by the petitioner with the Union of India, shall be refunded to him. All applications for impleadment or intervention filed on behalf of allottees are rejected."